Communist Review - As a country once adopting reform and familiarizing with international trade norms at the same time, Viet Nam has embarked upon the world leading playground and engaged in the establishment of advanced commercial code. New-generation free trade agreements reflect Viet Nam's determination to reform and innovate. They also highlightViet Nam's achievementsand development inperception and competencyafter 20 continuous years of positively and actively oriented integration into the global economy.

With the signing and implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and theEU - Viet Nam Free Trade Agreement (EVFTA) after years of negotiations, Viet Nam hasbasicallymet key targets in the Free Trade Agreement Negotiating Strategy from 2010 to 2020. Against the backdrop of a global economy plagued by trade wars and the Covid-19 pandemic, it is the international economic integration that placedViet Nam among a small group of economies with positive growth. In 2020, exports reached 281 billion dollars, which was 6.5% higher than in 2019. Trade with FTA partners played a vital role in this achievement. To be more specific, thanks to the implementation of 15 FTAs, Vietnamese exports can enjoy reduced tax rates in more than 50 countries including most of the largest trading partners, who account for over 70% of total export turnover. But for US withdrawal from the Trans-Pacific Partnership (TPP), Viet Namwould have become the only country to have FTAs ​​with all 10 largest economies in the world. Moreover, CPTPP and EVFTA are considered as new generation FTAs, which are in line with the development trend of modern trade. The “new” features of these agreements are manifested intheir high levels of trade and investment liberalization,together with innovative trade rules that go beyond the regulations of World Trade Organization (WTO), which have existed for a quarter of a century. As a consequence, these agreements not only open up potential trade opportunities with developed economies, but also accelerateadministrative reforms, thus improving Viet Nam’s trade and investment environment, which are the chief roles these agreements play in the successful implementation of Viet Nam's long-term strategic development goals.

The new-generation free trade agreements reflect achievements of Viet Nam’s active, continuous and oriented integration into the world economy over the past 20 years

In 2000, the Bilateral Trade Agreement (BTA) between Viet Nam and the U.S. was signed.In addition to opening the door to the world’s largest market, it initiated the revolutionary and profound reform in Viet Nam’s trade mechanism. With its impacts on Viet Nam’s trade environment as well as on trade relations,BTA can be appreciated as a significant first step to the world economy. The U.S. granted Viet Nam the Normal Trade Relations (NTR) status with yearly renewal by U.S.presidents. Consequently, Viet Nam was treated as favorably as any WTO members, despite its non-membership status. Viet Namhad to, in turn, commit to a wide range of trade policy reforms in conformity with WTO standards. Though being international trade norms, the principles, such as non-discrimination, elimination of quantitative restrictions, transparency of licensing, customs valuation, trade-related investment measures,were still then unfamiliar to Vietnamese management agencies. The U.S. sponsored a project to assist Viet Nam in reviewing and identifying legal documents that needamendment or promulgation⁽¹⁾. Such documents amounted to dozens, whichillustrated the impact of this agreement on Viet Nam’s trade management mechanism. The effect of reforms on the business environment faroutweighed the quantifiable value of tariff reduction commitments. To be more specific, it wasthe reforms aimed at establishing a transparent, fair and competitive trading environment that helped remove the outdated subsidy regulations suppressing the market economy, thus greatly fostering the development of economic sectors. In addition to the completion of the legal framework to join the WTO, these reforms created a prerequisitefor the continuous growth of Viet Nam'seconomy and exports, even during global economic depressions. The impacts of BTA were not confined to bilateral trade relations, as they can be felt in the entire trade and investment relations of Viet Nam with partners worldwide.

