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Economy

Vietnam's reluctance to ratify the TPP is bad news for Washington

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Vietnam's garment industry stands to benefit from the TPP, if the trade deal ever gets off the ground.   © Reuters

TOKYO Vietnam's decision to hold off ratifying the Trans-Pacific Partnership is a further blow to the beleaguered trade pact and a setback for American economic ambitions in Asia.

The 12-nation TPP is aimed at liberalizing trade and investment in the Asia-Pacific region, and Vietnam has been hoping that its participation in the deal will lead to an increase in exports. But even in the U.S., which led negotiations for the pact, approval of the TPP is nowhere in sight. This apparently convinced Vietnam to proceed slowly as well.

An official in the secretariat of the Vietnamese parliament told reporters on Oct. 18 that approval of the TPP is not on the agenda for the current legislative session, which runs through late November, making it certain that the country will not ratify the pact this year.

Nguyen Thi Kim Ngan, chairwoman of the parliament, said in September that Vietnam's ratification would depend on factors such as moves by other negotiating members of the TPP and the outcome of the Nov. 8 presidential election in the U.S.

At the same time, the Philippines, which was considering joining the TPP after Vietnam, has apparently changed its stance in recent weeks, moving away from Washington and closer to Beijing.

With ratification of the TPP looking more likely to stall in a number of countries, the influence of the U.S. in Asia appears to be rapidly weakening.

U.S. President Barack Obama put his weight behind the TPP, and the 12 nations reached a broad agreement in 2015. But the U.S. Congress is unenthusiastic about the deal, fearing it will hurt American manufacturing and other industrial sectors. Presidential candidates Hillary Clinton and Donald Trump both oppose the accord.

Even if the TPP survives after the presidential election, it appears all but certain that changes to the accord will be made. For Vietnam, this means there is even less need to hastily ratify it.

To take effect, the TPP must be ratified by at least six countries with an aggregate gross domestic product of at least 85% of the total GDP of the original 12 signatories. This means the U.S. and Japan must be among those six, as the two countries combined account for some 80% of GDP in the region.

BACKUP PLAN Vietnam's participation in the TPP process has helped it attract investment from abroad, because exports of merchandize, especially textile products, to the U.S. and other markets are expected to sharply increase when the deal takes effect. Data from Vietnam's foreign investment agency shows that $24.1 billion in foreign direct investment was approved in 2015, exceeding $20 billion for the third straight year.

A long delay in implementing the TPP, however, could dampen this investment fervor. In such a case, Vietnam may turn to China for a helping hand, especially since tensions over territorial claims in the South China Sea are starting to show signs of easing.

Vietnamese Prime Minister Nguyen Xuan Phuc visited China in September and met with President Xi Jinping. China's state-run Xinhua News Agency quoted Xi as telling Phuc that China and Vietnam can manage their differences and promote maritime cooperation through friendly negotiations.

Although Vietnam's reaction to this offer is unclear, there was no noticeable confrontation between Xi and Phuc at their meeting.

On Oct. 21, the U.S. dispatched a guided-missile destroyer to waters off the Paracel Islands, over which China and Vietnam claim sovereignty, as part of freedom-of-navigation operations.

The following day, however, three Chinese naval ships arrived at an international port in Cam Ranh Bay in central Vietnam, which faces the South China Sea.

Vietnam's approval of this port call -- the first by Chinese warships since the port was opened in March -- can be taken as support for Beijing's attempt to hold the U.S. in check in the South China Sea.

Vietnam is changing its stance on China partly because the Philippines, which has spearheaded opposition to Beijing over territorial disputes in the South China Sea, has recently changed its tune.

Philippine President Rodrigo Duterte met Xi in Beijing on Oct. 20 and effectively shelved the two countries' territorial disputes in return for massive amounts of investment and loans from China.

Though the Philippines is moving closer to China, Vietnam is unlikely to take over Manila's position and "confront" China, said Mai Fujita, a senior research fellow at the Institute of Developing Economies.

China is an important trading partner for Vietnam, and the wide-ranging economic ties between the northern part of Vietnam and southern China are expanding.

Vietnam has been seeking to reduce its excessive reliance on China by participating in the TPP, which is seen as a pro-U.S. alliance. But it will not be able to rely on America if the pact fails to take effect.

Vietnam put its trade agreement with the U.S. into force in December 2001 and joined the World Trade Organization in January 2007. It has since continued opening up its economy to the world and promoting the conclusion of free trade agreements with other countries.

If it cannot expect much from the TPP, however, Vietnam will find itself reliant on the Regional Comprehensive Economic Partnership, according to Junya Ishii, a senior analyst at Sumitomo Corporation Global Research.

The RCEP is an economic framework consisting of 16 nations -- Vietnam, the Philippines and the eight other members of the Association of Southeast Asian Nations, plus China, Japan, South Korea, India, Australia and New Zealand. Negotiations are underway with an eye toward signing an agreement in as early as 2017 to establish the partnership.

The combined GDP of the 16 member countries account for about 30% of the world's total GDP, smaller than the 40% or so for the TPP. Focused on tariff reductions and other measures to liberalize trade in goods, the RCEP is less innovative than the TPP, which covers cutting-edge areas of trade such as intellectual property rights.

Because of the RCEP's nature, Vietnam as a developing economy can participate in it more readily than in the TPP. But taking part in the RCEP is unlikely to improve Vietnam's international status, something the Vietnamese government secretly expects of the TPP.

Following the U.S. presidential election, the 12 TPP member countries plan to hold a ministerial meeting in the second half of November. Representatives are expected to confirm that their countries will push ahead with work to win parliamentary approval and other domestic procedures needed to put the accord into force, but there is no denying that changes in the deal will also be discussed.

The meeting may give some clues as to whether the TPP will move forward or whether this potential source of American influence in Southeast Asia remains permanently stalled.

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