Vietnam puts US-led mammoth trade deal on backburner, but so what?

Vietnam’s decision to shelve the ratification of the Trans-Pacific Partnership (TPP), a free trade agreement whose 12 members comprise nearly 40% of the global economy, speaks volumes of the delicate diplomatic ties it holds with both the US and China, analysts say.

Lawmakers will not be voting on the US-led trade deal at the forthcoming session of the National Assembly -- Vietnam’s legislature -- next month as scheduled, the house speaker has said.

“The ratification of the TPP has to factor in the situations in other countries,” Nguyen Thi Kim Ngan, chairwoman of the National Assembly, told a recent meeting of the parliamentary Standing Committee.

Ngan said that the ratification of the trade deal would need further assessment and approval from the ruling Communist Party. Several other lawmakers have also weighed in, saying Vietnam should not forge ahead with a trade deal that other countries have shunned.

Le Hai Binh, the foreign ministry spokesman, said in a press briefing on September 22 that Vietnam is taking great strides in amending relevant laws to ensure full implementation of its commitments to the TPP.

Several analysts consider this delay an about-face in a country that has always exhibited steadfast determination to ratify the controversial agreement.

“It's too bad,” Zachary Abuza, a Washington-based Southeast Asia analyst, said. “I think that it sends the wrong sign to investors. Vietnam got a good infusion of foreign direct investment because of it. Vietnam should be leading the way for investor confidence.”

When President Barack Obama was trying to reassure U.S. trading partners in Asia at the recent G20 summit in Hangzhou, China, that he would continue to battle tooth and claw for congressional approval of the TPP, it was already almost a done deal in Vietnam. 

At a meeting with representatives from American businesses in late August, Vietnam’s Prime Minister Nguyen Xuan Phuc confirmed that the national legislature, where over 90% of lawmakers are Communist Party members, would sign off on the TPP at a plenary session in October.

But to many other observers, Vietnam’s hesitation in this regard should come as no surprise, given the country’s delicate diplomacy with the US and China, which both are vying for dominance in Asia and accuse each other of stoking tensions there.

“It seems to me that Vietnam is doing the same thing it always does regarding the US and China,” Dennis McCornac, a professor of economics at Loyola University in Baltimore (Maryland), said.

“Vietnam seems to want to make sure not to antagonize whomever becomes president of the US since both candidates oppose the TPP while at the same time it appeases China by not ratifying it. Just good politics,” he said.

Slowly and steadily

Republican bigwigs on Capitol Hill have reiterated that the trade deal would not come up for a vote this year. Much to the chagrin of its advocates, presidential hopefuls Hillary Clinton and Donald Trump have also both expressed vehement opposition to a trade deal they equate to massive job losses in the country they are battling each other to run.

But on the other side of the Pacific, the Vietnamese media have touted the prospect of Vietnam opening the floodgates to increased foreign investment, particularly to American companies, after the TPP takes effect.

Media reports also croon that the deal would enable tariff-free access to the US for Vietnamese companies, particularly apparel, footwear and textile exporters. It would also pave the way for Vietnam’s overhaul of its much-cosseted yet inefficient public sector.

Vietnamese and American officials have indicated that the TPP is a strategic political instrument, not just a trade agreement, to counter Beijing’s rising influence. But the ambitious trade deal, after all, goes against the grain of Vietnam's ideology.

One issue that has remained unexplored here is that Vietnam, along with the other 11 signatories, would have to respect patents of major pharmaceutical companies for between five and eight years. This could make it impossible for sick patients suffering from potentially fatal diseases like HIV or cancer in Vietnam to afford the drugs they need. 

There are around 250,000 Vietnamese suffering from HIV/AIDS, and the country also logs around 150,000 new cases of cancer annually, more than half of which prove fatal, according to the World Health Organization.

Higher drug prices are not the only compromise Vietnam has agreed to make to join the TPP. One of the most glaring threats that the Vietnamese media have also glossed over is the investor state dispute settlement, an instrument which grants corporations the right to sue a foreign government. 

On top of that, under the deal, Vietnam is required to amend its labor laws and allow workers to form independent trade unions, a real litmus test for a country where the Vietnam General Confederation of Labor is the only legal trade union representing all workers.

But the Vietnamese stance on this has shifted a bit in recent months. After eschewing several major ramifications of the TPP, the Vietnamese media have started to broach the threats of international lawsuits brought by the corporate sector.

Vietnamese officials have stated publicly that change is afoot regardless of the TPP. “With or without TPP, our goal is to improve our investment environment,” Tran Xuan Ha, a deputy finance minister, told Bloomberg in July. “With TPP, our corporate sector will need to be even more competitive to ensure it retains market share.”

The US-Vietnam relationship will endure the non-passage of the TPP, analysts say. “Vietnam has only made itself more attractive to US investment in trade,” Abuza said. “I expect that to continue. And our strategic relationship has never been better. Trust and confidence have grown immeasurably.”

Vietnam has overtaken Indonesia to become the top market for US companies in Southeast Asia, according to the ASEAN Business Outlook Survey released recently by the US Chamber of Commerce. According to the survey, 40% of US enterprises said that Vietnam was their priority market for future business expansion in the Association of Southeast Asian Nations (ASEAN).

The absence of the TPP would not push Vietnam closer to China, according to analysts. The South China Sea dispute will continue to play a larger role in Vietnamese-Sino relations, inevitably forcing Hanoi to ramp up alliances with the West and Washington and become less dependent on Beijing.

However, “China will still be an important factor and Vietnam will be the tightrope walker in the middle with China and the US holding each end,” McCornac said.

Given that Hillary Clinton has a good chance of getting elected, Vietnam-US ties may become closer despite her flip-flop on the TPP.

It was Clinton that ruffled China's feathers at a regional forum in 2010 in Hanoi by claiming that the US has a “national interest” in freedom of navigation in the South China Sea, which Vietnam calls the East Sea.

“Clinton is a hawk and she will support Vietnam's position on the islands so Vietnam will continue to depend on the US as an ally in the South China Sea dispute,” McCornac said.

In the event of the TPP dying, it could embolden hardliners in Vietnam, where the US intent has still raised some eyebrows. “I think that conservatives [in Vietnam] will see the US as being flaky, and not as committed to the region as it professes,” Abuza said.

But at the end of the day, underlying the TPP issue is Vietnam’s desire to bring fundamental political and economic reform, analysts say.

“It is my impression Vietnam is slowly becoming more open despite those in power,” McCornac said.