Chief Economist of ANZ remarks on Vietnam's FTA
Vietnam and East Asian economies will become even more regionalised by a buildup of sub-regional FTAs, which in turn lowers the prospects for FDI attraction and economic growth, says Glenn B. Maguire, Chief Economist of ANZ in South Asia, ASEAN & the Pacific.
Maguire’s comments have rekindled the debate over the impact of regional free trade agreements (FTAs) on Vietnam and East Asia’s businesses as to whether they are harmful or beneficial in terms of liberalization. Liberalization in the context of the argument refers to the movement towards an open free-market economy and a shift relying on price mechanisms to coordinate economic activities.
Many argue that sub-regional FTAs impede the movement to an open economy as they create a harmful ‘noodle bowl’ of intercrossed complex regional trade agreements particularly harmful to business activity. Small and medium sized enterprises (SMEs) are the hardest hit, they say, as it leads to FDI drying up and sharply dampens the enthusiasm for foreign businesses to invest in Vietnam and East Asia.
Sub-regional FTAs overly complicate Vietnam’s trade policy landscape which hitherto emphasized either the multilateral General agreement on Tariffs and Trade (GATT), World Trade Organization (WTO) approach and the trans-regional Asia Pacific Economic Community (APEC) forum.
At a recent global economic forum in Hanoi, Maguire shed light on a number of important implications arising from the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP), and the ASEAN Economic Community (AEC) for Vietnam.
Maguire noted that first and foremost, trade through multilateral FTAs brings about increased FDI. They should be viewed as part of a supporting policy framework for deepening production networks and supply chains by multinational businesses.
On the other hand, sub-regional free trade agreements (FTAs) in East Asia have been overly used to reduce tariffs and have created a crisscrossing maze of varying often conflicting regulations, the so-called Asian ‘noodle bowl’ of trade agreements.
Maguire raises a vitally important question— “Will the AEC and RCEP simply agglomerate the noodle bowl or will it actively work to harmonise a complex structure of bilateral FTAs across the region?” Recent history has shown that the broader the agreement, the lower the probability of its success, he said.
Twelve countries have joined the TPP negotiations, which are expected to be finalized in 2013. This brings the total population of the free trade area to 798 million, making up 60.5% of the world’s GDP and 26% of global trade. The 12 countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.
The ANZ Chief Economist points out several features of economic partnerships, including TPP and RCEP. He underscores that Vietnam joining TPP is the best course of action and will result in easy access to global markets thanks to trade liberalisation in goods, services and investment.
