What’s behind Vietnam’s delayed TPP ratification

It came as a surprise to many observers that the ratification of the Trans-Pacific Partnership (TPP) Agreement is not included in the agenda of the second session of the Vietnamese National Assembly, which is scheduled to begin on Oct 20. As such, the trade deal will not be ratified by Vietnam at least until April next year, when the National Assembly convenes again.

The news disappointed TPP proponents, especially as Vietnam is said to be the biggest beneficiary among the 12 members of the agreement. The mega trade deal would not only boost Vietnam’s GDP, export performance and attractiveness as an investment destination, it would also help accelerate important reforms that are essential for the country’s long-term economic performance.

This is actually the second time Vietnam has delayed the ratification of the agreement.

Earlier this year, the Vietnamese authorities announced that the deal would be submitted to the first session of the National Assembly in July for ratification, which eventually did not happen.

Is there more to Vietnam’s decision that meets the eye? Should the United States and other TPP signatories be concerned?

PREPARING FOR the TPP

First, it should be noted that in January this year, the Central Committee of the Communist Party of Vietnam (CPV) voted unanimously to endorse the agreement. This would make its ratification a formality for the country’s legislature.

In explaining the latest decision to delay the ratification process, the chairwoman of the Vietnamese National Assembly Nguyen Thi Kim Ngan claimed that Vietnam needs to “examine the global situation, assess actions of the other member countries and wait for the result of the US presidential election”.

Obviously, the uncertainty in Washington about the future of the TPP — where both presidential frontrunners are against the agreement — is a key reason for Vietnam’s decision to delay the ratification.

The Vietnamese leadership may not want to find itself in an awkward situation where Hanoi ratifies the deal but Washington does not.

Hanoi may also be concerned that an early ratification of the deal will unnecessarily irritate Beijing, which sees the deal as part of America’s scheme to contain China both economically and strategically.

Domestically, however, Vietnam has already made substantial preparations for the implementation of the TPP.

Reforms of state-owned enterprises (SOEs) have recently been accelerated. Vietnamese officials have also confirmed that with or without the TPP, Vietnam will continue to implement reforms to improve the country’s investment environment, possibly in line with the TPP’s standards.

Meanwhile, new laws such as the 2014 Investment Law and the 2014 Enterprise Law have already incorporated TPP standards, rules and regulations to facilitate the implementation of the agreement once it comes into force.

Some other laws may still need to be amended to be in sync with TPP regulations.

But even though the revision of these laws may take time, it will not hinder Vietnam’s ratification of the agreement, as under such a scenario, TPP regulations will prevail and be applied directly.

Above all, Vietnam needs the TPP to bolster its economic performance, which has been slowing since the 2008 global financial crisis. Although the foreign investment sector is performing well, most of Vietnam’s state-owned and private enterprises are underperforming.

At the same time, macro-risks such as the weak banking system, high levels of non-performing loans, and expanding budget deficit, are also threatening to put further constraints on the economy.

Although the TPP will not be a magic bullet that can solve all the economic problems of the country, it can at least help relieve them, or provide the country with alternative sources of growth, especially through stronger export performance and greater inflow of foreign investment.

Politically, given historical precedents such as the Solidarity movement that led to the demise of communism in Poland in the late 1980s, a concern for Vietnam is the TPP’s stipulation regarding workers’ rights to independent union.

The CPV’s strong endorsement of the agreement, however, implied that it did not perceive this particular stipulation as a major threat to its security.

In fact, the National Assembly has planned to revise the Labour Code next year to facilitate Vietnam’s implementation of this stipulation.

Technical assistance from other member countries and a grace period of five years for Vietnam’s compliance after the TPP comes into force will also help Hanoi in this regard.

In particular, Washington’s scrutiny through the implementation of the US-Vietnam Plan for the Enhancement of Trade and Labour Relations, which is a special bilateral arrangement attached to the TPP, will probably leave Vietnam with no choice but to fully comply with the agreement’s labour standards.

In sum, Vietnam’s decision to delay the ratification of the TPP is just a matter of timing rather than a policy reversal.

However, it is regrettable that Vietnam could not coordinate with some other TPP signatories, such as Japan and Singapore, to have the TPP formally ratified before the US presidential election in November.

Such a coordinated action could have exerted a certain level of external pressure on Washington and provided President Barack Obama with an additional incentive to submit the deal to Congress for ratification during its lame-duck session later this year.

ABOUT THE AUTHOR:

Le Hong Hiep is Fellow at the ISEAS – Yusof Ishak Institute.