Trade liberalization and the environment in Vietnam
Wednesday, July 22, 2009
Vietnam's integration with the international economy has increased significantly over the past decade, aided by substantial liberalization of trade, and appears set to increase further as trade-expanding measures take full effect. This dramatic shift in Vietnam's trading patterns has important implications for the environment and use of natural resources. This paper offers a systematic analysis of the trading and investment patterns to give a broader understanding of the environmental implications of greater openness of the economy during the past decade. The results suggest increasing manufacturing and export activity in water and toxic pollution-intensive sectors compared with the less pollution-intensive sectors. The story is, on the surface, consistent with the changing composition of Vietnamese production and exports away from traditional sectors and toward pollution-intensive manufacturing (especially leather and textiles). The paper also highlights the need to consider strengthening environmental policies while further trade liberalization is being contemplated through Vietnam's joining of the World Trade Organization.
Trade liberalization and export promotion have been central to Vietnam’s continuing
economic transition. To this end, Vietnam has pursued a multi-pronged approach to
gradually reducing trade barriers and increasing the outward orientation of the economy.
Vietnam’s economy has doubled in size during the last decade, while its poverty rate has
halved; exports are growing by 20 percent per year (substantially faster than GDP), and
foreign direct investment (FDI) inflows by 10 percent per year.
Vietnam’s commitment to trade liberalization has been fueled, to a large extent, by
bilateral and multilateral trade agreements. Under the ASEAN Free Trade Agreement
(AFTA, 1995), tariffs on imports from ASEAN countries were reduced to below 20
percent and are targeted to be below 5 percent by 2006. Under the United States-
Vietnam Bilateral Trade Agreement (USBTA, 2001), Vietnam made substantial further
commitments to liberalize its trade regime, including tariff reduction and removal of
quota restrictions. Other trade reform measures that Vietnam has committed to under the
USBTA include improving transparency in its trade laws, introducing dispute settlement
procedures, protecting intellectual property, and facilitating investment. USBTA
provided a sizable fillip to exports since it became effective, with exports to the U.S.
increasing by 128 percent and accounting for 82 percent of total export growth in 2002,
making U.S. the largest market for Vietnamese exports2. Currently, Vietnam is vying for
membership in the World Trade Organization (WTO) which requires a commitment to
simplify import controls and reduce the level of import protection.
The composition of Vietnam’s exports and imports has also altered significantly during
this period. While the share of crude oil in total exports declined from a third in the early
1990s to a fifth by 2002, manufacturing exports rose from 6 percent to 32 percent (see
Figure 1). There has been a significant diversification in Vietnam’s export markets as
well. With Vietnam becoming less dependent on oil exports, Japan and Singapore have
become less important as destinations for Vietnam’s exports.
Link to entire paper