0

ASEAN’s Economic Integration Opportunities and Challenges for Vietnam

Man Pham Binh

Fellows Program Weatherhead Center for International Affairs

Harvard University

10 May, 1999

1

ASEAN’s ECONOMIC INTEGRATION OPPORTUNITIES AND CHALLENGES FOR VIETNAM

INTRODUCTION

One of the megatrends in the current international relation is the growing regionalism – the increasing number of regional integration arrangements

and

configurations. 1

Indeed,

regionalization

and

globalization have become two of the major trends in modern international

relations.

No

country,

whether

developed

or

developing, can escape them; otherwise, it will lag behind and fall into disadvantage in the international division of labor.

It is estimated that by the end of this century, World Trade Organization (WTO) rules and regulations will cover about 98% of overall global trade. It is also estimated that in the next fifteen or twenty years, all countries, including major powers such as the US, Japan, China and Russia, as well as the developing countries, will have to exert all their efforts to foster economic development and effectively and competitively integrate themselves into the world economy, in order to position themselves advantageously in an increasingly interdependent global economy.

The global framework for economic cooperation and integration at present is the WTO. In each region, however, there are also regional 1

- Joseph L.H.Tan, “ AFTA in the Changing International Economy,” Institute of Southeast Asian Studies, Singapore, 1996, pp.1-2.

2

or sub-regional arrangements. These include APEC in Asia and the Pacific, the EU in Europe, NAFTA in North America and ASEAN in Southeast Asia, to mention only a few.

The

process

of

regional

and

global

economic

cooperation

and

integration, though complex, has been developing at a very rapid pace and at different levels. However, the most common trend has been towards trade and investment liberalization, though it will soon

be

expanded

to

other

areas

such

as

trade

services

and

intellectual property.

The focus of this paper is to elaborate on the issue of economic cooperation and integration within the framework of the Association of

Southeast

Asian

Nations

(ASEAN).

The

opportunities

and

challenges facing Vietnam in its regional economic cooperation and integration will also be discussed.

Vietnam is a unique case in terms of its social and political system and its level of economic development. However, it is hoped that the study of some of the major issues facing Vietnam at present and their implications will be valuable both to Vietnam and other developing countries in the process of integrating their economies into the world economy.

3

ASEAN AND THE ISSUE OF ECONOMIC INTEGRATION

ASEAN from a historical perspective

On 8 August 1967, the Foreign Ministers of the five Southeast Asian countries - the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand - met in Bangkok and signed a document laying the foundation for the establishment of ASEAN. They have subsequently been known as the founding fathers of ASEAN, and the historic document they signed is known as the ASEAN Declaration.

Unlike the EU, ASEAN is not a supranational identity, acting independently of its members. It has no parliament or council of ministers with law-making power, no powers of enforcement, and no judicial system. However, it has been one of the world’s most dynamic

and

successful

intergovernmental

organizations

in

the

developing world, in terms of political and economic cooperation and integration. It has also established dialogue partnerships with most of the major powers and international organizations, including the US, Japan, China, Russia, the EU, the UNDP and other regional arrangements.

Born in 1967 at the midst of the turbulence in Southeast Asia, notably the Cultural Revolution in China, the escalation of the Vietnam War and the turmoil in some of the other Southeast Asian countries, ASEAN objectives as envisioned at the time included:

-

To contain communism and prevent the effect of the Domino Theory in face of the Vietnam War;

-

To promote constructive cooperation in the region; and

4

-

To gain support and assistance from major powers (mainly the US, the UK and Japan.)

However, as agreed to at the time, and becoming a priority at a later stage, the ultimate objective of ASEAN was to achieve long-term sustainable economic growth, to increase per capita income, to further secure economic and political stability in the region, and to strengthen its stand and power in the international community. 2

ASEAN mechanisms

The ASEAN highest decision-making mechanism is the Meeting of the Heads of Governments or States, usually known as the ASEAN Summit. Only three summits were held for the quarter of a century following ASEAN’s founding. However, at the 1987 Manila Summit, it was decided and agreed that the summit should be held every three to five years. Subsequently, at the Fourth Summit in Singapore in 1992, this was modified so that a summit would be formally held every three years with an informal meeting in between.

The 1967 ASEAN Declaration also established the Annual Meeting of the Foreign Ministers, known as the ASEAN Ministerial Meeting (AMM). The AMM convenes on a rotational basis in each of the ASEAN member’s capitals. This meeting is to initiate or review the policies and programs of the organization. In between the AMMs, the ASEAN Standing Committee (ASC) holds meetings with the Directors-Generals

of

the

ASEAN

National

Secretariats

as

members.

2

- For further information see R.C. Severino, “ What ASEAN is and What it Stands for?,” 22 October 1998.

its

5

At the 1977 Kuala Lumpur Summit, the ASEAN Economic Ministers’ Meeting (AEM) was institutionalized to oversee ASEAN economic cooperation and integration. Like the AMM, it is held annually and should

report

directly

to

the

ASEAN

Heads

of

States

or

Governments. In addition to this, at the Fourth Summit in Singapore in 1992, a Ministerial Council was set up whose task is to supervise the implementation of the Common Effective Preferential Tariffs for the ASEAN Free Trade Area (CEPT–AFTA). Members of the AEM also sit on the AFTA Council.

The AMM is supported and assisted by the ASC and the Senior Officials Meeting (SOM). The AEM is supported by the Senior Economic Officials Meeting (SEOM) and various ad-hoc economic working groups.

Besides the AMM and AEM, there are fifteen other ministerial meetings within the framework of ASEAN on the specific areas of agriculture, development planning, education, energy, environment, finance, health, information, labor, law, science and technology, social

welfare,

transportation

and

communication,

tourism

and

youth. Ministerial meetings on functional fields are supported by the

following

bodies:

the

Committee

on

Culture

and

Information(COCI), the Committee on Social Development (COSD), the Committee on Science and Technology (COST), ASEAN Senior Officials

on

Environment

(ASOEN),

and

the

ASEAN

Senior

Officials on Drug Matters (ASOD). It is estimated that there are more than 280 meetings of one sort or another held within the ASEAN framework.

every year

6

To coordinate ASEAN related activities at a national level, member countries are supported by the ASEAN National Secretariats under the Ministries of Foreign Affairs.

The ASEAN Secretariat was established at the First ASEAN Summit in 1976. The Secretariat consists of a Secretary General of the ASEAN

Secretariat

and

seven

officials

nominated

by

member

governments. At present the Secretary General is designated as the Secretary of ASEAN with an enlarged mandate. To coordinate ASEAN positions and activities in relation to each of the dialogue partners, each member country is assigned as a coordinator for a particular dialogue partner. Vietnam is assigned as the coordinator for the relationship between Russia, New Zealand and ASEAN.

