With or without US-led trade pact, Vietnam forging ahead

[HANOI] For Vietnam's government, talk of a collapse in a trade pact stretching across the Pacific Ocean from the US to Malaysia is failing to dent confidence.

Whether the Trans-Pacific Partnership - a 12-nation preferential trade agreement that covers about 40 per cent of the global economy - is approved by the US Congress or not, authorities in Vietnam are forging ahead with plans to cut taxes and reduce red tape for businesses to make them more globally competitive.

"With or without TPP, our goal is to improve our investment environment," Tran Xuan Ha, a deputy finance minister, said in an interview in Hanoi on July 22.

"With TPP, our corporate sector will need to be even more competitive, to ensure it retains market share."

Vietnam is riding the wave of a foreign investor-led economic boom that's seen the South-east Asian nation transform from mainly an exporter of agricultural commodities, such as rice and coffee, to a manufacturing hub. That's a development path that's unlikely to be reversed even if TPP fails to take off, given the opposition to the accord by both US presidential nominees, Donald Trump and Hillary Clinton.

"Vietnam stands to gain from TPP, but so do many of the other countries, including the US," Sebastian Eckardt, lead economist for the World Bank in Vietnam, said in an interview in Hanoi.

For Vietnam, "it's an upside potential rather than a downside risk if it doesn't come through."

The World Bank estimates the South-east Asian economy will expand 6 per cent this year, down from an earlier projection of 6.2 per cent following the worst drought in three decades.

Foreign-investment pledges surged 85 per cent in the first four months of the year compared to the same period in 2015, according to the statistics agency.

TPP is set to boost Vietnam's gross domestic product by 8 per cent by 2030, making it among the biggest gainers of the trade accord, according to the World Bank.

The pact - a centrepiece of US President Barack Obama's foreign policy objective in Asia - is more ambitious than other agreements in not only reducing tariffs on a range of products, but also offering protection on intellectual property rights.

The TPP was signed in February and has yet to be ratified by members including Australia, Japan and Singapore. It will come before the National Assembly in Communist Party-controlled Vietnam for approval later this year.

Mr Ha said the Finance Ministry will submit draft regulations next month to Prime Minister Nguyen Xuan Phuc to ease business taxes and support startup companies.

The department is recommending the corporate income-tax rate for small and medium-sized enterprises be lowered to 15 per cent or 17 per cent from the current 20 per cent.

"We are very ready to go through all our internal procedures," Ha said. "TPP will bring a lot of opportunity for our economy as well as a lot of challenges for our SMMEs."

Vietnam's export industry is heavily skewed toward foreign investment, which accounts for 71 per cent of the sector, according to the World Bank. Increasing the participation of domestic companies in trade remains a challenge, particularly in the face of trade deals such as TPP, the lender said in a report last week.

Getting the trade deal approved will be difficult in the US, where the presidential election campaign has been dominated by anti-globalisation sentiment. If the US Congress fails to ratify the agreement in a so-called lame-duck session after the November vote, it would face an uncertain fate in front of new legislators.

Mr Ha declined to comment on whether he thinks the US will ratify the deal.

BLOOMBERG