QUESTION

Question 1: Select a country and explain how it has benefitted from trade. Based on the current global economic/financial status, how do think your coutry’s direction of trade will change?( Vietnam )

Structure and presentation (20%)
Explanation of relevant facts (40%)
Application of theory/principles to the facts (40%)
12 references from online electronic journal and web
+ I need the references to be send to me
Maximum number of words including appendices and footnotes/endnotes 3,000.

SOLUTION

Executive Summary

It has been nearly 40 years since the much maligned Vietnam War, which saw the United States leave the country defeated by the Communist forces of North Vietnam. Much has changed in the country since then, with the economy surviving famines and collectivization, and powering through the Renovation period (Đổi Mới) towards what was the world’s first glimpse of a socialist-oriented market economy.
In recent years, Vietnam did not just survive the global recession which plagued the world over the last half-decade, but blossomed through it and is rated as one of the world’s fastest growing economies. With the world going gaga over what’s going right in Vietnam, I examine briefly, the history of the nation, its economic upheaval and then in detail explore the role trade has played on its growth, plotting a chart for its future.

A Brief History of Vietnam

Without going back as far as the dark ages, it appears prudent to quickly review the transition of the state of Vietnam because it is relevant to know where we are coming from, to plot the direction we are headed.
With a population estimated to be in excess of 90 million, Vietnam is the 13th most populous country in the world. It shares a border with China on the North, has a fantastic coastline to the East and has predominantly friendly neighbours in Laos and Cambodia on the West. Its early history predictably includes war and occupation by China, and has drawn a lot of its culture and political ideology from its often overbearing neighbour (Bureau of East Asian and Pacific Affairs, 2012).
A predominantly agrarian economy, its fertile lands and easy access to the South China Sea lead to French occupation in the late 19th century and eventual colonization under the name of French Indochina. The French grew and exported tea, coffee and tobacco as trade began to flourish in the early 1900s.The South became the base for the agriculture based economy, while the French tried to develop manufacturing industries in the North of Vietnam.

Independence from France came in 1945, however, like most remnants of European rule, they left the country divided with North and South Vietnam clashing for the next 30 years with the United States of America joining the fray in 1965 to help the South battle the Communist North, supported by the Soviet Union and China. In July 1976, North and South Vietnam finally unified to form the Socialist Republic of Vietnam (Library of Congress – Federal Research Division, 2005).
As can be expected, a 10 year period of instability followed with the new nation struggling to establish its identity both at home and abroad. Collectivization of farms and factories, a process through which groups of workers were forced into government employment, followed as the government tried desperately to set key industries back on track. Poor production figures, embargoes imposed by the Western world as the result of the Vietnam War, and the dissolution of the Soviet Union all had a massive negative impact on trade, leaving the country in total disarray.
It was in this environment in 1986 that a septuagenarian named Nguyen Van Linh took charge as the General Secretary of the Communist Party of Vietnam and initiated reforms that set Vietnam on its way.

