After the Trans-Pacific Partnership, a perspective from Vietnam

President Obama has announced that he will no longer seek passage of the Trans-Pacific Partnership (TPP) in Congress, leaving the fate of the treaty in the hands of President-elect Trump and the Congressional Republican leadership.

Alongside GATT and the WTO, the TPP was one of the three most significant trade and investment pacts ever negotiated by the United States in the post-war era.  It involves the United States, Japan, Australia, Malaysia, Vietnam, Singapore, New Zealand, Canada, Mexico, Peru and Brunei, an 800 million person free trade zone with a gross domestic product of $28 trillion, roughly 40% of the global economy. It eliminates 18,000 foreign taxes on American-made goods and services and would thereby greatly increase the flow of US exports and investment to Asia.  The United States already exports over $700 billion annually to these eleven Pacific nations, and the elimination of taxes on American exports under the TPP would drive this number significantly higher into the future.

{mosads}This matters for two reasons.  First, within a decade, four of the five largest economies of the world will border the Pacific Ocean.  The United States will be able to continue its global leadership role only if it retains an integral, active presence in the Pacific.  Second, if the United States retreats from the region, as a defeat of TPP in Congress would surely signal, an emboldened China will ever more aggressively seek to displace America.

Vietnam is a special case.  As memory of the war has receded, the US and Vietnam have developed many common interests, both technical and strategic.  As American lawyers acting for American companies in Vietnam over several decades, we deal regularly with trade and investment flows between the United States and Vietnam.  The debate in America has concerned TPP as a whole, but, given President-elect Trump’s preference for bilateral free trade agreements over “mega-deals,” perhaps we should focus on an agreement between the US and Vietnam that already contains the bulk of tariff reductions and protections embodied in the already negotiated TPP.

First, consider the wins contained in such an agreement for the United States.  Despite the fact that it imposes a thicket of taxes on American products and services, Vietnam is currently the fastest growing market for US exports in the world.  In 2015, US exports to Vietnam rose 24% year-over-year to $7.1 billion.  With TPP in place and the dense cluster of protectionist taxes eliminated, that torrid growth rate is set to continue, doubling US exports to Vietnam by 2020.   Using the rough metric that $1 billion in US exports supports 5,000 US jobs, our new relationship with Vietnam alone will enable the creation of 35-40,000 high-paying American jobs over the next five years, in sectors from fruit farming to software and electronics, benefiting rural Washington state as well as Silicon Valley.

Second, many Vietnamese remain wary of removing their protective tariffs against US goods and services, fearing that the increased US competition will directly threaten their local firms.  Furthermore, primarily at the insistence of the Obama Administration, TPP includes stringent environmental and labor protections, which will significantly raise costs for Vietnamese manufacturers.  The United States is the largest market for Vietnamese exports, and US trade negotiators ruthlessly exploited that fact to obtain meaningful, even painful concessions from their Vietnamese counterparts.

So why did the Vietnamese agree to a pact that will impose much higher, more expensive environmental and labor standards on their own firms and allow a flood of new US goods and services into their home markets?  Because of their clothing and shoe exports. 

Third, Vietnam exported close to $16 billion in manufactured apparel and footwear to the United States in 2015, much of it bearing well-known US brand names, such as Nike, Ralph Lauren, and Calvin Klein.  Despite the higher costs of the more stringent environmental and labor standards imposed by TPP, the agreement will meaningfully lower US tariffs for these Vietnamese exporters, allowing them to increase their US market share.

But there’s a twist.  If the Vietnamese apparel and footwear exporters increase their US market share, it is not at the expense of US-based clothing and shoe manufacturers, which barely exist any longer.  The Vietnamese will use TPP to enhance their position against their Chinese competitors.  In 2015, China exported $58 billion worth of clothing and shoes to the US.  The Vietnamese, already price competitive against China, can use TPP to significantly expand their exports to the US at the expense of the Chinese.

To sum up, a bilateral trade agreement that encapsulates the essence of TPP would transform Vietnamese-US relations in a way that creates significant winners and losers.  The biggest winners will be American workers, as tens of thousands of high-paying US jobs are created by the expansion of US exports to Vietnam into the future; Vietnam’s environment, as the strict environmental protections on Vietnamese manufacturing take effect; Vietnamese workers, who will enjoy not only many more jobs but also the increased rights, wages and safety protections provided under the agreement; Vietnamese exporters, who will increase their market share in the United States; and, finally, US consumers, who will be able to buy even cheaper running shoes and jeans.  The biggest losers will be Chinese exporters, who will lose US market share and jobs to a newly empowered Vietnamese competitor.

Seen from a strictly American perspective, a bilateral-TPP would change the US-Vietnamese trading relationship in a way that only benefits American workers, American consumers, the environment, and Vietnamese workers, leaving the costs to the Chinese.

Furthermore, American prestige in Vietnam is riding high following President Obama’s visit last May.  The Vietnamese among others in the region fear increased Chinese aggression and regional domination.  For these and many other reasons, relations between the US and Vietnam are cooperative.  Enacting a bilateral-TPP with Vietnam would deepen this growing friendship between the two countries, while an American rejection of TPP would severely undermine US credibility in Vietnam and the region.

America should reject protectionism and instead strengthen and deepen its relationship with Vietnam through its embrace of a new free trade agreement that includes the best of an already negotiated TPP.

Sesto Vecchi, Managing Lawyer of Russin & Vecchi in Vietnam, has over thirty-five years experience practicing law in Vietnam.  He is a member of the Council on Foreign Relations.

The views expressed by authors are their own and not the views of The Hill.


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