Academic journal article Journal of Southeast Asian Economies

Vietnam after Two Years of WTO Accession: What Lessons Can Be Learnt?

Academic journal article Journal of Southeast Asian Economies

Vietnam after Two Years of WTO Accession: What Lessons Can Be Learnt?

Article excerpt

I. Introduction

After eleven years of negotiation for accession, Vietnam eventually got the nod from the World Trade Organization (WTO) in November 2006. The country then became the 150th member of the WTO, with commitments being implemented since January 2007. At the time, optimism has been rising over the growth and development prospects of the country made available by, among others, the expansions in trade and investment inducement, and pressures to undertake further domestic reforms.

The past couple of years marked a memorable experience for Vietnam. After a long period of continuous high growth and macroeconomic stability, the country has appealed to foreign investors as one of the most attractive investment destinations. Achievements in foreign relations, along with such economic successes, have further consolidated Vietnam's position in the international arena. However, after a short period of over-excitement in the first half of 2007, Vietnam then had to start worrying about the overall economic situation. The accumulated inflationary pressures from continuous credit and public investment expansions, in combination with the external shocks such as rising energy and rice prices and inappropriateness of the policy responses to a surge in capital inflows in 2007, sent the country to macroeconomic turbulence and the perplexity in formulating a proper stabilization policy. A policy package for dealing with macroeconomic instability has been implemented since March 2008. As the macroeconomic situation somehow improved by the end of 2008, the country has suffered from very negative impacts of global financial crisis and recession.

In such a circumstance, assessing the impacts of the WTO accession on Vietnam's economy, in all aspects from economic ones such as trade, investment, growth, macroeconomic stability to more social ones and institutions, is no easy task. Proper analysis requires rigorous quantitative approach, at least to separate the impacts of the WTO accession and relevant shocks on each aspect of the economy under consideration, which goes beyond the scope of this paper. The paper, hence, restricts its focus to the conclusions from relevant studies, in comparison with the actual reality and statistics. It discusses, to a larger extent, the lessons that Vietnam can learn from the experience in the past two years of economic management, particularly with respect to the WTO accession as a key change factor.

The rest of the paper is structured as follows. Section II presents the analytical framework for examining the impact of the WTO accession on Vietnam's economy, and major empirical results anticipated prior to the accession itself. This provides the line for discussion of actual reality we could observe over the two years 2007-2008 in section III. The discussion is on real economy, macroeconomic and financial stability, social aspects, as well as economic institutions of the country. Section IV subsequently summarizes the main lessons for Vietnam as the first two-year period of WTO membership eventuates. Section V finally draws out some concluding remarks with respect to Vietnam's experience of changes in integration, including the WTO accession, and policy directions in the coming years.

II. Analyses of the Impact of WTO Accession on Vietnam's Economy

Figure 1 depicts a framework for analysing effects of external and policy factors on Vietnam's economy after its WTO accession. The WTO accession is often considered as a determinant of change in the economy. The channels of effect of the WTO accession are diverse, ranging from direct effects such as expansion in market access and foreign direct investment (FDI), to more indirect ones such as competition and pressures to further reform. Meanwhile, there are also interactions between commitments under the WTO framework and those under other trade arrangements (for example, AFTA, ASEAN-China FTA) to which Vietnam is a signatory. …

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