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CPTPP Serving Vietnam as Opportunities and Challenges

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CPTPP is originated from the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) (it is also so call P4) signed in 2005 by Singapore, Chile, New Zealand and Brunei. Since September 2008, the United States, Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan have jointly negotiated at the aim of setting up the Trans-Pacific Partnership Agreement (TPP). The TPP negotiation process ended in 2015 under the agreement of the 12 member states; however, Trump administration announced its withdrawal from the agreement in January 2017. After a number of adjustments, including postponing the implementation of the 20 TPP provisions with the expectation that the United States would return to the Agreement, the 11 remaining TPP members unanimously continued to promote this process by establishing Comprehensive and Progressive Agreement for Trans-Pacific Partnership -CPTPP). After completely reviewing the content and approved by the member parliaments, estimated by March 2018, CPTPP will officially become a large economic zone in Asia-Pacific with a population of over 460 million, contributing 14% of world GDP and 1/6 of global trade.

The agreement is expected to establish a new common framework for regional free trade arrangement for Asia-Pacific countries, to support trade, to attract foreign investment, and to promote institution reformation in those countries. CPTPP has the basic advantages as the members of the negotiation are the countries that have been strongly committed to the trade liberalization. Given the disclosed commitments, CPTPP is considered as a model treaty for the 21st century because of its overwhelming scale and influence in comparison with other trade agreements regionally and globally.

Given the competitiveness, the economic size and the inadequacies of the current institutional system, it is surprised that Vietnam has strongly participated in CPTPP. Compared with other members, it has the least competitive economy and the loosest legal system. Despite its 20-year-old experience in the process of international economic integration, Vietnam lacks the practices in a highly competitive and demanding integration environment since it is only familiar with first-generation FTAs, where the open commitments and reform pressures are readily accepted in a transitional and distinctive economy.

Meanwhile, CPTPP’s regulations set out in the negotiations are evaluated as far beyond the ability of the current economy of Vietnam. What is the motive of Vietnam to join CPTPP?

Given the economic size of the members and the terms of trade liberalization, joining CPTPP is obviously advantage to empower Vietnamese economy in the Southeast Asia in terms of economic growth, trade as well as FDI attraction. In the economic perspective, Vietnam is a country to achieve the most benefit from the CPTPP.

Firstly, the opportunities to increase the export of goods that are the advantages of Vietnam (i.e. textiles, footwear, electronic products and equipments) are relatively high by combining the tariff reduction and the experiences in these markets.

Secondly, the attraction of foreign investment into Vietnam is greatly promising. The access to large markets such as Japan and Canada together with the clearer commitments to improve the investment environment and protect intellectual property rights will become a significant attraction for international investors. Moreover, Vietnam, under the framework of CPTPP, is able to attract large inflows from the member countries through the membership of regional economic organizations such as AFTA and ACFTA.

Thirdly, the chances of faster economic growth are strongly wide. The expansion of the major export industries such as textiles, footwear, fishery, etc., will help stimulate the income growth from domestic production, thereby support the increase of the overall demand.

Fourthly, Vietnam will have an opportunity to form a more comprehensive economic structure. CPTPP will urge the domestic investors as well as the regional ones to invest in the supporting industries to create local material resources given the extremely high standards on the place of origin.

Fifthly, it is a chance to complete the institutions that govern the market economy. CPTPP sets out a clear legal framework for not accepting concessions to any business. Because of its high and foreseen requirements on policy transparency, compared to many other agreements, CPTPP could become one of the important premises for Vietnam to carry out institutional and market reforms thoroughly and comprehensively.

However, among the countries participating in CPTPP, Vietnam achieves the lowest level of development and faces big challenges.

Firstly, the production industry structure is not consistent with the provisions of CPTPP. The economy is not well-prepared and the supporting industry is weak. With regard to the requirements of origin, the sectors which are the advantages of Vietnam’s export sector are not able to exploit the concessions from the CPTPP because their inputs do not contain domestic factors.