Representing the business sector at various ASEAN meetings with the dialogue partners, as well as within the ASEAN economic meetings, various chambers of commerce of all the ASEAN member countries have set up a regional confederation known as the ASEAN Chambers of Commerce and Industry (ASEAN – CCI).

Over the past three decades, ASEAN activities and involvement have

expanded

and

widened

in

dimension

and

scope.

The

organizational structure of ASEAN has undergone such evolutionary and dramatic change that it now bears little resemblance to its original

structure.

This

change

corresponds

to

the

changed

objectives and goals of the Association. The approach applied by member states is to retain their flexibility, and to uphold the principles

of

consensus,

equality

and

non-interference

in

each

other’s internal affairs. This approach has built up confidence and brought about progress and a spirit of unity within the Association, which has become an important source of regional resilience.

7

ASEAN developments

After more than three decades of existence, ASEAN has become a strong and coherent regional identity. Until July 1997, 3 ASEAN had succeeded in maintaining a relatively high economic growth rate, while

its

economies

had

been

gradually

industrializing

and

modernizing, and becoming closely integrated, not only within its member states but with the outside world.

ASEAN

has

strengthened

its

stand

and

exerted

its

influence

regionally and internationally and has actually become one of the major factors in the politics and strategies of the major powers. ASEAN

is

on

its

way

to

achieving

a

political

and

economic

community, meeting the whole variety of the needs of its very different members, while respecting the identity of each.

The ASEAN Summit in Bangkok

of 14 -15 December 1996, which

discussed the theme “Towards One Southeast Asia”, showed a clear and determined will of its members to consolidate their economic ties and to pursue a political vision for the entire region.

The accession of Vietnam in July 1995, Laos and Myanmar in December 1997 and Cambodia at the Hanoi Summit in December 1998, did not jeopardize the current trend. Thus the forefathers’ dream of establishing an association consisting of all ten Southeast Asian nations has become a reality.

3

- The time when the financial and monetary crisis broke out first in Thailand and then in Malaysia and Indonesia.

8

ASEAN has the capacity of creating both current and potential wealth, and it is worthwhile highlighting some of its economic achievements recorded during the 1990-1997 period. During this time, the average economic growth rate was 7.0% per annum, with some countries achieving nearly 10%. The overall value of trade of the ASEAN countries with the outside world increased more than three-fold in the space of ten years. After a period of relative stagnation, inter-ASEAN trade took off with an increase of 40% in 1994, reaching US $111 billion, or 20% of the ASEAN overall external trade. In 1995, ASEAN witnessed a further increase of 16%, making inter-ASEAN trade worth US $130 billion. ASEAN exports, at present, consist mainly of manufactured products: While 66% of its exported products consisted of raw materials in 1977, in 1995, 78% of all commodities exported consisted of manufactured goods.

ASEAN also attracts foreign investment on a huge scale. The current stock of foreign investment amounts to nearly US $200 billion, three times greater than the amount invested in China, making ASEAN the biggest beneficiary in the developing world. 4

With

the

world

globalization,

economy

ASEAN

has

deepening endeavored

interdependence to

strengthen

and itself

collectively, calling for ASEAN centralism. Two major strategies have been applied to strengthen ASEAN. The first is to strengthen ASEAN itself; the other is to create a multi-layered relationship with

countries

outside

ASEAN

through

dialogues

with

those

approaching ASEAN, aimed at introducing their dynamics. The strategy is aimed at achieving long-term and sustainable economic

4

- The European Parliament and the Economic and Social Committee, “ Creating a New Dynamic in EUASEAN Relation,” 3 July 1996, pp. 5 -6.

9

growth, increasing per capita income, further securing economic and political

stability

in

the

region,

and

strengthening

ASEAN’s

bargaining power, as well as its position, in the international arena.

ASEAN has been strengthening itself by using three approaches. The first

is

membership

enlargement.

In

July

1995,

Vietnam

was

admitted as the seventh member of the Association. Laos and Myanmar became full members in July 1997, while Cambodia did so in December 1998.

Second, ASEAN took the initiative in establishing the ASEAN Regional Forum (ARF). This is a security forum in which member countries discuss regional security issues aimed at securing stability and peace in Southeast Asia. The forum has involved all major powers outside the region, including the US, China, Japan, Russia and the EU. This is aimed at promoting political awareness and understanding, and at further enhancing a politically favorable environment for promoting trade and attracting foreign investment into the region.

ASEAN

also

took

the

initiative

in

opening

up

business-like

dialogues with its dialogue partners. These dialogue partners are categorized into three different groups. The first group is known as “full-dialogue partners”, and they include the US, Japan, Korea, Australia, New Zealand and the EU. The second group are “nondialogue partners,” which include Russia and China. The third group are “sectoral-dialogue partners” namely India and Pakistan, for discussing limited such issues as trade, investment and tourism. Of the relation with the three groups, the Asia-Europe Meeting (ASEM) has played an important role in the ASEAN economic development. The first ASEM Summit was held in Bangkok in March 1996 and the

10

second took place in London in April 1998. However, Europe seems to lack enthusiasm in the process at present, possibly because of the impact of the current financial crisis on the ASEAN economies.

ASEAN’s third approach to strengthening itself was the creation of the ASEAN Free Trade Area (AFTA) in 1993, which aims at promoting

economic

cooperation

and

integration

among

its

members. 5

The impacts of the current financial crisis together with the rise of complicated issues such as drug-trafficking, organized crime, sea and air pollution and other environmental issues, have pressed the ASEAN member countries to ever closer cooperation and economic integration. However, the impact of the current crisis is immense and long lasting. More than twenty months since the onset of the crisis, the image of a fast-growing and dynamic Southeast Asia is very much in doubt. Furthermore, the future of continuous growth for ASEAN now seems to be remote, and there has been a lingering suspicion that ASEAN can do nothing right, and that it will take years to fix the ASEAN economies and overcome the present crisis. The frustration and bewilderment over the reversal in the region has led many, including some ASEAN members, to question

ASEAN’s

vitality and dynamics. Paul Krugman, in a recent article “The Myth of Asia’s Miracle”, even dubbed the newly industrialized economies in the region ‘paper tigers’. The economic growth of the region remains a major issue for debate.

The financial crisis has, obviously, changed ASEAN’s image and ASEAN itself.

The suspicion concerning the real economic growth

of the region, and the collapse of the region’s banking systems, 5

- The issue will further discussed in more details in pages 11-19.

