The benefits of a decade-long WTO membership

08:36 | 14/05/2017 Cooperation

(VEN) - Over the past decade, since it became a member of the World Trade Organization (WTO), Vietnam has achieved significant results in economic growth, foreign direct investment (FDI), foreign trade balance and tourism.  

Economic growth

Economic growth is one of the basic macroeconomic criteria providing the basis for assessing the development of a nation. Since its accession to the WTO in 2006, despite adverse impacts of global financial and public debt crises, the Vietnamese economy maintained its average annual growth rate of 6.29 percent.

The country’s gross domestic product (GDP) has grown an average 6.29 percent annually, and per-capita GDP rose from US$730 in 2006 to US$2,228 in 2015 and US$2,445 in 2016. The economy has been restructured in a positive direction, gradually increasing the percentage of industries and services, while reducing agriculture.

Agricultural production has been stable over the past decade despite numerous difficulties due to natural disasters and disease. Rice output reached 44.75 million tonnes in 2015 and more than 44.5 million in 2016. Food grain output reached 50.1 million tonnes in 2015 and 50 million tonnes in 2016, up nearly 10 million tonnes compared with 2007.

From 2007 to 2011, the heavy impacts of input material price rises, inflation, the global economic recession and public debt crises led to a slowdown and low effectiveness of industrial production. From 2011 to 2015, industrial production gradually recovered, with the index of industrial production growing about 10 percent in 2015. The structure of the industrial sector has shown positive changes, with the percentage of mining industry decreasing from 37.1 percent in 2011 to about 33.1 percent in 2015, while processing and manufacturing industries increased from 50.1 percent in 2011 to 51.5 percent in 2015.

The services sector has grown at a stable clip. Despite numerous difficulties in 2008 and 2009 due to the global financial crises, the sector achieved an average annual growth rate of 6.75 percent over the past decade, higher than that of the entire economy. Revenue from tourism grew rapidly, from VND56 trillion in 2007 to more than VND337 trillion in 2015 and VND400 trillion in 2016.

Institutional changes

WTO membership has changed Vietnam’s legal framework, economic, trade and investment policies, as well as its economic management manner, emphasized Vietnam Chamber of Commerce and Industry Chairman, Vu Tien Loc.

In 2006 and 2007, Vietnam amended more than 60 legal documents to implement its commitments to the WTO. At the same time, hundreds of decrees and circulars have been amended.

Prior to that, in 2005, Vietnam for the first time adopted a Law on Enterprises and an Investment Law, allowing businesses to trade in what is not forbidden by law. A number of trade barriers have been removed. WTO membership has created pressure on Vietnam to shift from state administrative intervention to a management style that respects the freedom of business according to Vietnamese laws and market rules.

As a result, 2007 saw the explosive growth of the private sector with nearly 60,000 new businesses established within just one year.

Foreign trade and investment

According to the General Department of Vietnam Customs, in 2016 - the 10th year of Vietnam’s WTO membership - total value of foreign trade exceeded US$350 billion, fourfold that of 2006.

The value of foreign trade grew by 1.2 times from 2006 to 2007, doubled from 2007-2012, increased 1.5 times between 2012 and 2015, and 1.16 times from 2015 to 2016. Economists said the growth of foreign trade reflects the high-level opening of the Vietnamese economy.

10 years after its accession to the WTO, the opening of the Vietnamese economy has increased from 144 percent in 2007 to 173 percent in 2016. In 2012, Vietnam recorded a trade surplus after a long deficit period, and maintained the surplus until 2014. In 2015, the trade deficit re-emerged and stood at US$3.6 billion. However, Vietnam recorded a trade surplus again in 2016 of US$2.5 billion.

The biggest change resulting from Vietnam’s WTO membership is the surge in FDI flows into the country. Vietnam attracted a mere US$10 billion of FDI in 2006, but this more than doubled to US$21.3 billion in 2007 and reached US$64 billion in 2008.

So far, Vietnam has attracted more than 22,000 FDI projects with total registered capital of nearly US$300 billion. Many world-leading groups, such as Samsung, LG, Toyota, Honda and Canon, have chosen Vietnam to base their manufacturing facilities.

Joining global playing field

Economists believe WTO membership not only has a positive impact on Vietnam’s socioeconomic development, but also paves the way for Vietnam to join the global playing field.

So far, 12 bilateral and multilateral free trade agreements (FTAs) between Vietnam and large economies worldwide have been signed or completely negotiated, such as the FTA between Vietnam and the EU, the FTA between Vietnam and the Republic of Korea, and new-generation FTAs with large-scope and high-level commitments, such as the Trans-Pacific Partnership. Apart from these, Vietnam is negotiating four other FTAs, including the Regional Comprehensive Economic Partnership (RCEP), which is expected to be a 21st-century FTA covering trade activities of the entire ASEAN region.

FTAs have paved the way for Vietnam to boost free trade with 55 partner economies worldwide, including G7 members and 15 out of G20 members.

Vietnam’s GDP grew an average 6.29 percent annually over the past decade. Per-capita GDP increased from US$730 in

2006 to US$2,228 in 2015 and US$2,445 in 2016.

Tran Phuong