A number of regulations seemed rather new and difficult to meet. Nevertheless, they quickly came into practice, thus contributing to the innovation and improvements in the efficiency of state management. Those regulations, for example, the abolition of dual pricing, non-discrimination among different types of enterprises, customs valuation, transparency of licensing, were well received by businesses. For example, it wasthe required labor conditions for textiles and garments exported to the U.S. market that improvedemployees’ living and working standards, thus boosting efficiency. As a consequence, new standards for the working environment were set. The 1999 Law on Enterpriseswas still considered one of the most successful in Viet Nam, as for the first time, thefreedom to run a business, the right of profitable operation and ownership of assets derived from lawful business activities, the equal rights of all types of enterprises before the law, etc. were legally recognized. This led to the birth of 20,000 enterprises in the first year of law enforcement, equivalent to the number of all the pre-existing businesses. The following years witnessed an average increase by 117% in the number of newly established enterprises. In 2019, Viet Nam had about 760,000 businesses in operation, which were in the vanguard ofturning opportunities provided by international economic integration into impressive growth in export turnover.

Viet Nam's legal framework for trade management has been continuously completed duringthe negotiation for membership and the implementation of WTO commitments. The amendment and promulgation of roughly 20 laws resulted in anincreasinglyinviting and competitive investment environment. Foreign investment skyrocketing right after Viet Nam basically finished the negotiation for WTO membership indicated that a transparent and competitive trading environment had a stronger investment attraction than protectionist or preferential policies.

Along with WTO negotiations for membership, Viet Nam also signed FTAs ​​with top regional trading partners including Korea, China, Japan and Russia.These WTO-based agreementsgreatly promoted Viet Nam's trade with its signatories. However, they ​​did not lead tobreakthroughs in terms of trade mechanism. Besides, focusing on regional partners, these FTAscaused trade imbalance, gravitating towards Asia. Viet Nam’s FTA negotiation strategy for the period between 2010 and 2020, approved by its Prime Minister,pointed out the achievements and shortcomings of theFTAs ​​signed in the previous period. In addition, this strategy set the goal of signing FTAs ​​with developed economieswith a view to facilitating Viet Namindustrialization and reducing commercial dependence on a single region. The strategy basicallydirected Viet Nam to promote FTAs ​​with world's top economies, such as the U.S., the European Union (EU), Japan and Canada.Such new-generation free trade agreements as CPTPP and EVFTA set new standards and rules for international trade, which are expected to foster trade among member states. As a country once adopting reform and familiarizing with international trade norms at the same time, Viet Nam has embarked upon this world-leading playground and engaged in the establishment of advanced commercial code. From this perspective, the significance of CPTPP and EVFTA is not restricted to trade.

New-generation free trade agreements have set new standards for trade liberalization

Firstly, the new-generation FTAs ​​aim to completely liberalize trade. In fact, CPTPP and EVFTA have reached thegoods liberalization rate of virtually 100%. Almost all the tariffs wereremoved 5-7 years after the agreements were put into practice. A small portion of agricultural commodities whichwere considered sensitive and previouslyrestrained by quota or high import tariffshave been transferred to tariff quota management with in-quota duty of 0%. Viet Nam’s competitivetraditional industries such as textiles, footwear, seafood, etc., continue to enjoy opportunities for export growth thanks to tariff reductions and trade facilitation mechanisms. In particular, enteringthe EU market is of paramount importance to Viet Nam’s agricultural products. Although export turnover resulted from new agreements ondomesticproducts like rice, garlic, cassava flour, mushrooms, honey, etc. might benot impressive, its social significance is profound. Being domestically grown, when exported, those products will raise the income of farmers indisadvantaged areas. When developed countries are applying several protectionist measures to the agricultural sectors, the in-quota dutyof 0% ensures Viet Nam a certain share in the agricultural market of FTAs’ member countries. In addition, the elimination of tariffson processed agricultural products will attract the food industry to this market, thus promoting the restructuring of agricultural exports towards raising the proportion of processed products.

Regarding service and investment industries, a high level of liberalization is reflected in the "positive" approach compared to the traditional "negative" approach adopted by WTO and previous FTAs.Member stateshave to provide a schedule of commitments on investment includingnon-conforming measures (NCMs). Theyare bound by this level of openness and are not allowed to introduce other more restrictive measures. In addition, the ratchet principlewill give rise toan increasingly opener commercial environment. To be more specific, once a member voluntarilyrelaxes a certain NCM, it will have to maintain the new level and not be allowed to return to the original restrictive measures.