11

have raised questions about the efficiency and good governance of the governments whose economies are badly effected by the present crisis. As the

Prime Minister of Singapore, Goh Chok Tong,

remarked at the Hanoi ASEAN Summit in December 1998: “ The events in the past year have taken the shine off ASEAN. Some of our dialogue partners are quietly questioning ASEAN’s future. Some of them are taking us less seriously than before. They believe that ASEAN has been exposed as ineffective.” 6

The financial crisis has also created political instability in some ASEAN member countries, and a hostile economic environment that scares and drives away foreign investors. It has also challenged the relevance and efficiency of the economic model thought to be successful at one time, which is still cherished by most of the countries in the region. For many ASEAN members, the fast track to regional

and

global

economic

liberalization

may

need

to

be

reviewed, and some protective measures may have to be adopted to minimize the negative impacts of the current crisis.

ASEAN Free Trade Agreement – a vehicle for economic cooperation and integration

Economic development is one of the main objectives that ASEAN has been pursuing over the years. The 1967 Bangkok Declaration, on the occasion of the establishment of ASEAN, clearly stated that economic development was a priority. However, in the first two decades, during the 1970s and 1980s, economic cooperation among the ASEAN members was not on the top of the agenda, and priorities were given to political and diplomatic cooperation. ASEAN was then known as a diplomatic rather than an economic community. 6

- Dean Yates , “ ASEAN Must Prove its Mettle, Leaders Say,” 15 December 1998.

12

During this period, economic cooperation among ASEAN members only concentrated on collective negotiations with the developed countries on certain commodities, such as the negotiation on rubber with Japan, soya bean and coconut oil with the US, air ticketing with Australia, and so on. Some trade and economic agreements were signed and a few concrete projects were proposed among member states, but little progress was made in their implementation.

However, at the Fourth Summit in December 1992 in Singapore, particular attention was given to economic cooperation. At this summit, both the Economic Promotion Agreement and the Agreement on the Common Effective Preferential Tariffs scheme were signed.

The issue of economic cooperation was further emphasized at the ASEAN Informal Summit held in Kuala Lumpur (Malaysia) 14-16 December 1997. It was here that the “ASEAN Vision for 2020” was approved. 7 The text stipulates clearly:

-

We commit ourselves to moving towards closer cohesion and economic

integration,

development multilateral

narrowing

among trading

member system

the

gap

countries, remaining

in

the

ensuring fair

and

level

of

that

the

open,

and

achieving global competitiveness; -

We will create a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services

and

investment,

a

freer

flow

of

capital,

equitable

economic development and reduced poverty and social economic disparities; and that -

ASEAN

resolves

cooperation 7

by

to

advance

undertaking

the

economic

integration

and

following

strategies:

fully

- “ASEAN Vision 2020,” Second ASEAN Informal Summit, Kuala Lumpur, 14-15 December 1997.

13

implement the AFTA and accelerate the liberalization of trade and services, realize the ASEAN investment area by 2010 and free flow of investment by 2020; intensify and expand subregional cooperation in existing and new sub-regional growth areas, further consolidate and expand intra-regional linkages for mutual benefit, cooperate to strengthen the multi-lateral trading system and reinforce the role of the business sector as the engine of growth.

The establishment of ASEAN in 1967 and the plan for regional trade liberalization have been seen as vehicles for regional economic cooperation and integration. The Preferential Trading Agreement was launched in 1977, but only slow progress has been made in this area. The Agreement on Common Effective Preferential Tariffs for the ASEAN Free Trade Agreement (CEPT-AFTA) was signed in 1992 at the Fourth ASEAN Summit in Singapore. The Agreement set the guiding principles, mechanisms, product coverage and timetable for the realization of AFTA, which was itself regarded as an important advance in the evolution of ASEAN.

The original agreements creating AFTA were contained in three documents

issued

at

Singapore

Declaration

the

Fourth

ASEAN

of

1992,

the

Summit;

Framework

namely, Agreement

the on

Enhancing ASEAN Economic Cooperation, and the Agreement on the Common Effective Preferential Tariffs.

The reasons for the establishment of AFTA were to promote ASEAN competitiveness, to foster greater efficiency as an export-promotion location,

and

international

to trade,

respond using

to the

the free

increased trade

regionalism

agreement

to

in

secure

continued market access. AFTA was also created to promote the

14

export-led

growth

of

the

member

countries

by

creating

and

expanding trade, which would in turn induce more foreign direct investment into the region. If successfully implemented, AFTA would give ASEAN companies a competitive edge; that is, enhanced productivity and production geared for local and world markets. A critical step in this direction is the liberalization of trade in the region through the elimination of intra-regional tariffs and the elimination of non-tariff barriers. This has the effect of making manufacturing

sectors

more

efficient

and

competitive,

thereby

creating additional intra-ASEAN trade.

The Common Effective Preferential Tariff scheme (CEFT) gives life to AFTA. It is a cooperative arrangement among ASEAN member states that will reduce intra-regional tariffs and remove non-tariff barriers over a fifteen-year period, commencing from 1st January, 1993.

The

goal

of

the

scheme

is

to

reduce

tariffs

on

all

manufactured goods to 0-5% by the year 2008. The CEPT scheme is the main instrument for making ASEAN a free trade area. This means that ASEAN members will have common effective tariffs among themselves in AFTA, but that the level of tariffs with nonASEAN countries will continue to be determined individually.

The creation and development of AFTA are not destined to damage other regions for the following reasons: First, like NAFTA, the economies of AFTA are largely complementary in terms of resource endowments, trade patterns, and foreign investment flows. Second, all member country governments share a commitment to multilateral efforts by GATT via the Uruguay Round to maintain open world markets. Third, economic regionalism is likely to create and expand much more trade than it stands to divert. And fourth, there is an underutilized and promising conflict resolution format available for

15

discussions

to

minimize

the

negative

consequences

of

trade

diversion and to maximize the benefits to be derived from trade creation and expansion.

CEPT-AFTA

excludes

services

and

unprocessed

agricultural

products. Some CEPT products are in the Temporary Exclusion List, while others can be permanently excluded. Each member country has its own list of CEPT goods, and they are divided into fast- and normal-track item groups for tariff reduction.

To supervise the execution of AFTA, an AFTA council consisting of Economic or Financial Ministers of all ASEAN member countries was set up in 1992. Since its establishment, the AFTA Council has greatly contributed to the realization of AFTA. The first AFTA Council Meeting was held in Bangkok in September 1992, at which Ministers agreed on tariff reduction schedules for fifteen specified items, mostly manufactures. In October of the same year in Manila (The Philippines), the Ministers made announcements on items subject to and exempt from each country’s Common Effective Preferential Tariffs, and they also approved the implementation of CEPT by January 1993. At the Council Meeting in Singapore in October

1993,

the

Ministers

agreed

that

CEPT

would

be

implemented by January 1994 and that the items subject to CEPT would increase to 321. At the 27t h AFTA Council Meeting held on Phuket (Thailand) in April 1995, agreement was reached on the tariff reductions on unprocessed agricultural products (a total of 1,721 items, or 68% of 2,528 items subject to tariffs) starting from January 1996. ASEAN Economic Ministers in April 1995 also agreed:

16

-

To transfer items on the Temporary Exclusion List of the CEPT scheme to the Inclusion List within five years, with 20% of the items transferred each year, beginning from 1st January 1995;

-

To include the unprocessed agricultural products in CEPT;

-

To establish an AFTA unit within the ASEAN Secretariat to solve trade disputes among member countries; and

-

To establish a framework of agreement on cooperation in the fields

of

services,

intellectual

property

and

infrastructure

development (especially utilities and energy).

