India Vietnam Trade and Investment Linkages

There are a number of complementarities and convergences between India and Vietnam on political issues and in the field of strategic and defence; however, economic relations between the two nations are much below their true potential. The volume of trade between the two countries was pegged at US$ 10 billion in 2017 and is expected to touch US $15 billion by 2020 which is noteworthy.

Vietnam and India are emerging economies and had embarked on economic liberalization at different times. Vietnam began the Doi Moi (economic liberalization) in 1986, thus taking precedence over India whose liberalization programme began in early 1990s. However, in terms of disinvestment, equity market liberalization and facilitating the influx of private capital as well as foreign capital, it has lagged behind India. One of the many reasons is that both countries have been promoting similar products (footwear, mobiles, electronics, textiles, Tea, Coffee, pepper, etc.) in the global market.

Be that as it may, Vietnam, (being a member of ASEAN) was able to reap dividends of better integrated regional network as well as its membership in many other organizations, by default, such as APEC, the G-20, and other regional economic networks. Despite being on the fast track of economic integration with the ASEAN countries, it could not catch up until 2007. Vietnam joined WTO in 2007, and was able to meet basic economic criteria to get integrated into the regional value chain. In the last decade, it has developed critical capacities in areas such as steel, cement and oil and gas industry. Since 2007, it has sustained an annual average economic growth of 6.29 per cent and is seen as one of the fastest developing economies in Asia. Its per capita income has been nearly US$2,500 in 2017.

Vietnam has also been looking for better economic relations with other countries in the Asia Pacific region. The major portion of its investment was sourced from Japan, Taiwan, Australia and the ASEAN countries. One of the major problems faced by Vietnam with regard to disinvestment was limited liberalization of its equity market, which till date hovers between 30 to 40 percent. Vietnam did make structural changes in its economy, but choices for Vietnam were rather limited due to lack of entrepreneurship, English language skills and underdeveloped financial institutions.

In the above context, India-Vietnam economic relations are seen as futuristic bedrock of the relationship. During the signing of the India-Vietnam Free Trade Agreement in 2009, there were aspirations in Vietnam that India should accord it free market economy status and only then it would be beneficial for Vietnam to gain from India-ASEAN trade pact. The resultant effect has been sizeable increase in bilateral trade between the two countries. In the pre-FTA phase, the bilateral trade was about US$1.2 to 1.5 billion which has now increased by nearly five folds to the current figure of US $7.5 billion (for the first eight months of 2018).

The problem with bilateral trade between the India-Vietnam has also been attributed to lack of standardization, rerouting of Chinese products through Vietnam, bilateral business agreements between the financial institutions of the two countries, rather limited or very less interaction between the two business communities as well as doubts in the minds of the business community about prospects of investment opportunities in each country. With low cost labour and better FDI facilitation, Vietnam has attracted a total of US $300 billion in the last ten years (2008-2017).

The two countries still need to explore possibilities with regard to investment and also facilitate trade in services. Vietnam has ratified the bilateral trade in services agreement under India-ASEAN rubric, but it is still to be implemented because of non-ratification by Philippines. Vietnam also took the futuristic vision of getting into the Trans-Pacific Partnership (TPP) that promises integrated and better norms with regard to trade between the members.

TPP failed to extract support from the US which announced is withdrawal and many commentators have begun signing obituarieswith regard to the future of the TPP. However, the rest of the 11 countries have entrusted faith in the WTO plus organization. India in this regard has clearly indicated that it is not yet ready for the TPP agreement due to issues such as technical barriers to trade, sanitary and phytosanitary issues, and structured time bound reduction of tariffs. One of the exclusive elements of TPP was that the member states would get exemptions when sourcing raw materials from other member countries. The preferential treatment given to the TPP members would create a big economic and trade zone. India and Vietnam cannot reap the benefits of bilateral trading arrangements as the two sides need to work for futuristic economic cooperation. Regional Comprehensive Economic Cooperation (RCEP) could be a platform, but India has reservations regarding Rules of Origin (ROO) as also the local content in the products should not be less than 35 per cent.

With regard to dispute resolution mechanism and the Mutual Recognition Agreement (MRA), there still remain certain discrepancies; but these are best resolved through active political intervention. Surprisingly, neither India nor Vietnam instituted a feasibility study to undertake research related to trade complementarities, and also did not work towards cooperation in production given that both possess advantages of cheap and abundant labour. Further, there have been instances of unprincipled behaviour in trade from both sides in terms of product exports. Besides, lack of direct flight between the two countries has been a major impediment in facilitating trade and investment.

India and Vietnam need to cooperate not only in the field of agriculture but also in restructuring businesses, developing e-commerce, digital economy, infrastructure, power generation, energy efficiency, tourism and green logistics. Joint projects in science-technology would help both the countries to capture mid and high technology markets.

Ms Quach Thi Hue is Lecturer in Institute of International Relations, Ho Chi Minh National Academy of Politics, Hanoi, Vietnam.

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