Secondly, there are a variety ofregulations in CPTPP and EVFTA that govern domestic trade policies, aiming at creating a transparent, competitive and equal commercial environment and ensuring that the FTAsare not overshadowed by protectionist measures in the domestic market. Transparency is a must in all areas of CPTPP and EVFTA. Provisions for transparency, including information revelation, information update on official websites, right to access information of enterprises and society, etc are all highlighted in most agreement chapters.As a result, businesses and the public understand guidelines and policies, thus having the opportunity to express opinions and supervise the implementation.

Competitivenessplays a crucial role in the market economy, enabling theefficient operation of the market. In an effort to build a healthy and fair competitive environment, CPTPP and EVFTA regulates the establishment of equality among businesses of all economic sectors, in terms of legal status and the right to participate in commercial activities. Non-discrimination principlesinclude Most Favored Nation (MFN) - the most important legal principle of WTO, and National Treatment (NT). According to NT, on the basis of commercial agreements, a country will treat products, services and suppliers of another country no worse than those of their own, thusensuring equality between foreign and domestic enterprises. State-owned commercial enterprises must abide by market mechanisms andrefrain from anti-competitive practices while having a monopoly position which negatively affecttrade and investment. The governmentshould not oversubsidize state-owned commercial enterprises to the extent that interests of other countries are threatened. Moreover, procurement regulations enhance transparency and competition in public purchase as well asprovide agencies holding the budget with more choices and limit waste and negative factors. In its commitments, Viet Nam listed 21 central agencies, 38 government agencies and 34 hospitals that would allow member countries' businesses to bid for packages of goods, services, construction and installation whose values are specified in the agreements. In line with the development of the knowledge economy, new-generation FTAs ​​have raised the bar forintellectual property protection, in comparison to WTO regulations. More specifically, there has been an increase in the duration and level of protection applied to the owners of pharmaceutical inventions and copyrights. Furthermore, countries are required to implement measures to protect intellectual property rights including trademarks, copyrights and related rights at their borders. Criminal sanctions are mandatory for violations of intellectual property rights, especially of three categories mentioned above. In addition, the copyright registration needs to be simple, transparent, convenient and friendly to electronic application. Better laws to protect intellectual property rights will greatly contribute to the fight against counterfeit goods and encourage research and innovation.

Thirdly, new-generation FTAs always attach importance to the goal of sustainable development. This is manifested in non-commercial regulations, for instance, environment and labor, being bound by commercial measures. CPTPP and EVFTA set no other new requirements on labor and environment in comparison to common international standards. It is compulsory for member countries to agree on specific international treaties that are widely recognized in this area. What new-generation FTAs add to these existing regulations is more effective enforcement by means of binding obligations via economic tools, dispute settlement mechanisms and trade sanctions.

Fourthly, CPTPP and EVFTA put a considerable emphasis on the role of businesses and the mechanisms enabling businesses to gain benefits of free trade. This approach is progressive and practical as businesses are the ones putting the commitments into practice. The level of which enterprises fulfill commitments indicates the effectiveness of an agreement. In order to provide information about agreements or useful information for businesses’ implementation, signatories are obliged to operate public portals or websites. The Small and Medium Enterprises Committee (SMEs) under CPTPP, which consists of member governments’ representatives, discusses measures to help enterprises enhance competence and remove difficulties on a regular basis. Foreign enterprises are not subject to enforcement regulations (minimum export rate, use of domestic materials, forced technology transfer...) and are entitled to use international arbitration to protect their interests. What is more, these agreements have detailed provisions forthe simplification of customs procedures and origincertification. Export enterprises are allowed to present electronic documents, carry out procedures prior to arrival, apply the one-stop-shop mechanism, carry out risk management and post-inspection, and conduct self-certification of origin. It is obvious from these trade facilitating regulations that enterprises’ obligations to prove and explain about their commoditiesare transformed into management agencies’ responsibility of supervision and inspection. Businesses,on the one hand, can save a wealth of transaction costs and time. They are also encouraged to strictly compliance with management regulations and implementation of standard financial management processes. On the other hand,a larger management burden isplaced on administrative agencies. It is essential for those agencies to modernize procedures, develop competence and innovatemanagement methods.