Member countries were also committed to removing qualitative restrictions and other non-tariff barriers to such trade. In fact, by the year 2000, most of the products traded within ASEAN will be receiving full AFTA treatment. This scheme not only creates a free trade area among Southeast Asian countries, but also binds their economies closer together.

In 1996, the ASEAN Economic Ministers decided to establish a dispute-settlement mechanism that would cover the disagreements on AFTA and other ASEAN economic issues. This is an important step toward a more rules-based regime. At the ASEAN Finance Ministers Conference held in Chieng Mai (Thailand) in September 1997,

the

Ministers

agreed

on

the

early

completion

of

CEPT

implementation and the advancement of the initial schedule of trade liberalization in the region by 2003 instead of 2008, five years ahead of schedule. Furthermore,

early in October 1998, at a two-

day meeting in the Philippines, they also agreed to remove all tariffs by the year 2003 (the old commitment involved reducing tariffs to between 0%-5%).

17

The

AFTA

integration

Council and

reaffirmed

increasing

trade

that can

accelerating help

combat

economic the

current

financial crisis. It also emphasized that the rapid implementation of AFTA will attract more foreign direct investment into the region. Other decisions made by the Ministers under AFTA include:

-

Identifying the products that were previously or temporarily excluded for tariff reduction, and the products previously or permanently excluded for tariff reduction in 1999;

-

Identifying

sensitive

and

highly

sensitive

unprocessed

agricultural products for accelerated tariff reduction.

At the ASEAN Summit held in Hanoi on 15-16 December 1998, the ASEAN leaders agreed that the more developed members’ economies (i.e., Brunei, Malaysia, Indonesia, Singapore and Thailand) will cut tariffs from 0–5% by the year 2002 instead of 2003 as originally planned. They adopted “The Hanoi Plan of Action and The Hanoi Declaration” aimed at further promoting regional cooperation and economic integration over a longer time frame, from 1999 to 2004. They

also

chartered

“bold

measures”

to

combat

the

current

financial crisis. 8

It is estimated that with the new commitments, some 85.2% of ASEAN traded goods will have tariffs between 0–5%. In 1998, the average tariff rate for traded commodities in the region was at about 5.3%, but by the year 2003 it will be reduced to 2.68%.

In summary, AFTA has been used as a means for ASEAN economic cooperation and integration. It has encouraged dynamic exchanges within the ASEAN member countries, and has strengthened ASEAN 8

- Andy Soloman, “ ASEAN Nations Seek ‘ Bold Measures’ amid Crisis, ” Reuters, 12 December 1998.

18

influence by promoting economic cooperation and integration among member states. As AFTA aims for the free exchange of goods in the region, which would improve market integration, ASEAN countries will be more attractive to international trade and investment. To this end, AFTA should be more globally oriented and strive to meet the rules and regulations of the WTO. To be more viable, AFTA should go

beyond

trade

liberalization

measures.

Furthermore,

ASEAN

should match other international organizations in lifting non-tariff barriers to foreign investment, promoting industrial cooperation, harmonization

of

standards,

macroeconomic

consultation,

and

application of the rules of fair competition.

AFTA, however, is more of an investment agreement than a trade agreement, as the intraregional trade flows constitute only a small percentage of overall ASEAN trade. This is much less than in the EU or NAFTA. The Accord was not so much created to expand intraregional

trade

flows,

but

to

provide

a

more

attractive

environment in which multinationals could benefit from a vertical division of labor, with minimal policy-created transaction costs.

The global trend towards trade and investment liberalization has strongly influenced AFTA trade liberalization. Further, there have been unfavorable results from intra-ASEAN trade liberalization, and the ASEAN countries need, therefore, to adjust, modify and amend the current AFTA Agreement in a flexible manner.

The current process of regional economic integration requires a clear identification of the concrete goals and modalities of the initial

AFTA.

membership

Furthermore,

requires

the

the creation

enlargement of

certain

of

the criteria

AFTA and

mechanisms, such as a two-track system or symmetric treatment for

19

trade preferences. To bring about the dynamic changes in ASEAN economic

goals

and

modalities,

ASEAN

member

states

should

overcome some social and political differences, reconcile their conflicting national interests and work together creatively, to adapt to the fast-changing world.

Beyond AFTA, a common market initiative proposed by the ASEAN leaders will be implemented by the year 2000, and completed by 2010. A common market is different from a free trade area. It will not only facilitate the free flow of goods, but also of capital, labor, and services. If implemented, there will be a serious need for all ASEAN members to cooperate in developing certain mechanisms, as well as institutions, within the ASEAN framework, to enable it to function smoothly and effectively. It would also be of great benefit for all member countries to consider their economic policies and market

integration

as

development strategies.

part

and

parcel

of

their

own

economic

20

VIETNAM AND AFTA

After the collapse of the former Soviet Union in 1989, the lifting of the American embargo against Vietnam in February 1994 and the normalization

of

the

diplomatic

relations

between

the

US

and

Vietnam in July 1995, Vietnam has moved gradually towards trade and investment liberalization, in line with regional and global economic integration. As part of its economic integration into the world economy, Vietnam became a full member of ASEAN in July 1995,

an APEC member in November 1998, and it is at present

under negotiations with the WTO for membership. As a member of ASEAN, Vietnam signed the Protocol for the Accession to AFTA, a regional trade arrangement among the ASEAN member states. Under the terms and conditions of its accession to AFTA, Vietnam is committed to:

-

Extend, on a reciprocal basis, the Most Favored Nation Status (MFN) and National Treatment to the ASEAN member states;

-

Provide relevant information on its trade regime as and when requested;

-

Prepare a list for tariff reduction and begin tariff reduction e f f e c t i v e f r o m 1s t J a n u a r y 1 9 9 6 a n d e n d i n g a t 0 - 5 % t a r i f f r a t e o n 1st January 2006;

-

Phase in products which are temporarily excluded in five equal i n s t a l l m e n t s b e g i n n i n g f r o m 1s t J a n u a r y 1 9 9 9 a n d e n d i n g b y 1s t January 2003 , and prepare a list of these products for the annual installment; and

-

Phase in agricultural products, which are temporarily excluded beginning 1st January 2000 and ending 1st January 2006, and prepare a list of those products for their annual installment. 9

9

- “ Vietnam- ASEAN Trade Relation,” Vietnam Economic News, 26 October 1998.

