IMF Survey: Joining WTO Will Boost Vietnam's Economy

IMF News, January 29, 2007

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WTO accession should have positive long-run effects on Vietnam's economy.
Vietnam is likely to benefit from other market-friendly reforms it is introducing to meet WTO commitments.
Cheaper imports should help contain inflation and increase consumer welfare.
Improved access to world export and capital markets should help the balance of payments.
Some heavily protected industries and some services will need reforms to stay viable.

Vietnam became the 150th member of the World Trade Organization (WTO) on January 11, 2007.
Vietnam’s exporters’ access to foreign markets should improve as other WTO members are expected to remove remaining quantitative restrictions on imports of Vietnamese textiles and footwear.
Import competition will increase in garments and footwear as import tariffs and subsidies are substantially reduced upon accession, but cheaper raw materials and semiprocessed inputs should help preserve comparative advantage.
The realized benefits for export performance could be tempered by the 12 years it will take Vietnam to gain full "market economy" status.
Reductions in most bound rates—from 17.4 percent on average in 2007 to 13.6 percent by 2019—are to be phased in gradually.

Simple average: 2005 tariff rates 18.5; WTO initial bound rate 17.4; WTO final implementation 13.6; up to 12 years.
Agricultural products: 2005 29.4; WTO initial 27.3; WTO final 21.7; up to -5 years.
Nonagricultural products: 2005 17.0; WTO initial 16.0; WTO final 12.5.
Steel: 2005 9.7; WTO initial 17.7; WTO final 13.0; up to 2 years.
Petroleum: 2005 14.6; WTO initial 27.2; WTO final 27.1.
Manufactures — Textiles and clothing: 2005 36.6; WTO initial 13.5; WTO final upon accession.
Manufactures — Footwear: 2005 45.0; WTO initial 35.8.
Cars: 2005 63.6; WTO initial 84.8; WTO final 58.7.
Motorbikes: 2005 100.0; WTO initial 74.3.
Electronic machinery: 2005 13.3; WTO initial 13.9; WTO final 9.5; 5 years.
Minimum tariff: 0.
Maximum tariff: 150 (2005), WTO initial 85.
Number of lines: 2005 10,689; WTO initial 10,444.
Notes: Certain sensitive products (eggs, tobacco, sugar, and salt) will be subject to tariff quotas (higher duties for quantities outside the quotas).

Some heavily protected industries, notably auto assembly and motorbike plants, and some services will require significant reforms to remain viable.
Fully owned foreign banks will be allowed to compete on an equal footing with domestic banks from April 2007.
Competitive pressures may lead to compression of profit margins and possible labor shedding in declining industries.
Authorities will need to put in place adequate retraining programs and social safety nets to prevent severe dislocation.
Authorities will need to accelerate reform of the state-dominated banking system to meet new competitive challenges and improve efficiency in the allocation of capital.

Although lower import tariffs can be expected to erode import duty receipts, this should be tempered as removal of trade barriers spurs import growth.
Cheaper imports should help contain inflation and increase consumer welfare.
With access to world export and capital markets improving, the overall balance of payments should remain strong.
Recently adopted laws to unify the regulatory framework for domestic and foreign enterprises and to harmonize rules on trading rights, together with the prospect of accession, have already bolstered the investment climate.
Approvals of foreign direct investment reached a record-high $10 billion in 2006.
In all, Vietnam seems well placed to capitalize on opportunities offered by ongoing international economic integration.

Source: IMF Survey: Joining WTO Will Boost Vietnam's Economy — Patrizia Tumbarello, IMF Asia and Pacific Department, January 29, 2007.