Vietnam's Trade Liberalization and International Economic Integration: Evolution, Problems, and Challenges

By Thanh, Vo Tri | Journal of Southeast Asian Economies, April 2005 | Go to article overview

Vietnam's Trade Liberalization and International Economic Integration: Evolution, Problems, and Challenges


Thanh, Vo Tri, Journal of Southeast Asian Economies


I. Introduction

The Renovation (Doi Moi) in 1986 and especially the market-oriented reforms in 1989 marked a turning point in the history of Vietnam's economic development. The reforms have brought about remarkable achievements in terms of GDP growth, macroeconomic stabilization, export expansion, foreign direct investment (FDI) attraction, and poverty reduction (Table 1). These achievements can be attributed to four factors: (1) acknowledgement of the private business right; (2) market-oriented reforms; (3) macroeconomic and social stability; and (4) opening (mostly in terms of trade and FDI) and the integrating of the economy into the regional and world economy.

The reform process in Vietnam, however, has been uneven. It was recognized even in 1996 that the reforms were not keeping pace with economic development. Moreover, the reform process in general slowed down during the period 1996-99, especially after the Asian financial crisis. The years 2000 to 2004 witnessed new commitments to reform continuation and some progresses were made, especially in the development of private sector and trade liberalization. Meanwhile, the reforms of the state-owned enterprises (SOEs), the banking system, and the public administration were slower than expected, and this has limited the effectiveness of other reforms.

In parallel with the economic reforms, the acceleration of the process of international economic integration has played a key role in enhancing efficiency and promoting economic growth. In 1992, Vietnam signed a trade agreement with the European Union (EU). In 1995, it joined ASEAN and committed to fulfil the agreements under AFTA by 2006. Vietnam applied for WTO membership in 1995 and is expected to be a member in 2005. In 1998, it became a member of the Asia-Pacific Economic Co-operation (APEC), and in the year 2000, signed the Bilateral Trade Agreement with the United States (VN-U.S. BTA). This agreement came into force in December 2001. Recently, Vietnam has also joined regional integration clubs such as ASEAN-China Free Trade Area (2002) and ASEAN-Japan Comprehensive Economic Partnership (2003).

Vietnam is often recognized as among the best developing countries in terms of achieving high economic growth and reducing poverty incidence. However, some have argued that in international comparisons Vietnam's performance is not very spectacular and moreover, there remain many problems for sustaining economic growth and ensuring quality of development. (1) The overall ambitious goal of Vietnam's Socioeconomic Development Strategy 2001-10 is to accelerate industrialization and modernization process in order to bring Vietnam out of underdevelopment and create a foundation so that by 2020 Vietnam will basically become "a modern-oriented industrialized country". Dealing with the existing problems and realizing the ambitious development goal cannot obviously be achieved without an appropriate structural adjustment and a considerable improvement of the competitiveness of Vietnamese economy. The process of trade liberalization and international integration creates new opportunities and huge benefits for Vietnam. At the same time, it may also cause some negative socioeconomic impacts, especially in the short run and impose serious challenges to Vietnam's further development. To work out a proactive and efficient integration strategy, it is very important to overview and to assess deeply the process of trade liberalization and integration in Vietnam.

The structure of the remainder of the paper is as follows. Section II highlights the changes in and the salient features of Vietnam's trade policy. Section III considers the implementation of Vietnam's commitments under CEPT/AFTA and VN-U.S. BTA and the lessons Vietnam could learn from it. Section IV examines the progress and the possible impacts of Vietnam's WTO accession. Section V raises some key issues and challenges confronting Vietnam's further trade liberalization and integration. …

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