21

O n 1s t J a n u a r y 1 9 9 6 , V i e t n a m i m p l e m e n t e d i t s f i r s t p a c k a g e f o r t h e CEPT scheme, which was enacted by Government Decree No. 91 on 18 December 1995. In this first package, Vietnam has included 875 tariff lines in the Inclusion List. Of these, 548 have zero tariffs, while the remaining 327 are in the 1-5% tariff range. This means that out of a total of 2,218 tariff lines used by Vietnam, about 39% are in the Inclusion List, with almost a quarter of the tariff lines carrying zero tariffs. Of the remaining tariff lines, 1,189 items, or 54%, have been placed under the Temporary Exclusion List category (TEL). Beginning in January 1999, the TEL products will be phased into the CEPT scheme in five annual installments, ending in January 2003. This implies that by the year 2003, when all products in Vietnam’s TEL must have been phased into the Inclusion List, at least 92% of its tariff lines will be in the CEPT scheme. Vietnam’s Sensitive List covers 26 tariff lines; these are mainly unprocessed agricultural products that will also be phased in from the beginning of January 2001 and ending by January 2010, similar to other A S E A N m e m b e r c o u n t r i e s . 10

In a very short span of time, the Government of Vietnam has laid a solid foundation upon which to build a new foreign trade system. This includes an increasing number of trading companies, adapting the banking system to foreign trade, creating a liberal foreign investment law, and instituting an import tariff structure. Moreover, Vietnam has been successful in liberalizing its foreign exchange regime, one of the most difficult components of its trade reform. In reality, Vietnam’s economy is already integrated with the global economy and is likely to become more so, if projections for rapid growth in both exports and imports are realized. 10

- “ Vietnam-ASEAN Trade Relation,” Vietnam Economic News, 16 October 1998.

22

Vietnam’s accession to AFTA and the various economic agreements within the framework of ASEAN have demonstrated Vietnam’s commitment to economic cooperation and integration in the region, in particular, and the world as a whole, as well as its commitment to the opening up of its economy and trade liberalization. Vietnam’s current

reform

has

testified

drive

and

strong

vigorous

with

impressive

determination

successes

toward

to

the

reforming

its

Vietnam

by

economy.

Vietnam’s present economic situation

It

is

worth

reviewing

the

economic

situation

of

highlighting some of the major economic achievements, as well as the remaining weaknesses, over the period from 1990 to 1998.

Vietnam’s economy has been in transition from a economy

to

a

socialist

market

economy,

centrally planned

based

primarily

on

agriculture. The renovation process known as Doi Moi has paved the way for Vietnam’s economic development. This reform includes plans directed at developing a multisectored market economy in which

the

reforming

state the

and

legal,

collective fiscal

and

sectors

play

monetary

a

dominant

systems,

role,

controlling

inflation and the national budget, and creating an environment conducive

to

attracting

investments,

especially

foreign

direct

investment. The reforms, which are still on-going, have proved to be an encouraging success.

Vietnam’s economic performance from 1991-1998 has generally been marked by rapid overall growth, a growing share of state

23

output, a growing investment ratio, a growing trade deficit, and f a l l i n g i n f l a t i o n . 11

From 1991-1997, the annual growth rate of GDP averaged between 7 and 8%. Under the impact of the current financial crisis, Vietnam’s economic growth rate in 1998 slowed to 5.8%, while some other ASEAN members reportedly recorded sub-zero growth rates. There is, however, a strong potential for growth and foreign investment in Vietnam, although per capita income is still very low compared with that of other countries in the region (about US $300).

There has also been a very rapid build-up in approved foreign direct investment in Vietnam, from US $2.3 billion by the end of 1991, to over US $27 billion in the midst of 1997 before the onset of the crisis.

As

of

December

1998,

the

total

foreign

investment

in

Vietnam was approximately US $33 billion, with more than 1,778 p r o j e c t s . 12

Industrialization and modernization of Vietnam’s economy is a paramount goal pursued by the government. Industry is a crucial sector that has nearly doubled its output from 1991-1997, while recent growth rates have been in the 10-15% a year range. Billions of

dollars

have

been

invested

in

industrial

foreign

direct

investment, and manufactured exports have grown rapidly, albeit from low bases. In an unusual development that is consistent with the goal of the government, most of the growth in industry came from the state sector. Growth in industrial output has exceeded 10% per year since 1991. Industry and construction together constituted

11

- David O. Dapice, “Challenges to Vietnam’s Economy: Sustaining Growth in a Difficult Period,” 3 October 1997, pp. 2. 12 - Vietnam Investment Review, December 15,1998 and David O. Dapice, “ Challenges to Vietnam’s Economy: Sustaining Growth in a Difficult Period,” 3 October 1997.

24

30% in 1995, compared with 23% in 1990. Similarly, the service sector has grown to 43%, compared with 39% in 1990. All of this indicates

that

Vietnam’s

economic

structure

has

been

shifting

rapidly from agriculture towards industry and services.

Vietnam has also been successful in controlling inflation, which has fallen from three digits during 1980s, prior to the Doi Moi, to 5.2% in 1993, 14.4% in 1994, 12.7% in 1995 and 9.2% in 1998.

Equally impressive is the growth in Vietnam’s international trade. The growth of both exports and imports has been much faster than overall output growth since 1991, a development consistent with an e x p o r t - l e d s t r a t e g y . 13

In 1995, exports of goods and services accounted for 36% of GDP, while imports were 47%. In 1997, exports accounted for 42% of GDP, while imports accounted for 48%. These trade ratios are high for a medium-sized country with low income like Vietnam. Exports in 1998 totaled US $9.4 billion, compared with $4.05 billion in 1994 and $2.4 billion in 1990. Over the same period, total imports more than doubled, from $2.75 billion to $5.83 billion and to $11 billion, in 1990, 1994 and 1998 respectively. This growth of imports is fueled by the demand for capital goods, following the large inflow o f f o r e i g n d i r e c t i n v e s t m e n t . 14

Vietnam’s main exports are crude oil, textiles and garments, rice, coffee, rubber, coal, aquaculture and processed-forest products. Vietnam’s main imports are petroleum products, steel, fertilizer,

13

- David O. Dapice, “ Challenges to Vietnam’s Economy: Sustaining Growth in a Difficult Period”, 3 October 1997. 14 - Vietnam Investment Review, Dec.15,1998 and Vietnam Economic Times , No. 1, 2 January 1999 and No.5, 8 December 1998.

