Development of collective economic sector and cooperatives amidst new generation free trade agreements and some recommendations
Communist Review - That Viet Nam has actively negotiated and signed new-generation free trade agreements (FTAs) benefits various forms of cooperatives, fostering their development and operational efficiency. However, difficulties and challenges are posed by limitations in policies and laws on cooperatives. Therefore, legal perfection to improve competitiveness, expand scale and enhance the efficiency of the collective economy and cooperatives is of paramount importance.
Viet Nam’s proactive international integration and participation in new-generation free trade agreements open up opportunities for the collective economic sector and cooperatives to expand the market for Vietnamese goods, enter FTA partners’ markets, strengthen international partnership; increase exports; promote and support production, reduce costs, improve operational quality; beef up integration, improve production capacity and quality of domestic goods to closely match with international standards.
In addition to the positive impacts, the implementation of new generation FTAs also poses a number of difficulties and challenges for the economy as a whole and the collective economic sectors. Firstly, it is difficult to enter the global supply chain due to failure to meet the requirements of the chain, especially in terms of product quality, scale and quantity. The second challenge is to do with the risks of protectionism and non-tariff barriers, competitive pressure even in the domestic market, labor and employment.
The development of cooperatives in Viet Nam over the past time
Firstly, cooperatives continue to thrive, consolidate and improve their competitiveness and operational efficiency.
The number of cooperatives, unions of cooperatives, cooperative teams has increased in number, diversified in forms and operational modes in localities in association with economic restructuring, especially in agricultural sector in the countryside. By the end of 2021, the whole country had 27,394 cooperatives (increased by 7.6% compared to 2020), 108 unions of cooperatives, mainly in the Red River Delta, Southeast and Mekong River Delta. More than 50% of cooperative unions operate effectively and play an integral role in connecting cooperatives members with the market; 119,710 cooperative teams with diverse names and operation modes, has been established to link and support each other in production, capital mobilization, harvesting and consumption (1).
Cooperatives create jobs and incomes for workers, especially low-income people, support production and ensure that outputs of their coop members are consumed, contributing to better social security and sustainable poverty reduction. During the breakout of the COVID-19 pandemic, the market economy sector and cooperatives showed their supporting role for workers, ensuring social security, and creating jobs especially for the disadvantaged and unskilled labor. Specifically, cooperatives, unions of cooperatives, and cooperative groups create more than 40,000 new jobs annually, better incomes for workers, contribute to sustainable poverty reduction, and accumulate about 18,600 billion VND in profit for investment and expansion. There are more than 7,000 communes in the country that meet the criteria for organizing production in the cooperative model. Many cooperatives develop OCOP (One commune one product) in association with preserving and developing national cultural identity, contributing to socio-political stability in the locality(2).
In some regions, the number of members participating in cooperatives, cooperative groups and unions of cooperatives was higher than in 2020; cooperatives in a number of fields increased their charter capital. Regarding the total number of members, the market economy sector and cooperatives attracted more than 7 million members, increasing by 23,453 compared to 2020, and employing currently 2,506,739 million workers. As of December 31, 2021, the total charter capital of cooperatives reached nearly 50 trillion VND, which means an average of 1.82 billion VND per cooperative (increasing by 80 million VND/cooperative compared to 2020). The total assets reached 184 trillion VND; on average, each is valued at 6.7 billion VND. Charter capital increased in the people’s credit funds and cooperatives specialized in transportation, industry, handicrafts, construction, production of building materials, agriculture, and environmental sanitation (3).
The number of cooperatives applying high technology to production and business associated with key agricultural products of the country, region and locality, and product traceability and branded products tends to increase; production linkages between cooperatives and between cooperative groups and enterprises are strengthened. By the end of 2021, there were 4,667 cooperatives, equivalent to 17% of the total number, applying high technology in production; many cooperatives invest in renovating technology and equipment in management and trade promotion. Technology is also applied to enhance the management of the people’s credit funds. Up to 2,618 cooperatives, which is an increase of 150% in comparison to that of 2020, established value chain linkages in products processing and consumption, reducing intermediaries, lowering costs.
Secondly, many cooperatives started to actively integrate into the world, make good use of the incentives brought by new generation FTAs, and accelerate exports; particularly some became direct exporters.
Cooperatives, unions of cooperatives and cooperative groups actively participate in exporting agricultural products, OCOP products and a number of high-quality industrial products; many cooperatives have built product brands in the international market, with increased volume and quality of goods, meeting the requirements and conditions of different markets, including highly demanding markets(4). Many cooperatives have taken advantage of the incentives in the new generation FTAs to promote exports, especially direct export (191 cooperatives have branded their products and exported directly(5); many high standard products have been exported to major markets, such as Japan, America, Europe, etc.(6)).
