Why Vietnam will not be ready to catch up to the AEC train when it leaves in 2015?

The last weeks of my study program here in Thailand are there and I can honestly say that it was an extraordinary journey that I can recommend to everyone to make at least once in their lives. Like I explained in my on blog on NAM: A dirty chemical cocktail, I would focus a little bit more on one of the ASEAN members, Vietnam. The reason for this was that the second part of the minor was concerned with ASEAN. We had to choose one of the ten ASEAN members to represent during module in ASEAN summit meetings, as well as write our module assignment about the member country.

Funny interpretation of the ASEAN handshake and how the countries are (un)willing to cooperate.

Funny interpretation of the ASEAN handshake and how the countries are (un)willing to cooperate.

The module assignment is concerned with ASEAN getting ready to initiate the ASEAN Economic Community, or AEC, and then in particular an analysis on the preparedness of the country I chose to represent during the second module.

The AEC is a product of ASEAN and its goal is for all members to economically integrate. The AEC is based on pillars as seen in the picture.

The requirements every ASEAN should comply to as of the end of 2015. The requirements were created in oktober 2003 with the signing of the declaration of ASEAN concord 2 to be realised in 2020. In 2005 the leaders of ASEAN discussed the accelaration of the AEC to 2015 which is currently the deadline.

The requirements every ASEAN should comply to as of the end of 2015. these requirements are also closely look at in my collegues’ article Brain Drain on The requirements were created in October 2003 with the signing of the declaration of ASEAN concord 2 to be realised in 2020. In 2005 the leaders of ASEAN discussed the acceleration of the AEC to 2015 which is currently the deadline.

With the AEC the ten members hope to form one highly competitive economic unity, able of competing with some of the other major economic powers in the region, such as China, Japan and South-Korea. In short after the implementation of the AEC there will be a free flow of goods, services, investment, skilled labour and freer flow of capital.[1. http://www.asean.org/communities/asean-economic-community]

Vietnam Joined ASEAN in 1995 and is the seventh member to join the group.[2. http://www.asean.org/communities/asean-economic-community/item/vietnam-in-asean-toward-cooperation-for-mutual-benefits] Since it joined ASEAN in a later stadium it still has a lot of catching up to do, but to render Vietnam’s position unsaveable is pre-emptive. In 1986 the socialist government of Vietnam announced a reform policy which caused major economic growth in a matter of years.[3. http://www.vietnam.hu.nl/Economie1.htm] The Doi Moi or all-round renovation process brought with it key changes which caused the rapid development of Vietnam’s economy.[4. http://www.vietnam.co.za/index.php?option=com_content&view=article&id=114:economic-renovation-doi-moi&catid=45:history-of-vietnam&Itemid=114]

The first major reform was that the prohibition of owning any form of private company was partly lifted causing small companies to start up instantly. Secondly, trade embargoes with all countries was lifted making it possible for lucrative trade agreements to come into place. A good example of this is the trade agreement Vietnam made with the U.S. in 2001, which causes the U.S. being Vietnam’s biggest export market today.[5. http://www.vietnam.hu.nl/Economie1.htm] The table below shows the 5 major export and import countries of Vietnam, the value and the percentage of total exports and imports.

Top 5 export countries Top 5 import countries
The U.S. $ 18.1 Billion 18% China 23.7 Billion 22%
Japan $ 11.2 Billion 11% Korea 13.0 Billion 12%
China $ 10.4 Billion 10% Japan 9..6 Billion 9.0%
Germany $ 5.3 Billion 5.3% Singapore 6.8 Billion 6.4%
South-Korea $ 5.0 Billion 5.0% Thailand 6.6 Billion 6.1%

[6. http://atlas.media.mit.edu/profile/country/vnm/]
The grim reality however is that although Vietnam is performing at the utmost of its capabilities, it just might be too late. The original plan for the AEC was to be implemented in 2020, but in 2005, the ASEAN leaders discussed the speeding up of AEC to the new deadline of 2015.[7. http://www.eria.org/publications/research_project_reports/images/pdf/PDF%20No.1-2/No.1-2-part2-3.pdf]