25

electronics, machinery and equipment. Its main trading partners are Japan, Singapore, Taiwan, South Korea, and the European Union. Asian economies account for 80% of Vietnam’s total trade. Prior to 1990, Vietnam’s main trading partners were the socialist countries; mainly the former USSR. However, as Vietnam continues to expand its market abroad, promote export industries and put emphasis on the import substitution of manufactured goods, the composition of its trade, in terms of trading partners and type of products, is likely to change even more.

Besides some major achievements, many weaknesses in Vietnam’s economic development remain. Overall, the economic Vietnam

remains

unbalanced.

Vietnam’s

economy

structure of is

generally

characterized by low productivity, poor efficiency and management. Furthermore, the competitiveness of most of its commodities is no match for those of some ASEAN member countries.

Vietnam and ASEAN economic relations

Vietnam and the ASEAN member countries have many things in common regarding history, culture, society and economies. While their traditional relations have long been established, trade and economic relations have only developed rapidly since 1986, when Vietnam switched to a market economy and applied the Doi Moi policy.

Since 1995, economic relations with the ASEAN member countries have expanded to many areas, including trade and investment. The trade exchange value between Vietnam and ASEAN countries from 1995-1998

accounted

for

25%

of

total

export

turnover,

while

imports from the region made up 55% of total import turnover.

26

Vietnam’s export turnover to ASEAN in 1997 alone accounted for US $2 billion, and import turnover grossed more than US $3 billion, accounting for almost 25% of total import-export turnover.

Vietnam’s biggest trading partner is Singapore, which has replaced the former USSR. In recent years, Singapore has often accounted for 60%

of

Vietnam’s

overall

trade

turnover

with

ASEAN.

Trade

turnover between Vietnam and Singapore increased from US $300 million in 1989 to US $800 million in 1991 and US $2 billion in 1995. Exports from Vietnam to Singapore also rose rapidly, from US $62.5 million in 1989 to $103 million, $496.5 million, $600 million, $678 million and over $1 billion in 1990, 1992, 1994, 1995 and 1997 respectively. The Philippines ranked as Vietnam’s second largest trading partner in 1991, but was overtaken by Malaysia the following year. In 1997, Thailand jumped into second position, with total bilateral trade turnover amounting to US $792 million.

Vietnam’s exports to ASEAN markets mainly include agricultural items; raw materials such as crude oil; rice; cashew nuts; rubber; vegetable and fruit; coffee; seafood; textiles; and garments. Exports of these items in 1996 were worth US $1.5 billion, about 66% of total export turnover. Imports from ASEAN markets mainly consist of production materials; industrial items such as fertilizer; steel and iron;

cement

and

petroleum,

worth

US

$1

billion

in

1996,

a c c o u n t i n g f o r 3 8 % o f t o t a l i m p o r t t u r n o v e r . 15

Until

mid-1997,

ASEAN

investment

in

Vietnam

had

increased

immensely. As of December 1998, five of the six ASEAN original members invested over US $3 billion, with a total of 379 projects. According to the Vietnam Ministry of Planning and Investment, the 15

- “Vietnam – ASEAN Trade Relation,” Vietnam Economic News, 16 October 1998.

27

projects were capitalized at over US $9.5 billion, one-fifth of all foreign direct investment projects in Vietnam, with 30% of the prescribed capital.

The top investor among the ASEAN members in Vietnam is again Singapore, with 208 projects and capital of US $1.341 billion already invested. Malaysia ranks second with 62 projects and US $1.050 billion invested; Thailand, the third, with 77 projects and US $ 4 3 7 m i l l i o n , a n d I n d o n e s i a w i t h 1 3 p r o j e c t s a n d U S $ 9 5 m i l l i o n . 16

The investment by the ASEAN countries in Vietnam is actually not relative to their potentials and capacities. Apart from a few major projects that Singapore and Malaysia have invested in, most of the projects invested in by ASEAN member countries are either smallor medium-sized joint ventures. They are concentrated in major cities and towns, where good facilities are already in place. Most of the investment is in light industries and services such as hotel, tourism and food processing. The fact is that the ASEAN’s dynamic is not in high-tech industries, and they are also badly in need of foreign capital to revitalize and develop their economies.

Since 1997, the investment by the ASEAN countries has slumped, partly due to the impact of the current financial crisis. Furthermore, the

ratio

countries throughout

of

turnover

remains

to

very

Vietnam.

As

invested low, a

capital

about

result,

the

by

70-83%

ASEAN for

all

implementation

member projects of

many

already licensed projects has been delayed or cancelled, because of capital shortage. In 1998, ASEAN investors injected only US $200 million into their projects in Vietnam, and unless improvement is

16

- “ ASEAN Investment not yet up to Financial Capabilities,” Vietnam Investment Review, 15 December 1998.

28

made, many projects that ASEAN member countries have already i n v e s t e d i n w i l l r u n i n t o d i f f i c u l t i e s . 17

Opportunities and challenges facing Vietnam

Vietnam’s regional and global economic integration constitutes the centerpiece of its trade and investment policies in the second half of the 1990s, and it will remain so as the 21 st Century approaches. During the process of economic integration, Vietnam will reap benefits and at the same time be faced with numerous challenges.

How can Vietnam benefit from its regional and global economic integration? It will do so in the following ways:

Meeting the needs of the industrialization and modernization of Vietnam’s economy

The industrialization and modernization of Vietnam’s economy is one of the priority tasks being pursued by the government at present. Promoting economic cooperation and integration within the region

and

beyond

will

enable

Vietnam

to

speed

up

the

industrialization and modernization of its economy. Vietnam is at present in the midst of the process of economic liberalization from which it is receiving substantial dividends. At the initial stage, the globalization of Vietnam’s economy has been dominated by its economic interchange with its ASEAN partners, who have played an important role in this aspect.

In ASEAN and through AFTA, Vietnam has integrated with some of the newly industrialized economies and will reap the gains of 17

- See Vietnam Investment Review, 15 December 1998.

29

increased trade and foreign investment. Vietnam will also gain access to new international markets through the ASEAN window and have

greater

including

opportunities

technology

to

transfers,

expand

its

with

the

economic more

relations,

industrialized

economies of the world, thus positively contributing to its economic growth. Vietnam will also have the opportunity to exchange views with other countries and learn from their experiences in improving its economic management and businesses. All of this will assist Vietnam

in

building

an

efficient,

dynamic,

and

competitive

economy.

Promoting trade and foreign direct investment

Being an AFTA member, Vietnam will have access to a vast regional and

global

trade

network.

