[Vnbiz] Will Viet Nam join the WTO on pro-development terms?

[Luis Gomez Juanes]

"Will Viet Nam join the WTO on pro-development terms? Extortion at the gate"
Writen by Duncan Green and Le Kim Dung.

- Complete report in English at
http://www.oxfam.org.uk/what_we_do/issues/trade/downloads/bp67_viet_nam_041004.pdf
(248K)

- Complete report in Vietnamese at
http://www.oxfam.org.uk/what_we_do/issues/trade/downloads/bp67_viet_nam_translated_vietnamese2.pdf
  (575K)

Best Regards
Luis
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Extortion at the gate
Will Viet Nam join the WTO on pro-development terms? (Summary)

As Viet Nam negotiates entry to the World Trade Organisation, the world's
most powerful countries are working hard to exact the onerous 'WTO-plus'
commitments which have become characteristic of accession proceedings.
Membership could help Viet Nam to benefit from international trade,
supporting its efforts to reduce poverty, but the demands from rich
countries for excessive liberalisation of imports and foreign investment
threaten to undermine this goal and to destroy livelihoods, particularly in
rural areas.

 Summary

Since the early 1990s, Viet Nam has been implementing legal, institutional,
and economic reforms together with gradual, selective liberalisation of
international trade. This process has led to macroeconomic stability, an
average annual per capita growth rate of 6 per cent over the period
1990-2001, and a halving of the incidence of poverty from 58 per cent in
1993 to 29 per cent in 2002. As Viet Nam negotiates entry to the World Trade
Organisation (WTO) it is facing pressure to agree to a raft of new trade
policies, including accelerated and more indiscriminate liberalisation, that
threaten the continuation of this success. The threat to Viet Nam is
illustrated by trade regulations, contained in the 2001 US-Viet Nam
bilateral trade agreement, which drive up the price of medicines and enable
the USA to block Vietnamese imports. WTO members may well demand that
Vietnam 'multilateralises' these commitments, which go beyond compliance
with WTO rules.

The WTO accession process: flaws in the system

The WTO accession process is inherently unfair. Not only must an aspirant
country comply with all WTO rules, but individual member countries are
allowed to ask for further concessions, known as 'WTO-plus', from applicants
in return for support for their application. Without the support of key WTO
members, a country cannot join. Consequently, the applicant is at a
significant disadvantage in its accession negotiations. There is a history
of WTO members making onerous demands of developing-country applicants,
paying little regard to their development priorities. Conditions set by the
rich countries include a rapid opening-up to international investors in
services and manufacturing, and the dropping of barriers to imports, even to
dumped agricultural products. This paper argues that the process of Viet
Nam's accession is proving to be no exception to this trend, and that it is
time that the WTO reduced the high cost of entrance. If Viet Nam was able to
achieve a reasonable deal, other countries planning to join would benefit,
notably Ethiopia and Sudan, two of the poorest countries in the world.

Poverty in Viet Nam

Vietnam remains a low-income country with a GDP per capita of US$435,
despite having had great success in bringing down the incidence of poverty.
Significant numbers of Vietnamese still live in great hardship, and a
quarter of children under five are under-nourished. A large part of the
population has an income only just above the poverty line and could easily
be pushed back below it by external economic shocks.

A bad accession agreement could reinforce the danger that future economic
growth will be less beneficial for poorer sectors, and involve economic
restructuring that could cause a major loss of livelihoods. Agriculture is a
particularly sensitive sector. 69 per cent of Viet Nam's labour force are
employed in farming, and 45 per cent of the rural population live below the
poverty line.

The potential rewards of accession

The primary motive for developing countries in seeking to join the WTO is
the boost that they hope membership will give to their exports, thanks to
their improved access to international markets. Viet Nam hopes that as well
as expanding sales of agricultural and fishery products, and textiles and
garments, WTO membership will increase its attractiveness for foreign direct
investment. It also wishes to take advantage of the WTO dispute-settlement
mechanism, which enforces international trading rules. As a WTO member, Viet
Nam would also have a say in shaping those rules.

However, significant benefits are by no means guaranteed. For example, the
USA could still severely restrict market access for Vietnamese products,
particularly for textiles and clothing, on which the country is pinning much
of its hope. Recent US measures to block Vietnamese sales of shrimp and
catfish despite the enormous damage to livelihoods in rural Viet Nam are
worrying precedents. And it is not clear that WTO membership per se makes
much difference to investor decisions. Moreover, smaller developing
countries have been prevented from defending their rights through the WTO by
the high costs of the process, a lack of technical capacity, and political
pressures.