State of the Economy

Đổi Mới which literally translates into “renovation” is the name given to a series of free-market reforms which transformed the Vietnamese economy to socialist-oriented market economy. A free marketplace in the simplest terms is a state in which price of products is determined by natural supply and demand, and not government control. A free-market when used in the Vietnamese context differs from the concept of capitalism as it exists in large parts of the western world. The Vietnamese format, also often known as a Mixed Economy is based on concepts of Marxist theories where the government plays a crucial but not overbearing role. Collectives were abolished, and farmers were allowed to sell their products in an open marketplace with no price control mechanisms.
‘The pace of reform in Vietnam from 1989 to 1991 was anything but gradual, and the stabilization programme adopted in 1989 was certainly as ambitious as anything described as “shock therapy” in other countries’ (Riedel and Comer, 1997, 200). While liberalization of prices was at the heart of the reform, critical elements included the raising interest rates and devaluing the exchange rate. Elimination of subsidies and of a system of state procurement accelerated the pace of renovation. In May of 1999, the Vietnamese National Assembly passed a law affording the private sector an equal standing with state-owned companies (FEER, 23 September 1999, 30).With the economy freed, private ownership and foreign investment started flowing into the country.
The 1997 East Asian Economic Crisis managed to largely evade Vietnam, with the country perhaps fortunate that it wasn’t so well integrated into the economics of the rest of the world at that stage of its development. “The main effect of the Asian crisis was to confirm the leadership’s suspicion that opening to the West invites disaster. After all, Indonesia and South Korea were knocked sideways, whereas isolated Vietnam was not much affected. Its leaders decided that slow economic growth was a price worth paying for stability.”(The Economist, 8 January 2000, 74 – 77)
“By the late 1990s, the success of the business and agricultural reforms ushered in under Doi Moi was evident. More than 30,000 private businesses had been created, and the economy was growing at an annual rate of more than 7 percent.” (American Library of Congress, 2005). With an encouraging economic environment, the private sector’s contribution to growth increased and eventually overtook that of the public sector in the 2000s.
In early 2000, the government started getting out of a number of firms, selling its majority stake in over 200 of them, a significant jump compared to its exits from state run enterprises over the last half decade (The Economist, 29 July 2000, 86). And soon after, Vietnam opened its first stock exchange. It was a slow start, with only two stocks listed on Ho Chi Minh City Securities Trading Centre, but a crucial first step, which had been on the cards for the better part of a decade. (Karmel, 2007)
The 2000s have seen Vietnam working a lot more closely with the rest of the world as parts of its globalization initiatives which we shall discuss in more detail in the next section of this report. Vietnam exhibited tremendous growth in the first half of the decade, frequently posting GDP growth rates in excess of 7 and sometimes 8%. An October 2004 BBC story by William Horsley stated that at that time exports were growing steadily, with seafood, silk and timber products the chief contributors. Horsley declared Ho Chi Minh City as one of the most “vibrant cities in South East Asia”, and a person who interviewed, the then Danish head of the European Chamber of Commerce in Hanoi, Preben Hjortlund, felt an economic miracle was on the cards (Horsley, 2004).
However, the 2008 World Economic Crisis hit Vietnam hard, and it is still working to cushion the blow.
A December 2011 IMF Consultative Group Meeting for Vietnam released the following statement about its economic status, “Output growth slowed to 5¾ percent y/y in the third quarter and is expected to remain below 6 percent in the year as a whole. Inflation peaked in August but, at 19¾ percent y/y in November, remains by far the highest in the region. Investment, by the state and by state-owned enterprises, has been curtailed, and the fiscal deficit is set to decline to 3½ percent of GDP in 2011, from 6¼ percent last year. The current account has narrowed sharply. International reserves were built during the summer, but have declined again in an effort to contain renewed pressures on the exchange rate.”

The IMF’s outlook for the future is even scarier. They believe that low growth in the US coupled with the EuroZone Crisis would have a significant impact on the economies of Asia. Mr. Sanjay Kalra, the IMF Resident Representative for the region stated, “Emerging markets in the region, and especially China, have some room to cushion the impact of these developments, but Vietnam has very little—it has used up its ammunition in combating the impact of the 2008 crisis.”
Kalra though left some room for optimism. He said, “We have great confidence in the Vietnamese economy. Its development to date has been nothing but remarkable, and its potential to continue to deliver rising living standards for the Vietnamese people in the future is high.” (IMF, 2011)
Agriculture continues to be the predominant sector, employing more than 50% of the Vietnamese labour force, but contributing just 20% to the GDP. Traditional favourites like rice, coffee and tea are vital industries, while cashews and pepper are a vital to global trade, with Vietnam contributing to ⅓ of the global output of both these products.
Fishing has also emerged as a vital industry, and though international demand has weakened in recent years, local demand for seafood has grown substantially.
Industries and Services have a roughly even share of the rest of the country’s GDP with the former slightly outdoing the latter. Over a quarter of the labour force though is now employed in the services sector. The American Library of Congress report defined the following as the leading manufacturing sectors—food processing, cigarettes and tobacco, textiles, chemicals, and electrical goods.

