TPP: VIETNAM IS MOVING ON

"TPP was the cherry on top and now, I guess, the cherry is no longer there, but you still have the fruitcake ....."

Mr. Fiachra MacCana is a managing director of Ho Chi Minh Securities Corporation, a Vietnamese investment firm. Today's quote is from a December 12 Voice of America article on Vietnam's response to the dimming prospects for the Trans-Pacific Partnership Agreement. The article and Mr. MacCana's comments came on the heels of an announcement by Vietnam's prime minister to the effect that Vietnam will not ratify TPP, at least not in the foreseeable future, and against the background of Vietnam's aggressive pursuit of other options. 

The latter include, among other things, participation in the RCEP - the China-led negotiations toward a Regional Comprehensive Economic Partnership Agreement, a signed agreement with the European Union, and participation in the Russia-centered Eurasian Economic Union. We shall get to each of those in a moment. First, here is more of Mr. MacCana's comments on Vietnam and TPP:

"Obviously people are disappointed, but there's not even a whiff of surprise. ... From Vietnam's point of view, we have positive demographics, we have positive FDI [foreign direct investment], we have urbanization. TPP was the cherry on top and now, I guess, the cherry is no longer there. But you still have the fruitcake, and you have the possibility of another cherry coming in [the] next couple of years. So I think people are fairly calm about it."

Mr. MacCana's upbeat assessment of Vietnam's prospects is more than reasonable. With 94 million people, it is a good-sized country with high growth, 6.7 percent this past year, and even without TPP its exports do very well in the United States, its largest export market. The larger point, however, is that it is a country whose economic success depends strongly on trade, with the value of exports running close to 90 percent of the value of nominal GDP. 

With a profile like that, Vietnam's interest in trade agreements - more agreements and more open markets for all it produces - from rice to sneakers - hardly needs an explanation. It joined the TPP negotiations in 2009, presumably to expand export opportunities. And presumably that was also behind Vietnam's decision to launch an FTA negotiation with the European Union in 2012, to participate the same year in the start of the RCEP negotiations, and more recently to conclude an agreement with the Eurasian Economic Union.  

In a nutshell, this is where each of those initiatives stands today. 

 
TPP. We'll return to TPP in the Comment Section. Here the point to note is that Vietnam is emphatically not going down the path Japan has followed. Prime Minister Nguyen Xuan Phuc is not going to push ratification for the demonstration effect or in the hope that others, notably the United States, will follow. On November 17, he made that clear in remarks to the National Assembly when he said: 

"The United States has announced it suspends the submission of TPP to the parliament so there are not sufficient conditions for Vietnam to submit its proposal for ratification."

Vietnam-EU FTA. Negotiations on a free-trade agreement between Vietnam and the European Union were launched in 2012 and concluded on December 2, 2015. At that time, the EU Trade Commissioner, Cecilia Malmström described Vietnam as: 

"... a vibrant economy of more than 90 million consumers with a growing middle class and a young and dynamic workforce. Its market has great potential and offers numerous opportunities for the EU's agricultural, industrial and services exports."

The text of the agreement was released last February. The challenge now for officials in Brussels and Hanoi is to get the deal ratified. 

 
Vietnam and the Eurasian Economic Union (EAEU). The Union itself is relatively new. It was established in January 2015, in part to fill the perceived void left by the collapse of the Soviet Union, while retaining respect for the sovereignty of its five member states: Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. The trade agreement between Vietnam and the members of the EAEU is already operational. It went into effect in October. 

RCEP. Negotiations for a Regional Comprehensive Economic Partnership were launched in November 2012. The goal is an agreement between the 10 members of ASEAN and six others, namely, China, India, Japan, South Korea, Australia, and New Zealand. 

China would like to wrap up the deal in 2017. Whether the participants can pull that off or not is anyone's guess. The next round of negotiations will be in Japan in February. If India is key to the whole RCEP package - and she well may be - then the meeting now being talked about for July 2017 in India could be a decisive one. In any case, if there is an RCEP agreement next year, Vietnam will be one of the beneficiaries.

The Voice of America story that was the jumping-off point for this entry characterized Mr. Trump's intentions on TPP this way: "President-elect Trump has said he will try to withdraw from the TPP... ." Not exactly. What he said was: " I am going to issue a notification of intent to withdraw from the Trans-Pacific Partnership." (Emphasis added in both cases.)

Unlike the Voice of America, we do not doubt that the President-elect, once he is President, will be able to follow-through on that pledge. And yet, we have not felt that TPP was dead. Our view rather was that, under the right array of circumstances, perhaps with a cosmetic tweak here or there, TPP could be brought back to life, ratified by all 12 members, and implemented. The problem is time and events. One doesn't happen without the other. The passage of time means new events. Some may seem irrelevant to TPP, like the current flap over Israel and the recently adopted U.N. Security Council Resolution 2334. But even such seemingly non-germane developments have the potential to alter relationships in ways that take yesterday's options off the table. 

We still don't think TPP is really dead (not yet), but the prognosis is not getting any better. That bring us to other alternatives. 

 
One of the most engaged and astute observers of the whole process, especially as it relates to Vietnam, is Julie Hughes, president of the United States Fashion Industry Association. She described her members as "disappointed but not devastated" by the grim outlook for TPP.   And, she suggested, there is more than one way to skin a cat. "Trump talked about crafting bilateral FTAs," Ms. Hughes said, "so why not one with Vietnam?"