If industrialised countries deliver on the promises they made at the start
of the Doha Development Round, above all by improving access to their
markets, the benefits of membership to Viet Nam and other developing
countries will be more substantial. Unfortunately, progress in the Round has
so far been disappointing, and it remains possible that the rich countries
will renege on their commitments. Whatever the eventual value of the Round,
it is important that Viet Nam watches the progress of the talks in Geneva,
and does not let the terms of its WTO entry restrict access to whatever
benefits other developing countries are able to negotiate in the Round.

While there may be longer-term gains from WTO membership (whether modest or
more substantial), there are also serious potential losses, due to the
excessive demands of the industrialised countries.

The potential threats from accession

Part of the explanation for Viet Nam's recent high rate of growth and
impressive falls in levels of poverty was its success in exporting, combined
with a cautious approach to import liberalisation and foreign investment,
which was quite out of step with the fashionable Washington prescriptions.
The danger is that the WTO accession process may force Viet Nam to open up
its economy further and faster than is desirable, causing considerable
disruption to domestic producers and undermining the broader national
development strategy.

Despite its vulnerablility, and the importance of the agricultural sector to
the majority of Vietnamese people – 90 per cent of poor people live in rural
areas – WTO members are asking Viet Nam to liberalise its agricultural
sector above and beyond their own commitments. Under considerable pressure
from developed countries, Viet Nam's latest average agricultural bound
tariff offer stands at 25.3 per cent, a level that already threatens rural
livelihoods. This offer is more than 10 per cent lower than the average
bound levels in neighbouring Thailand and the Philippines, which are already
WTO members, yet Vietnam is under considerable pressure from the
industrialised countries to reduce tariffs still further. Viet Nam must be
allowed to maintain an adequate level of protection for sensitive products,
including sugar, maize, and animal products, on which many poor farmers
depend. Sugar and maize producers are particularly at risk, given that they
will face competition from heavily subsidised imports from the EU and the
USA. US maize farmers receive subsidies of as much as US$10bn a year, and EU
sugar farmers gain €833m of hidden support annually on nominally
unsubsidised exports.

Viet Nam is particularly concerned to be able to use tariff rate quotas
(TRQs) and Special Safeguards (SSGs) against import surges. With average
holdings of 0.7 hectare, farmers are extremely vulnerable to price falls.
Most Working Party members have asked Viet Nam not to apply TRQs and SSG,
though Viet Nam's proposal to apply SSGs for only pork, beef, and poultry,
and to apply TRQs for eight other products was much more modest than that of
China. Those who did not ask Vietnam to remove TRQs and SSGs asked Vietnam
to reduce tariffs.

In a further display of double standards, Viet Nam is being asked by the
USA, a subsidy superpower, and by Australia and New Zealand to reduce its
farm subsidies, which are principally directed at small producers and have
been of great assistance to farmers in more remote areas, where the
incidence of poverty is highest and agriculture the main source of household
income.
There are also threats in the manufacturing sector, where to lower tariffs
further than the latest offer of 17 per cent could threaten the development
of Viet Nam's domestic industry, notably the embryonic automobile industry,
which is a growing source of employment for Vietnamese workers.

While Viet Nam has had to agree to phase out 'local content' provisions and
other performance requirements for foreign investors, its negotiators could
still try to secure technology transfer as a condition of foreign investment
in certain sectors, to ensure the flow of much-needed modern technology into
their country. ASEAN neighbours who use these provisions should be a source
of support for Viet Nam within the WTO working party set up to deal with its
accession.

Immediate compliance with WTO agreements such as the Agreement on Sanitary
and Phytosanitary Measures (SPS), as was demanded from China, will place an
enormous financial and technical strain on Viet Nam. Viet Nam needs time to
adjust to higher standards and be able to spread the costs of implementation
– a flexibility that was granted to Cambodia, a least-developed country.

Viet Nam's Non-Market Economy (NME) status poses one of the major threats to
its achievement of a pro-development accession package. The WTO members that
currently give Viet Nam NME status could use it to restrict Viet Nam's
access to their markets. During its accession negotiations, China had to
submit to a range of discriminatory, WTO-plus commitments. These include a
special 'non-market economy' methodology for measuring dumping in
anti-dumping cases against Chinese companies, which considerably reduces the
burden of proof. China is already the target for one fifth of the
anti-dumping measures worldwide. Viet Nam should not be forced into similar
commitments, and must be able to obtain a yearly, post-accession review of
any similar restrictions.