Trade

Between the time that Vietnam gained unification, and up to Đổi Mới, trade in Vietnam was completely government controlled. Vietnam became a member of the Council for Mutual Economic Assistance (CMEA) in 1978 and the bulk of its trading partners were the other communist nations. The Soviet Union was the chief amongst these, however, with its dissolution and with it the end of CMEA, Vietnam was forced to look for new partners.
That process began in 1988 with the elimination of some trading restrictions which allowed a few private enterprises to engage in foreign trade. The establishment of organizations to facilitate trade soon followed, but the process itself was slow and time consuming. In addition to administrative challenges, there were a lot of regulations regarding who and what could be exported, while a prohibitively complex tariff regime made imports.
Within 5 years though Vietnam became the third largest exporter of rice in the world (The
Economist, 20 March 1993, 26). By the turn of the century it was up to no.2, displacing the United States, and only second to Thailand. Around the same time it was leading the world in the export of black pepper and a type of coffee known as robusta. A growing global economy also meant a greater need for crude oil, and by 1993, oil accounted for two-thirds of its exports. Interestingly, Australia was one of the first nations given access to Vietnam’s oil sector with a consortium led by Broken Hill Proprietory Company signing a multiyear contract with the government to explore one of the larger oilfields off the southern coast.
The Association of South East Asian Nations (ASEAN) also came to Vietnam’s rescue in 1995, granting it membership of AFTA, ASEAN Free Trade Area. With Vietnamese goods getting access to big markets like Indonesia and Singapore, trade began to blossom. Exports, albeit from a small base, were growing at close to 30% year-on-year.
1998 proved to be a pivotal year in Vietnamese trade relations with the country gaining membership of APEC (Asia-Pacific Economic Cooperation) in November. However, the biggest boost to Vietnamese trade came a few months earlier when President Bill Clinton asked the US Congress to exempt Vietnam from the Jackson–Vanik Amendment that restricted trade with communist countries (IHT, 12 March 1998, 7).
What followed was three years of negotiation before the two sides could ink the agreement in July of 2000, It wasn’t until December 2001 though that United States-Vietnam Bilateral Trade Agreement came into force, and with it came ‘normal trading status’ for Vietnam (the US version of what most countries call MFN – ‘most favoured nation’).
The agreement gave American companies access to a massive Vietnamese market, albeit over a 5-8 year phased out manner to give Vietnamese state owned industries time to be prepared to compete with some of the world’s largest telecommunication enterprises, banks and other financial services companies. Vietnam’s exports in turn were estimated to grow through the roof with them being granted immediate access to the American markets, and other nations expected to follow suit.
The next target for Vietnam was its neighbour China, with whom it all shared a sketchy past. The two countries rather quickly sorted out their border disputes and got down to the business of trade. By 2004, China contributed more to Vietnamese merchandise imports (products) than anyone else. Taiwan, Singapore, Japan and South Korea were not far behind. That same year, bilateral trade with China was in excess of $7 billion.
With America and Asia conquered, Vietnam turned its eyes on the rest of the World and began the long process of pitching for membership to the WTO (World Trade Organization). A prerequisite for admission is having bilateral trade agreements already in place with several key nations including Australia and New Zealand. Reducing trade restrictions was key towards achieving this goal, the benefits of which include among others freedom from product specific quotas, which other countries already have in place, allowing them to be that much more competitive globally. Membership was finally achieved in January 2007, but came with a rider – while Vietnam finally had access to the world, the world now also had access to its massive market place (WTO, 2006).
Chinese products and American services were taking control of the Vietnamese economy and while the country benefited immensely from globalization, the risk of international exposure meant that Vietnamese was no longer immune from international crises. The 2008 Global Economic Crisis hit Vietnam hard too, it was ill prepared to deal with the challenges, and the deficiencies that still existed in an embryonic economy were severely accentuated. Lower growth in the United States and parts of Europe has meant that the market for Vietnamese goods is shrinking, and pressure on the exchange rate has resulted in shrinking financial reserves. Despite this, GDP growth rate is a very much acceptable 5.8%, largely due to China cushioning a large part of the blow (IMF, 2010).
Despite the concerns, the 2025 forecasts by financial giants such as Goldman-Sachs and PriceWaterHouseCoopers are extraordinary. The former stated in a 2005 report that Vietnam will have the 35^th largest economy in the world within 20 years, while the latter predicted 10% annual growth for Vietnam (PWC, 12 May 2008, 2).. Both of these predictions though were made before the Global Financial Crisis, and it is important not to take them too much at face value.

While the trading system in Vietnam is still far from perfect, it is important to remember that for all practical purposes Vietnam is not just a very young country, but also a very new economy. The government has been doing its bit to promote export-oriented industries, and the spate of free market reforms has lead to a significant increase in both imports and exports in a very short frame of time. Building investor confidence will surely help increase foreign investment.