Thirdly, the Viet Nam Cooperative Union system plays an important role in enhancing the competitiveness of cooperatives.
The Viet Nam Cooperative Alliance (VCA) including the Viet Nam Cooperative Alliance at the central level and 63 provincial Cooperative Alliances plays an important role in improving the operational efficiency and competitiveness of cooperatives, as well as strengthening trade promotion and investment for cooperatives with international partners. Specifically, the VCA is responsible for encouraging, giving consultation and support to the establishment, reorganization and transformation of most of the cooperatives in accordance with the Law on Cooperatives in 2012, mobilizing resources to build optimum model for a production cooperative associated with value chains and technological application. Plus, it is tasked with representing, protecting the legitimate rights and interests of its members, providing legal advice to member cooperatives, coordinating with relevant agencies and branches of all levels to settle petitions, problems, and complaint; inspecting and supervising activities of cooperatives, closely coordinating and performing well the role of members of the Viet Nam Fatherland Front. Thirdly, the VCA plays a part in providing public service and mobilizing resources to support the market economy and cooperatives to expand and improve the quality and efficiency of their operations, offering vocational training and retraining, preferential loans, and consulting service on preparation for loans from financial institutions. Finally, the VCA is entrusted with beefing up cooperation with 150 international partners; organizing and hosting major international conferences and seminars in Viet Nam; signed cooperation programs, garnering support for development of the market economy, cooperatives and the Viet Nam Cooperative Union system from international organizations(7).
In particular, the VCA has undertaken trade and investment promotion activities in the cooperative and agricultural sectors, actively looked for partners and markets, actively attended cooperation events to exchange market information, promoted trade and investment cooperation between Viet Nam’s cooperative sector with foreign Federations of Cooperatives(8); organized national fairs nationwide, in European countries, China; looked for market for consumption of goods of member cooperatives; transferred high technologies applied to production; built a cooperative model of high technology application associated with product value chains; sent delegations of Vietnamese cooperatives to attend trade fairs and exhibitions in China in order to promote trade, boost import and export of goods from both sides(9); organized cooperative trade promotion fairs(10).
Some limitations and obstacles in policies and laws on the development of collective economy and cooperatives
Despite many remarkable outcomes, the development of the market economy and cooperatives is still facing numerous difficulties, especially in agricultural production, due to the absence of a mechanism for land allocation and land lease. The Law on Cooperatives in 2012 stipulates that cooperatives and unions of cooperatives operating in the fields of agriculture, forestry, fishery and salt production are entitled to the policy of “Land allocation and land lease to serve the activities of the cooperatives, unions of cooperatives in conformity with the law on land”. However, the 2013 Land Law does not stipulate the allocation of land to economic organizations (including cooperatives and unions of cooperatives) for agricultural, forestry, fishery and salt production purposes. Instead, the law only prescribe for cooperatives and unions of cooperatives to rent land(11).
As a result, cooperatives does not fully benefit from some of the policies. For example, cooperatives are not allowed to do business and invest in a number of industries, while this regulation is not binding on enterprises lawfully established according to the provisions of the Law on Enterprises. What’s more, many coops have not yet created the same business and production environment as enterprises, neither has them been encouraged to expand production and business in a number of fields. At the same time, most are deprived of autonomy and self-responsibility.
In practice, there is a lack of regulations on the types of economic institutions in the market economy, loose linkage and cooperation between coops, leading to a decline in competitiveness and failure to take the “advantage of scale” in the context of international integration and global competition.
Cooperatives tend to allocate all the profits to their members, leading to low internal capital accumulation, and a lack of resources for growth. Undivided assets are a characteristic of cooperatives, which is different from other economic institutions. According to the 4th Principle of the International Cooperative Alliance (ICA), shared fund (or any shared properties that is not to be allocated) should be set up annually in order to raise the cooperatives’ asset value, attract new members, and maintain membership, hence promoting the cooperative movement, and at the same time avoiding dissolution and inefficacy. However, undivided assets of most cooperatives are frozen. This is because Article 48 of the 2012 Law on Cooperatives stipulates that it is the cooperatives’ right to deduct part of their development investment funds for undivided assets, leading to the fact that very few cooperatives are willing to expand undivided assets and it is difficult to attract new members.
Cooperatives face difficulties raising capital, and do not separate the shared capital from that of members. A cooperative should be a legal entity, independent of its members in terms of assets ownership and responsibility. However, the 2012 Law on Cooperatives does not clearly stipulate that when contributing capital, members have to transfer their ownership of assets to the cooperative. Hence, it is difficult to differentiate the cooperative’s asset from that of its members. In addition, Clause 1, Article 42 of the 2012 Law on Cooperatives stipulates that other assets contributed as capital by members can be converted into Vietnamese dong, but does not fully list the types of other contributed assets to the cooperative such as gold, technology, and assets that can be valued in money.
