The impact of the demise of the Trans Pacific Partnership
07 Feb 2017
With the likely demise of the Trans Pacific Partnership (“TPP”), following the withdrawal by the USA, the big question is how will this impact Vietnam and what it means for the bi-lateral Vietnam –USA relationship.
Whether or not Vietnam will lose its attraction in terms of FDI, is not in my opinion directly related to TPP, although we did see some US investment on the back of the expected TPP, but more to do with how foreign investors perceive the investment environment in Vietnam and the ease of doing business.
It is true that Vietnam would have been a major beneficiary of the TPP, particularly in the textile, garment and footwear sectors and whilst the US should continue to be a major market without the decrease in tariffs it will not grow at the same rate it would have done with TPP. However, we have to realize that Vietnam has not actually lost anything it will just forgo future projected benefits.
Vietnam’s attraction as a destination for foreign investment will not be adversely impacted by the collapse of the TPP, but the TPP did have several conditions requiring institutional reforms and the question is will the Government recognize the benefits of these required reforms and implement them regardless. The TPP was the first trade agreement to subject Vietnam to enforceable labour commitments like freedom of association, collective bargaining, and minimum work conditions. Additionally, Vietnam signed a labour implementation plan with the United States that identifies specific actions needed to comply with TPP and which are subject to an additional layer of enforcement. Whilst the Government has stressed it will continue with its economic reforms regardless of TPP, it remains to be seen how broad these will be.
We should also remember that Vietnam has signed several major trade agreements including the EU Vietnam FTA (scheduled to come in effect in early 2018), and the Regional Comprehensive Economic Partnership, to which Australia is a party. All these will help stimulate trade and FDI.