Significance of new-generation FTAs ​​for sustainable development

New-generation agreements, once in operation,have generated positive signs in trade. Export turnover to markets without any previous FTA with Viet Nam, such as Canada and Mexico, increased by 20% to 30% in the first year of implementation. In 2020, despite the adverse impact of the Covid-19 pandemic, exports to these markets still rose by 12 to 15%. RegardingEVFTA, the first 5 months of implementation (from August to December 2020) saw the issue of 62,500 sets of EUR.1 Certificate of Origin, which enabled2.35 billion dollars of exportto the EU market (accounting for approximately 15% of export turnover in the same period) be treated preferentially. As a result, export turnover to the EU has increased by 1.6% compared to the same period in 2019. Regardless of the global economic downturn,such positive achievementshave shown the attractiveness of newly opened markets and the potential and acumen of businesses. Thanks to EVFTA, the EU will surely rank higher in the list of Viet Nam's trading partners. Vietnamese agricultural products will stand a great opportunity to penetrate this potential and profitable market. At the same time, Vietnamese consumers will have access to high-quality European consumer products at cheaper prices.

Furthermore, FTAs have ​​helped Viet Nam mitigate the impact of the weakening of the multilateral trading system. Trade wars between major economies, especially between the U.S. and China, have seriously affected the role of the multilateral trading system. Developed countrieshave arbitrarily imposed protectionist measures in defiance of WTO principles and nullified the organization's dispute settlement rules and mechanisms. Small and highly open economies like Viet Nam are vulnerable when the legal foundations for international trade that have existed for many years are weakened. In that context, FTAs ​​serve as a forum for dialogue as well as a legal framework to settle trade problems between Viet Nam and its top partners. Therefore, there has been a decrease in the number ofdisputes that had negative impacts on trade.

Noticeably, the most significant and lasting benefitfordevelopment brought about by new-generation agreement isthe reforming rulesof the trade environment. Since WTO participation, this is the first time Viet Nam has had a comprehensive review of the legal document system in order to complete the trade policy. To meet the requirement of CPTPP, the Ministry of Justice, together with other ministries and branches,has reviewed 256 legal and sub-law documents and proposedthe amendment of 12 documents (including 8 laws) and the promulgation of 5 new documents. With respect to EVFTA, having reviewed 219 documents, the Government has submitted to the National Assembly 4 amended documents (including 2 laws)and 4 new documents. Moreover, dozens of clear provisions in both agreements will be applied as they do not conflict with existing laws. These numbers show the enormous economic significance and impact of these agreements. Noticeably, Viet Nam was not the only country that had to amend laws. Other signatories to FTAs, including leading economies like Japan, Canada, EU members, etc., also had to carry out law reforms at different levels, in order to update theirlegal systems. It is the transparency, competitiveness and simple procedures, etc. of trade laws that support the effective and sustainable operation of economies. World Bank’s Global Competitiveness Report 2019 and 2020 pointed out three most cited obstacles in developing countries like Viet Nam that concerned investors. These included investment approval procedures, domestic content requirements and regulations on foreign workers. Remarkably, cheap labor only ranked 11^th. Therefore, thanks to the strict implementation ofthose FTA investment commitments and the potential benefits of the existing FTA network Viet Nam is engaged in,the country has enormous advantages in attracting the investment flows that are gravitating towards South Asia. It can be seen that those innovative values ​​of trade liberation and reformsmake these FTAs ​​attractive to the world. Several top economies have announced their intention to consider the possibility of joining the CPTPP.

Another benefit of FTAs is that the process of negotiating ​​has helped train a staff of international trade experts. The CPTPP and EVFTA are pioneers in approaching commercial issues which are, at the same time, the most technically complex. Our negotiators have gradually learned and gained experienceduring the process. They collaborated with international counterparts to build advanced commercial criteria in line with the development trend of modern trade. With their knowledge, negotiation experience, and modern thinking, the staff can further contribute to management, policy making, and the process of gaining benefits from new-generation FTAs.

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(1) Support for Trade Acceleration (STAR)

This article was published in the Communist Review No.  963 (April 2021)