The role of the State in the management of the market economy sector and cooperatives at local levels has not been specified in the 2012 Law on Cooperatives. Besides, the coordination mechanism between state management agencies and mass organizations has not been unified and concretized into regulations. The efficiency of coordination among state management agencies in the market economy and cooperatives remains low. The market economy and cooperatives are not regularly monitored and supervised.
Policy recommendations for collective and cooperative economic development
Firstly, fully institutionalizing the Party’s viewpoints, policies and guidelines on continuing to innovate and develop the market economy and cooperatives in the context of international integration, ensuring the constitutionality and legitimacy and consistency in the legal system, compatibility with international commitments; creating a favorable legal framework for the development of the market economy and cooperatives. On the basis of reviewing the cooperatives’ operation, building a common legal framework dedicated to cooperatives; inherit relevant regulations and selectively absorb international experiences pertinent to the conditions of Viet Nam.
Secondly, overcoming the current shortcomings, creating a specific legal framework for all economic institutions of various forms in the market economy to operate; creating favorable conditions for the market economy to develop rapidly, sustainably and evenly across economic sectors, speed up international integration, innovate the growth model, ensure social security, protect environment, build green and circular economy, promote inclusive growth; linking production and business activities with domestic and international value chains; fostering economic growth, ensuring socio-political stability, maintaining and bringing into full play national cultural identity and development of grassroots-level party and socio-political organizations.
Thirdly, diversifying mechanisms of linkage and cooperation, focusing on improving the quality and operational efficiency of the market economy under the socialist-oriented market mechanism, staying consistent with the nature, objectives of cooperatives, adhere to principles of organization and operation of cooperatives; step-by-step merging individual cooperatives to scale up and establishing unions of cooperatives and economic groups, thus improving competitiveness, expanding production scale and diversifying business activities linked to key national and local product value chains.
Fourthly, clearly defining the status of legal entity, functions and tasks of the Viet Nam Cooperative Union system (including the Viet Nam Cooperative Union and the affiliated Cooperative Union of the provinces and cities) - organization that plays a pivotal role in promoting the development of the market economy, cooperatives, and that serves as a bridge between the Party and the State and economic components in the market economy. Clearly stipulating organizational structure and resources for the market economy and cooperatives in the Viet Nam Cooperative Union system./.
* Dr. Chu Tien Dat, Deputy Head of International Relations Department, Viet Nam Cooperative Alliance; Le Thi Huong Thuy, Institute for Legislative Studies under the National Assembly Standing Committee; Vo Son Hai, Viet Nam Cooperative Alliance
(1), (2), (3): Annual Report of the Viet Nam Cooperative Alliance
(4) Assessment by Viet Nam Cooperative Alliance at the online conference to summarize the 20 years of implementing Resolution No. 13-NQ/TW on continuing to innovate, develop and improve the efficiency of the collective economy and 10 years of establishment of cooperatives in non-agricultural sectors.
(5) 155 agricultural cooperatives, 36 industrial and handicraft cooperatives
(6) Artemia Cooperative in Vinh Chau, Bac Lieu province, specialized in its artemia eggs exported to Thailand, Japan and several European countries; My Tinh An Cooperative in Tien Giang has 100 hectares of dragon fruit and 10 hectares of coconut certified to meet Global Gap Standards (issued by Biocert and Agro Managament respectively). 1000 tons of fruit valued at 20 billion VND in 2019 were exported to European countries and the USA; Quang Minh cooperative, Binh Minh Cooperative and Nhat Tri Cooperative turned over 4.1 million US$ in the USA in 2019, of which 3.8 million US$ belonged to Quang Minh Cooperative with key export of sedge mats, water-hyacinth mats, water hyacinth with iron frame baskets, woven plastic wire iron frames, etc.
(7) Statistics by the Viet Nam Cooperative Alliance at the meeting with the Ministry of Home Affairs on March 17, 2022
(8) Korean National Agricultural Cooperative Federation (NACF), Angkatan Koperasi Kebangsaan Malaysia Berhad (ANGKASA), a Malaysian National Co-operative Movement.
(9) The 26th China Kunming Import & Export Fair 2019, annual trade fair in Nanning, China
(10) Ho Chi Minh City Fair on September 2019 with 350 booths from 40 domestic and foreign enterprises and cooperatives.
(11) The summary report of the Resolution No. 13-NQ/TW dated March 18, 2002 of the Party Central Committee (term 9) on continuing to renew, develop and improve the efficiency of the collective economy
This article was published in the Communist Review No. 1000 (October 2022)