Lost in integration: Vietnam’s free trade gamble
Vietnamese ink has been all over this year’s free trade agreements – from South Korea and the European Union (EU) to the Russia-led Eurasian Economic Union (EAEU) and the Trans-Pacific Partnership (TPP). The last two present immense interest due to a strong political fleur around them. Does this mean Vietnam is getting involved in a messy geopolitical struggle or is that just business?
Both the EAEU-Vietnam FTA and the TPP are certainly more than just trade pacts. For Russia, the Eurasian Union has become the main instrument of economic leadership in the post-Soviet space, a central element of holding together the country’s neighborhood and tapping into the potential of somewhat deteriorating economic ties left behind by the USSR. Vietnam’s FTA with the EAEU, signed this May, was an experiment in gearing up a distant Asian state to the young Eurasian bloc. It capitalized greatly on Russia’s strong history of cooperation with Vietnam. But it was more than that. The leadership also meant the FTA to be a manifestation of the re-announced Russian rebalance towards the Asia Pacific, demonstrating an economic dimension to the political shift.
Likewise, few have ever believed that the TPP is a simple free trade pact. In the most politicized of framings, the Trans-Pacific Partnership presents itself as the economic arm of the US pivot (or rebalance) to Asia with the ultimate aim of containing Chinese political growth. Even if we reject such a clear-cut explanation of what the TPP is, we will have to agree that it goes far beyond trade in goods, setting the playing field in technical barriers, investment protection, services, labor legislation and many other areas. This mega-deal is an attempt to create the rules of a new game that the cool kids will all want to play. As an unnamed government official put it: “That’s a second WTO!”
Of the 12 TPP members, Vietnam is the least developed, but is likely to reap the most benefits. Most importantly, Vietnam gets to eliminate import duties on its clothes and shoes to the US - the top export product to the top export market. But there’s more - Vietnam has already started attracting more foreign investment thanks to the TPP conclusion and it is not even in force yet. Politically, the trade pact is an essential part of the burgeoning US-Vietnam relations. The US is on the top list of Vietnam’s partners mainly to balance China, which is not only pressing Vietnam in the South China Sea, but is also causing a lot of concern in Vietnam by a substantial trade deficit.
Comparing the two trade deals in terms of Vietnam’s economic benefits does not make the EAEU look very good. Supporting documents claim that after several years after entering into force the EAEU-Vietnam FTA may help the parties reach a trade surplus of $8 bn to $10bn. That alone would actually mean at least doubling trade. However, even these impressive figures are dwarfed by the $36 bn (11%) of added GDP by 2025 that the TPP is projected to give Vietnam.
What the TPP also does for Vietnam is it gets it in into the club, installs the country as a member of the most advanced economic bloc on the planet. Status is something very important for Vietnam as a growing middle power and its openness as well as active international integration are signature features of current foreign policy. Here is why the EAEU-Vietnam FTA is perhaps as important politically. Vietnam is demonstrating that it will not be dragged into any bloc-on-bloc confrontation and it simply cannot afford to be part of any exclusive grouping. Russia, China, the US and ASEAN are not that far apart on the top of the country’s priorities, which is exactly what puts Vietnam at a unique geopolitical position.
Being small makes you smart and swift. Vietnam is hedging the risks of being in a region with so many giants present and so many issues by betting on multiple initiatives and projects. Some of these stakes might prove worthy, some may not. But FTAs are more than just trade deals - politics and economy become intertwined and transcend each other, and the Vietnamese seem to understand that perfectly.