Behind Vietnams Admittance to the WTO

On November 7 the general council of the World Trade Organization (Geneva, Switzerland) approved Vietnam as its 150th member. The move will give the country’s exporters access to more international markets in exchange for reducing high import tariffs. After China, Vietnam is Asia’s fastest growing economy, with a gross domestic product of $61 billion. It’s expected to grow around 8% in 2006.

Negotiations for Vietnam’s admission into the trade group began 11 years ago in January 1995. During the intervening years its state-run economy has undergone significant reforms. As part of its entry into the WTO, the country’s trade representatives have agreed to a multitude of changes, including:

  • Reductions in tariffs for a majority of agricultural and non-agricultural goods, from the current average rate of 17.6% to 13.8% within five to seven years. A handful of products will still be protected by tariff quotas (higher duties for quantities outside the quotas, and lower duties for quantities within the quotas), including eggs, tobacco, sugar, and salt (which the government says is the main income source for 100,000 poor farmers in coastal areas).
  • Agriculture products for domestic consumption will still receive up to 10% state subsidies, but all subsides for export products will be removed.
  • The country will still limit foreign ownership of service companies operating in Vietnam. Foreign ownership of telecommunications services, for example, will be limited to 49% or 65%, depending upon the service. In a few cases, such as accounting services, the country will allow immediate 100% foreign ownership.
  • Vietnam agreed to abide by IMF and WTO rules regarding foreign exchange.
  • Foreign firms will be able to engage in importing and exporting as importers/exporters “of record” so long as they register, and importers will be able to choose domestic distributors.
  • The different duties charged on alcoholic drinks attracted particular attention in the negotiations. Vietnam agreed to simplify the tariff structure within three years by applying a single rate for all forms of beer and a single rate for all spirits containing 20% alcohol or more.
  • Vietnam will still not allow foreign retailers to sell gasoline, pharmaceuticals, magazines, books, DVDs, tobacco, rice, sugar or precious metals. The distribution of steel and cement, however, will be open to foreign firms within three years.
  • Vietnam will maintain export controls on some products such as rice, and some wood products and minerals, reportedly to prevent illegal exploitation.
  • With regard to intellectual property, Vietnam will comply with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement immediately, without any transition period.

“Vietnam has shown how anchoring domestic reforms in the WTO can yield dramatic results,” said WTO Director-General Pascal Lamy. “Vietnam’s economic growth topped 8% last year, foreign direct investment rose steeply to over $6 billion, and exports surged by over 20%. More must surely follow with the new laws, administrative measures, and commitments on goods and services that are in Vietnam’s membership package.”

Vietnamese Trade Minister Truong Dinh Tuyen said the negotiations for WTO membership closely accompanied his country’s economic reforms known as “doi moi”. “It is these reforms that ensure Viet Nam’s constant economic growth, forming a firm foundation for the accession as a whole,” he said. “WTO membership also helps Vietnam refine its reform process, creating opportunities for trade expansion, which is an important tool for economic growth.”

The country, which has a population of 84 million, will join the WTO 30 days after its National Assembly ratifies the deal.

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