Economists

at

Singapore

University

estimate that CEPT will increase the income and trade turnover of the ASEAN countries by 3 per cent. Trade turnover within the region will also increase between 18 and 20 per cent of the total trade turnover by the year 2008. Since AFTA member countries are committed

to

the

promotion

of

trade

liberalization

with

more

developed free markets, Vietnam will have access to these markets as well. Vietnam’s accession to the CEPT Agreement, as well as its participation in many other areas of ASEAN economic cooperation and integration, such as intellectual property, services, industrial cooperation and investment, has sent a strong signal to foreign investors of Vietnam’s orientation and the goals of its economic policies. This has also strengthened the conviction that Vietnam is firmly committed to continuing the liberalization of its trade and investment regime in particular and its comprehensive renovation in general.

30

Integrating

into

the

region

will

also

enable

Vietnam

to

take

advantage of larger export markets, cheaper imports, and a large pool of debt- and non-debt-creating capital flows. This, however, requires strong social support, knowledge of and access to foreign markets and appropriate technologies, as well as profound structural adjustment.

Furthermore,

since

the

strength

of

the

ASEAN

economies is not in high-tech industries and most of the products produced by the ASEAN members countries are similar, it will require Vietnam to go beyond ASEAN economic cooperation; that is, to diversify its economic relations with the more advanced economies such as Japan, the European Union member countries, the US, as well as its traditional partners, mainly Russia and the Eastern

European

countries.

Doing

so

would

help

Vietnam

to

compensate for the weaknesses and shortcomings in its economic relations with the ASEAN member countries.

Facilitating

Vietnam’s

membership

to

the

WTO

and

other

international institutions

Participation in ASEAN and AFTA requires that Vietnam adopt the norms

and

practices

governing

the

rules

and

regulations

of

international trade relations. This is especially significant in that the issue of Vietnam’s accession to the WTO has been strongly endorsed and assisted by all AFTA members.

Regional

integration

also

makes

it

easier

for

Vietnam

to

be

recognized and accepted into the rank and file of the Asia and Pacific

community.

The

admission

of

Vietnam

into

APEC

in

November 1998 at the Kuala Lumpur Summit clearly demonstrates this. The next important step for Vietnam is to join the WTO. The

31

talks between Vietnam and the WTO on clarifying Vietnam’s trade policies have been underway since July 1998.

To speed up economic integration, Vietnam has to restructure its economy, and reform its trade and legal systems in conformity to the requirements of the market economy. By doing so, rules and regulations governing foreign trade relations and investment, as well as other related policies, will gradually satisfy and meet the standards commonly practiced by the international community. This will facilitate Vietnam’s early admission to the WTO and other international institutions.

While reaping the fruits in the process of its regional and global economic

cooperation

and

integration,

Vietnam

has

also

been

confronted with numerous difficulties. The following are some of the major challenges currently facing Vietnam:

Maintaining peace and stability in the region

Peace and stability are vital factors for economic development and are also factors of paramount importance to the creation of a favorable environment for promoting economic cooperation and integration. However, at present there still exist potential threats to peace and stability in Southeast Asia. Conflicting national interests, a certain degree of mutual suspicion, occasional tensions on certain political and economic issues, and the different approaches to economic development strategies among regional countries, all need to be peacefully and patiently addressed.

Since the end of the Cold War, the nature of the geopolitical picture in Asia and the Pacific has dramatically changed. One of the main

32

features is the emergence of the triangular relationship between the US, China and Japan, in which the Sino-American relationship has captured much attention

and concern from the regional countries.

Regional security arrangements, to a large extent, depend on the development of this triangular relationship. The behavior or attitude of each individual state in the region will be strongly influenced by the

nature

of

the

Sino-American

relationship.

Unhealthy

development of this relation will polarize ASEAN member states. In this

regard,

the

ASEAN

member

countries,

including

Vietnam,

should work harder contributing to the healthy development of this relation and turning Southeast Asia into a zone of peace, stability and prosperity.

Another issue that might give rise to the regional instability is the dispute over the Eastern Sea - the South China Sea - the focus of which is on the Truong sa Archipelago - Spratly Islands. The Truong sa Archipelago is situated in the southern reaches of the Eastern Sea, consisting of over 100 islets, sand cays, reefs and rocks, overarching a total area of approximately between 2 and 3 square kilometers in an ocean area of at least 200,000 square kilometers or d o u b l e t h e s i z e , d e p e n d i n g o n h o w t h e a r e a i s d e f i n e d . 18 This is perhaps the most complicated multilateral territorial dispute in the Eastern Sea. The dispute directly involves China and four ASEAN member

c o u n t r i e s . 19

It

affects

the

interests

of

many

regional

countries, not only those directly involved but also many others, such as Singapore, Indonesia, Thailand, Japan, Korea and Australia. It is estimated that in terms of trade, around US $568 billion, or 15 percent of all global cross-border trade travels through the Eastern Sea’s major maritime passages. The dispute also affects the US in 18

- See Jane’s Intelligence Review, 1st February 1999. - The dispute over the Truong sa Archipelago involves China and four ASEAN members; namely, Vietnam, the Philippines, Malaysia and Brunei. 19

33

terms of maritime navigation and overflight. American credibility may also be challenged in the event that its longtime ally, the Philippines, is threatened or attacked as a result of a Truong sa crisis.

Over the past years, the countries directly involved, together with other countries in the region, have bilaterally and multilaterally left no stone unturned in their search for a long-term solution to the problem. The 1992 Manila Declaration by the ASEAN Foreign Ministers covering guiding principles, the Joint Declaration signed between Vietnam and the Philippines and that between China and the Philippines on the code of conduct pertaining this issue, are just a few among many such endeavors.

At present, the ASEAN Regional Forum (ARF) seems to be a relevant

and

suitable

forum

for

multilateral

talks

on

regional

security issues aimed at deactivating the region’s tensions. It has played

an

important

role

in

fostering

better

awareness

and

understanding of the potential threats to regional security, and it will remain so, if the ASEAN member countries together with other ARF

members

succeed

in

furthering

the

ARF

process

from

confidence-building measures to preventive diplomacy and peaceful solutions to international disputes. However, other bilateral and multilateral channels and mechanisms should also be explored and encouraged to this end.

In this regard, Vietnam’s position is that while reaffirming its indisputable sovereignty over the Hoang sa (Paracels) and Truong sa Archipelagoes based on the historical evidence and law, Vietnam reiterates its consistent stance that any dispute over the overlapping areas

in

the

Eastern

Sea

should

be

solved

through

peaceful

34

negotiations on the basis of respect for international law, especially the 1982 United Nations Convention on the Law of the Sea and the 1992 Manila Declaration on the Eastern Sea.

Tough competition in trade and investment

By joining ASEAN and participating in AFTA, Vietnam has become a member of a club and is taking part in an unbalanced game among powerful

and

competitive

experienced

player,

players.