Specific areas that need addressing include:

1. Tariff

a) Barriers

b) Rates

c) Import Tariffs

2. Licenses requires for Imports

3. Technical Regulations

4. Warehouses

5. Control on Exports

6. Quotas and Restrictions

There continues to be a question mark whether a socialist-oriented market economy can truly survive, with enough examples of failed economies providing ample direction on what not to do. State owned industries continue to be a concern, with mismanagement and corruption evils that needed to be weeded out of the system. The Communist Party of Vietnam has done brilliantly to bring the country this far, however, with growing demands for capitalism, it now needs the courage in its convictions to choose its path for the future.

Appendix 1: Membership in Key International Organizations
Vietnam is a member:
Asian Development Bank (ADB) – 1966
Asia-Pacific Economic Cooperation (APEC) – 1998
International Monetary Fund (IMF) – 1956
United Nations (UN) – 1977
Association of Southeast Asian Nations (ASEAN) – 1995
World Trade Organization (WTO) – 2007
Colombo Plan for Cooperative Economic and Social
Development in Asia and the Pacific (CP) – 2004
Food and Agriculture Organization of the United Nations  (FAO) – 1950
International Atomic Energy Agency (IAEA) – 1957
International Bank for Reconstruction and Development (World Bank) (IBRD) – 1956
International Civil Aviation Organization (ICAO) – 1954
International Development Association (IDA)
International Fund for Agricultural Development (IFAD)
International Finance Corporation (IFC) – 1967
International Labour Organization (ILO)
International Maritime Organization (IMO) – 1984
International Telecommunication Union (ITU)
Nonaligned Movement (NAM) – 1976
United Nations Conference on Trade and Development,  (UNCTAD)
United Nations Educational, Scientific and Cultural Organization (UNESCO) – 1951
United Nations Industrial Development Organization (UNIDO) – 1985
World Confederation of Labour (WCL)
World Customs Organization (WCO)
World Federation of Trade Unions (WFTU)
World Intellectual Property Organization (WIPO)

Appendix 2: Trade related International Treaties

Vietnam inked the following treaties with the United States of America

1. Normalization of Relations (1995)
2. Bilateral Trade (2001)
3. Counternarcotics, Civil Aviation, and Textiles (2003).

With Russia

1. Strategic Partnership (2001)

References

Library of Congress – Federal Research Division, 2005, Country Profile: Vietnam, http://lcweb2.loc.gov/frd/cs/profiles/Vietnam.pdf (accessed April 5, 2012)

U.S. Department of State, January 5, 2012, Bureau of East Asian and Pacific Affairs, http://www.state.gov/r/pa/ei/bgn/4130.htm  (accessed April 5, 2012)

Kalra S, 2011, IMF: Consultative Group Meeting for Vietnam, http://www.imf.org/external/np/dm/2011/120611.htm (accessed April 5, 2012)

Ministry of Foreign Affairs, March 10, 2011, Viet Nam Foreign Policy, http://www.mofa.gov.vn/en/cs_doingoai/ (accessed April 5, 2012)

2007. “2 MACRO-ACCESSIBILITY IN VIETNAM: 2.3 TRADE REGULATIONS, CUSTOMS, AND STANDARDS.” In Vietnam Economic Studies, 36-45. ICON Group International, Inc., 2007. Business Source Complete, EBSCOhost (accessed April 5, 2012).

2001. “Chapter 5: Vietnam.” In Economies in Transition, 397-445. Taylor & Francis Ltd / Books, 2001. Business Source Complete, EBSCOhost (accessed April 5, 2012).

2011. “Foreign Relations.” Vietnam Country Review 52-56. Business Source Complete, EBSCOhost (accessed April 5, 2012).

Karmel RS, 2007, The Vietnamese Stock Market, http://www.fwa.org/pdf/Vietnam_posttrip_article.pdf, (accessed April 5, 2012)

Horsley W, 2004, BBC: Vietnam’s new-look economy, http://news.bbc.co.uk/2/hi/asia-pacific/3752682.stm (accessed April 5, 2012)

WTO, 2006, World Trade Organization: Accession status: Vietnam, http://www.wto.org/english/thewto_e/acc_e/a1_vietnam_e.htm (accessed April 5, 2012)

IMF, 2010, Report for Selected Countries and Subjects, http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?sy=2007&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=582&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr.x=71&pr.y=7 (accessed April 5, 2012)

PWC, 2008, Poised for rapid growth: Entering the Vietnamese financial services sector, http://www.pwc.com/en_GX/gx/financial-services/pdf/vietnam_flyer.pdf, (accessed April 5, 2012)

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