Finally, there are further threats posed by Vietnam's trade treaty with the
USA, the unfavourable terms of which could well become part of the WTO entry
package.

The US-Viet Nam Bilateral Trade Agreement

Under the recent bilateral trade agreement with the USA (USBTA), Viet Nam
has made concessions which go further than the WTO requirements of a member
country. This has major implications for Viet Nam's ability to negotiate the
terms of its WTO accession. Due to the principle of Most-Favoured Nation
(MFN), any concessions that are granted to one country must be made
available to all WTO Members. This means that, in the context of
negotiations where members try to extract as many commitments as possible
from the acceding country, the provisions of the USBTA can become the
effective starting point.

Among the WTO-plus commitments agreed to in the USBTA, those on 'safeguards'
and intellectual property are of the greatest concern from a development
perspective. The USBTA allows parties to block each others' imports in cases
of 'market disruption', the burden of proof for which is much lower than
that established by the WTO Agreement on Safeguards. Abuse of this safeguard
by the USA would severely damage Viet Nam's growing textile and clothing
exports. Although employment practices in this industry are often poor, it
provides a vital source of income and employment for tens of thousands of
men and women.

The 'TRIPs-plus' provision on restricting for five years third-party use of
clinical trials data for pharmaceutical products threatens to drive up the
price of medicines for poor people. Manufacturers of inexpensive generic
medicines will have to repeat the long, costly tests to obtain the same data
required for regulatory approval, or will have to delay marketing their
products.

Oxfam believes that WTO members should not require Viet Nam to
'multilateralise' any of the USBTA concessions during the course of its WTO
accession negotiations if they present a threat to the achievement of
development objectives.


Recommendations

WTO members should stop setting onerous WTO-plus conditions in negotiations
with Viet Nam which may have a negative impact on the lives of poor people.
Oxfam believes the accession package should include the following elements:

   - Agricultural tariffs should not be bound at an average rate of less
   than 25 per cent, which is Viet Nam's latest offer and which is a rate that
   already threatens the livelihoods of farmers and rural workers.
   - Viet Nam should be able to use all the instruments available to
   other developing-country WTO members to further protect vulnerable farm
   sectors; these measures include tariff rate quotas, the current WTO Special
   Safeguard (SSG) provision and the new provisions now under negotiation at
   the WTO ('special safeguard mechanism' and 'special products').
   - Viet Nam should not be asked to make greater commitments on the
   scale and timing of reductions in domestic support and export subsidies than
   those made by other developing countries in the WTO or those agreed in
   current WTO negotiations.
   - Industrial tariffs should not be bound at an average rate of less
   than 17 per cent, which is Viet Nam's latest offer and which may already
   mean the loss of manufacturing jobs.
   - Viet Nam should not be asked to renounce policy instruments which
   enable it to increase the development impact of foreign investment, such as
   requiring the transfer of technology.
   - Viet Nam should have sufficiently long transition periods for
   compliance with the Agreements on Technical Barriers to Trade, Sanitary and
   Phyto-Sanitary Measures, and Customs Valuation, in order to spread the costs
   of implementation and build the required technical capacity.
   - Members of the Working Party should not include 'non-market economy'
   provisions that restrict Most-Favoured Nation (MFN) rights.
   - WTO-plus provisions on intellectual property and trade safeguards in
   the US bilateral trade agreement should not become part of the accession
   package.

Given the concerns raised by Viet Nam's WTO accession negotiations and the
harsh experience of other recently acceded countries, Oxfam believes the
accession process should be reformed in the following ways:

   - The WTO should establish clear guidelines regarding the rights and
   obligations of new members, based on development indicators.
   - Developing-country entrants should enjoy the 'special and
   differential treatment' in WTO agreements that is granted to
   developing-country members.
   - A panel of experts should decide whether an applicant's trade regime
   complies with existing WTO rules, and when the 'non-market economy'
   provisions for acceding countries should be revoked.
   - WTO-plus commitments already agreed in bilateral trade agreements
   which pose a threat to development should not be automatically
   'multilateralised' in accession packages.
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