Vietnam

needs

To to

be

a

compatible

develop

a

and

competitive,

efficient and sustainable economy.

It

is

a

countries

common are

knowledge

very

keen

that

and

most

quite

of

the

ASEAN

experienced

in

member

trade

and

investment activities, and that the ASEAN trade and legal systems are in line with the market economy. As a result, Vietnam has fallen into disadvantage, while other ASEAN members may prevail and gain

the

upper

hand,

thanks

to

their

advantageous

and

long-

established positions in the regional and global markets.

The export of rice by Vietnam to the outside world could be illustrative of the potential hazards in this situation. Vietnam has over the past years faced tough rivalry from Thailand, the biggest rice exporter in the world.

Committing to AFTA, Vietnam has to

reduce tariff rates and remove non-tariff barriers and offer MFN to all ASEAN member states. Consequently, ASEAN goods could easily be exported to and possibly dominate Vietnam’s domestic market, and Vietnam could one day become a dumping ground of ASEAN consumer

goods.

This

gradual

development

Vietnam’s young and vulnerable industries.

would

endanger

35

Furthermore, Vietnam’s economy has gradually integrated with the region, it is hard for Vietnam to be completely immune from the effects of the current financial crisis, which has been ravaging the Asian economies since mid-1997. The impact of the financial crisis on Vietnam has been visible in many aspects; notably, in trade and foreign

direct

investment.

Dealing

with

this

monetary

crisis,

ASEAN member countries such as Thailand, Malaysia and Indonesia were forced to devalue their currencies, and this has made their exports more competitive. Vietnam, therefore, has found it more difficult to export its goods (namely rice, footwear, textiles and garments), because its counter trade is primarily in US dollar. In 1998, Vietnam overall volume of trade was actually much higher than

in

1997,

but

the

real

turnover

was

lower.

According

to

Vietnam’s Ministry of Trade, in 1998 alone, Vietnam lost about US $650 million due to the drop in commodity prices, while export earnings dropped by 2.4 per cent compared with 1997, as a result of t h e c u r r e n t f i n a n c i a l c r i s i s . 20

Internal restructuring, an essential factor for ensuring the success of Vietnam’s renovation and regional integration

To integrate effectively and competitively into the regional as well as the world economy, Vietnam has no choice but to continue with its comprehensive renovation. Vietnam is required to match its external trade and investment policies to those of its fellow ASEAN members. It is also necessary for Vietnam to reconcile certain differences in integrating a socialist market economy with a free market one. The comprehensive renovation and transition to a socialist market economy is a difficult and time-consuming process, and it requires creative and thorough study, as well as new thinking, 20

- “ Globalization Poses Major Challenge for Vietnam,” Vietnam Economic News, 31 January 1999.

36

as there is no existing model of a socialist market economy. Internal restructuring is, therefore, of vital importance. This is a difficult task that includes the establishment of various working mechanisms

among

government

ministries,

along

with

various

functional institutions and agencies to study, supervise, and manage these activities and to take part in a number of meetings. This requires financial, infrastructural, and human resources.

In the field of trade and foreign investment, Vietnam is required to improve market access for the ASEAN members by lowering her import tariffs for industrial and agricultural products. Vietnam is also required to open her service market to foreign competitors. Other

sectors

transportation,

to

be

opened

communication,

include

banking,

engineering,

Vietnam also has to reduce or eliminate

and

insurance, consulting.

restrictions with respect to

trade and foreign direct investment. The reform of Vietnam’s trade system and practices needs to be accelerated in line with AFTA and WTO principles. Areas for further reform and improvement include the pricing system, the import and export regimes, the financial and taxation systems, the approximately 5,800 state-owed enterprises (SOE)

and

their

trading

practices,

intellectual

property

rights

legislation, the existing agreements signed with other countries, and the administrative bureaucracy.

Vietnam also has to deal with other important legal, economic and political issues, such as trade rules and applications, market access and trade barriers, service and trade liberalization, intellectual property rights protection, selective safeguards, the environment, transparency, labor standards, and human and democratic rights. These issues are controversial. There is, however, an increasing political

interest

from

other

partners,

especially

those

in

the

37

economically developed world, in linking these issues to trade and investment and looking for ways in which trade rules and investment can be levied to promote non-trade objectives.

At the same time Vietnam has been faced with a number of technical challenges when joining the ASEAN and participating in AFTA, such

as

personnel

training,

human

resource

development,

and

language barriers. As a new member of a long-established club whose leaders are very informal and familiar with each other, Vietnam will face traditional adjustment problems in the short term.

38

CONCLUSION

ASEAN is a regional organization consisting of ten Southeast Asian nations

whose

political

systems,

social

systems

and

economic

development differ from one another. Over the past years, it has undergone many profound changes. While its economic integration has been at the top of its agenda and implementation has been underway for some time, only limited progress has been made in this direction. The focal emphasis at the present stage has been involved more with trade and investment, while other areas of economic cooperation and integration are only at an initial stage. The scale and depth of ASEAN

economic integration differ from those of the

EU and other organizations. However, thanks to the principles of consensus,

equality,

non-interference

in

each

other’s

internal

affairs, and the spirit of unity in diversity, the Association has succeeded in consolidating itself and advancing forward.

In the face of

the impact of the current financial crisis, all ASEAN

members, new and old, are required to mobilize all their internal resources, to uphold the said principles and to further promote political and economic cooperation and integration more than ever before. This also requires the creativity and flexibility of all member countries in adapting to the new and changing world and to fulfill the goals set out by the Association.

For many Vietnamese, the issue of economic integration with the region and the world as a whole is rather new, both in concept and substance. It is conceivable that regional economic integration is one

essential

component

of

the

overall

Vietnam’s

economic

development strategy. To compensate for the shortcomings and weaknesses in its economic relations with the ASEAN member

39

countries, it is necessary

for Vietnam to develop and diversify its

economic relations with other partners, especially those in the developed world, namely Japan, the US and the EU, along with its traditional partners, Russia and the Eastern European countries. These are important sources of capital, know-how, and management skills that are necessary for Vietnam’s economic development.

However,

Vietnam’s

accession

to

ASEAN

and

its

economic

integration with the region has a strong direct and indirect impact on other countries in transition in Southeast Asia, especially the new members of the Association. In one way or another, Vietnam has been exploring and experiencing a new path through which these new members will travel.

The

successful

implementation

of

the

AFTA

principles

and

Vietnam’s fulfillment of its objectives will be a step forward, paving

the

way

to

further

global

economic

cooperation

and

integration. Successful fulfillment of this objective means a great deal both to Vietnam and the other members of ASEAN.

40

REFERENCES

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