To WTO or Not To WTO

To WTO or Not To WTO

by Michael Karadjis

http://www.aseanfocus.com/asiananalysis/article.cfm?articleID=803

Following China's dramatic entry into the World Trade Organisation (WTO) in 2001, Communist-ruled Vietnam is one of the last countries in the Asian region to be still negotiating entry. While the government appears determined to join, the extent to which the conditions being imposed on Vietnam for entry are fair and in the country's best interests are a matter of some dispute, which is dragging out the process.

There is a level of cynicism, regarding the motives of the world's richest countries in pushing free trade. This is partly due to Vietnam's treatment. For example, the US Department of Commerce (DoC) ruled in January 2003 that Vietnam was dumping catfish on the US market, leading to punitive tariffs against Vietnam's frozen fish imports. Vietnam cannot afford to subsidise exports, and Vietnamese farmers are too poor to sell below cost price to break into a market.

Therefore the DoC justified its case with an even more remarkable decision that Vietnam was 'not a market economy' for the purposes of trade with the US. This designation enables the US to claim the sale price of an export from that country can be assumed to be lower due to alleged 'distortions' in the overall economic structure - you do not have to prove actual subsidies. The DoC's decision opened the way for punitive tariffs as high as 64 per cent.

In October 2003, the US Congress introduced the 'Shrimp Importation Financing Fairness Act', accusing Vietnam, Thailand, China, Indonesia, India, Mexico and Ecuador of dumping shrimp, and demanding that these countries reduce their shrimp exports to the US to 3 million pounds per month.

At the same time as erecting these trade barriers, the massive agricultural subsidies practiced by the US and the European Union via the spurious use of WTO regulations are themselves threatening to flood Vietnam with imports, if all trade barriers come down as required by WTO membership. According to Professor Vo Tong Xuan from An Giang University in the Mekong, when US maize and soybean arrive in Vietnam under the Bilateral Trade Agreement, local farmers will be wiped out, as subsidised US prices are around half the current price in Vietnam.
Thus, there is room for healthy scepticism, to put it mildly, regarding who is meant to benefit from 'free trade' under WTO guidelines. However, for some, this is precisely an argument in favour of hurrying up Vietnam's accession. They argue that the US was able to impose its catfish decision because Vietnam is not in the WTO, and when it is, it will have the benefit of WTO legal procedures, which otherwise are prohibitively expensive for poor countries.

However, according to a recent report by Oxfam, membership makes little difference, as 'smaller developing countries have been prevented from defending their rights through the WTO by the high costs of the process, a lack of technical capacity, and by political pressures' (Oxfam, Extortion at the Gate, Nov. 2004). Vietnam has already adopted a series of trade liberalising measures as conditions of the Asia Free Trade Area (AFTA) and the Bilateral Trade Agreement (BTA) signed with the US in 2001. However, to date the government has attempted to move slowly, to avoid any radical shifts that would cause hardship to the Communist Party's traditional base among workers and peasants. Vo Tri Thanh, a Vietnamese expert writing in a Hanoi-based journal, claimed that China's WTO commitment in the area of services 'is the most radical of all countries,' while Vietnam 'has tried to slow the pace of liberalising service sectors.'

This has not earned it points in certain quarters. According to the Economist Intelligence Unit in April 2004, 'Vietnam had to offer lower tariffs, although in some categories, including vehicles, the proposed tariffs are still considered too high. Vietnam did not improve its image as a believer in free trade when, in December 2003, it imposed import quotas on seven groups of agricultural products: eggs, corn, ingredients for uncondensed and condensed milk, salt, tobacco and cotton.' Some concern for farmers' welfare thus remains official policy.

The Far Eastern Economic Review also reports that Vietnam is 'falling behind schedule in its efforts to join the WTO & key documents are being revised at a sluggish pace & a lot of conservative people are not necessarily in favour of international economic integration.'
Membership conditions require not only a more thorough scrapping of trade protection measures, but also to some extent a dismantling of the Communist Party's fundamental socio-economic structure, as even the dominant state-owned enterprises (SOEs) would lose protection and all key areas they now control would theoretically be opened up to private and foreign investors.

To make such a mammoth move, the country clearly needs to be convinced of its benefits. In general, the benefits are assumed to be a big increase in export earnings, as Vietnam is able to export to WTO countries, which also have to drop trade barriers. Aside from the problems noted above regarding the massive agricultural subsidies rich countries get away with under the WTO and their punitive use of WTO mechanisms against poor countries, there are also indications that the best, assumed benefits may be illusory.

According to the most thorough research, global trade liberalisation to the level necessary for WTO membership would result in a big expansion of the garment sector and tiny expansions in textiles and services, while all other sectors - raw agriculture, forestry and fishery, food processing, other light manufacturing, chemicals, metals, transport equipment, machinery and electronics, and mining - would suffer losses. Food processing - vital for agricultural industrialisation - would crash 23 per cent (Quoc-Phuong Le, 'Vietnam's International Economic Integration', in Binh Tran-Nam & Chi Do Pham (eds.) The Vietnamese Economy, London: Routledge Curzon, 2003, p.129).

But even if garment exports appear the only real winner, this sector also has its problems. In the first year of the free trade agreement with the US, Vietnamese garment exports rose 20 times, a most remarkable expansion. Then the US imposed quotas, to keep it from rising. It is now argued that, if Vietnam joins the WTO, the quotas will disappear. However, all garment quotas are to disappear soon, and Vietnam has done well out of an ensured market in the EU. With the world garment market wide open, it is unclear how well Vietnam will compete with newer and cheaper players, and with the Chinese giant, expected to produce 50 per cent of all world garment exports within a few years.

Moreover, as Oxfam points out, in the BTA with the US, Vietnam made a number of concessions, which go beyond WTO rules (WTO-Plus). These may now serve as a starting point for WTO negotiations, making them tougher. One of its provisions gives the US the right to restrict Vietnamese garment imports if 'market disruption' is threatened.

Under its cautious approach to economic reform, Vietnam has achieved remarkable economic growth and world-record poverty reduction while increasing already relatively good social indicators. WTO membership may eventually be inevitable, and be at least no worse than the subsequent punishment if left out of what is becoming an international club. However, there is also good argument that the benefits are far from assured and the risks are many, especially given the attitude of the wealthy countries. So continuing slowly and cautiously may be the country's best alternative.

WATCHPOINT: How well can Vietnam continue to protect elements of its own national economy strategy while making enough concessions to join the WTO by 2005? Till now, it has been rather adept at such tight rope walking.

Michael Karadjis
Department of Political and Social Change
Research School of Pacific and Asian Studies
Australian National University
Canberra