Vietnam has numerous problems that still have to be addressed, first of which is the widespread corruption. Vietnam’s current rank on the corruption perception index is 116/177. This means that out of the 177 countries partaking in the index, Vietnam is at the 116th place, meaning that the country is perceived to be highly corrupt.[8. http://www.transparency.org/country#VNM]

Perceived Corruption position of the ASEAN members

Singapore 5
Brunei Darussalam 38
Malaysia 53
The Philippines 94
Thailand 102
Indonesia 114
Vietnam 116
Laos 140
Myanmar 157
Cambodia 160

[9. http://www.transparency.org/country]
The second major issue is the fact that Vietnam is still a one-party system with the CPV controlling all the strings for already 68 years. People try to start up new parties are oppressed, threatened or locked up leading to question marks within the international community. In a petition which was baptised Petition 72 due to the fact 72 intellectuals and politicians under the leadership of former justice Minister Nguyen Dinh Loc had signed it, there was a revision of Article 4 of the constitution. This article contains the guarantee of the leadership to the communist party of Vietnam or CPV. The petition argued in favour for a multi-party system. The results of this public pressure on the government were meagre to put it lightly. In the new constitution of 2013, article 4 was changed, but instead of giving more power to the people, the CPD increased its hold on the country. [10. http://www.dw.de/vietnams-new-constitution-shows-limits-of-reform/a-17344033]

Finally, the infrastructure of Vietnam is like in a lot of other ASEAN member countries still not up to standard. Even though Vietnam shares a massive border with the sea, the ports, roads and airports of Vietnam are still not able to receive the increased amount of goods that comes with their economic development. [11. http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/VIETNAMEXTN/0,,contentMDK:23087100~pagePK:141137~piPK:141127~theSitePK:387565,00.html] It is expected that Vietnam will need around $167 U.S. billion to sustain its economic growth for the comming decade. [12. http://english.thesaigontimes.vn/Home/business/vietnam-economy/32909/ADB-Macroeconomic-stability-not-enough.html]

With companies looking for new places to set up companies now that China’s labour costs are rising quickly it is a perfect opportunity to create more foreign direct investment into their country. With Thailand temporarily paralyzed due to the political issues it is a great opportunity for Vietnam that step up to the plate and become the next major trading hub in South-East Asia.[13. http://thanhniennews.com/society/vietnams-cheap-labor-may-turn-out-to-be-a-hard-sell-24240.html]

My own perception is that there are two tiers of countries, one, the original ASEAN, and then the new members. The new members are in various stages of development.

Sellapan Ramanathan

As we look forward to the AEC by the end of 2015 it can be concluded that with the new rules and regulations being imposed to all members of ASEAN, the competition will be brutal. Since Vietnam still has other countries to let go in front of them in terms of issues such combating corruption, better infrastructure and overall advancement of economy it is of vital importance it will continue to work at a furious pace in getting its act together. That the misfortune of countries such as China and Thailand favors current economic growth of Vietnam is beneficial, but I can safely say that it will be too little too late. Problems like corruption and infrastructure or the composition of the government are issues you cannot change overnight and since the AEC is supposed to go in effect over 1,5 year is not a good prospect for Vietnam. A sight of relieve might be that other ASEAN members are also struggling in getting their act together, but with more developed countries such as Singapore, Malaysia and Thailand almost able of integrating into AEC the chances that the deadline will be postponed is slim. That Vietnam will become a more significant ASEAN member in the distant future is certain. with the Doi-Moi policies still firing on all cylinders and the misfortune the countries surrounding Vietnam are experiencing the chance exists that Vietnam will become a major player in the ASEAN region, but it will take some time to reach these expectations. In the end all there is to do is wait and see what the consequences to Vietnam might be and if it has done enough of its homework to join ASEAN at the end of 2015.

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