The second challenge is from the stagnation of the enterprise system. The adaptability to the market economy of Vietnamese enterprises is weak. The lack of an effective investment strategy for the supporting production industry and “traditional outsourcing” works have made the overall benefit of the economy declined.

Thirdly, the limitation of state enterprises’ role in the national economy becomes a content of CPTPP. The external pressure is positive only if it meets the community benefits. If the selection of CPTPP is purely commercial-economic aspect, it will not cause the objection against the reformation within the SOE system.

The fourth challenge is from the increasing competition of goods from the members of CPTPP. At present, Vietnamese enterprises are well-protected by the high tariffs. The trend and demand for zero tariff reduction will be applied to CPTPP members in the coming time. In the analysis of the export structure of CPTPP countries, it can be seen that the manufacturing industries of Vietnam facing difficulty are automobile industry and agriculture, especially the husbandry which remains mall and fragmented, and unable to compete against the large, experienced and traditional competitors.

The fifth challenge from the requirements of intellectual property protection in CPTPP is much more critical. The continuing possibility of “appearing to court” by infringing intellectual property law is present in countries previously without adequate preparation of intellectual property law. Furthermore, the requirements for increasing the level of protection of intellectual property rights over inventions, copyrights, and trade marks can lead to the escalation of drug prices and create a health burden to the emerging economy like Vietnam. More than that, the measures to protect intellectual property related to biology also affect agriculture which accounts for more than 60% of the population of Vietnam. The prices of agricultural products such as veterinary drugs, fertilizer, etc. will thereby grow significantly, which increases costs and reduces the efficiency of agricultural production in general.

In regard of the need for economic reform and the promotion of economic growth, the process of further integration into the world economy is not allowed to slow down. The question is what Vietnam needs to do to facilitate the upcoming integration roadmap.

Firstly, administrative reform and severely corruption offence are the most important things. It is shown that the WTO supports free market economy so that it could operate and develop only in a healthy competitive environment. Since the joining in the WTO, Vietnamese economy has not really created a healthy competitive environment. Meanwhile, corruption has created more conditions for interest groups to ramp up and distort even the good national policies. If the administrative procedures remain cumbersome and troublesome, corruption will still restrain the required transparency in corporate management. In accordance, CPTPP is not an opportunity, but a challenge to the whole system.

Secondly, the reformation of the legal environment and policies to ensure a single “standard” prescribed by CPTPP is a difficult for Vietnam. But in the long run, this reform of the institutional environment towards the international “rules” is a necessary condition for growth in the context of globalization. In this perspective, although adjusting the policy system involving the regulation of CPTPP is a difficult and costly process, Vietnam’s commitments can be seen as an external “push” to provide additional momentum for domestic efforts towards a transparent institutional environment and economic growth.

Thirdly, it is needed to organize the perfect communication to all classes of people, especially the business and the production circles in the countryside. The participation in CPTPP without fast updating to the farmers might cause the loss of market, the high pressure of competition, and even the legal disadvantage in disputes and sues.

Fourthly, the reform of SOE and the development of SMEs is the key solution. Given the population and economic growth, the number of enterprises in Vietnam is relatively low. This is a major constraint in economic development, employment, creation of competitive markets and the mobilization of resources from society.

In the context of limited resources and high demands of work, the development of these types of enterprise is appropriate not only to the internal capacity but also the preferences of CPTPP. Hence, it is essential to reform SOEs in a substantial way and enable them to have a transparent business environment.

Assoc.Prof.Dr.BuiThanh Nam, University of Social Sciences and Humanities, Vietnam National University, Hanoi

Southeast Asia

China-Indonesia relations are expected to grow during Jokowi’s second term

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Authors: Muhammad Zulfikar Rakhmat, Ramadha Valentine and Dimas Permadi*

The relationship between China and Indonesia seems to be increasing, especially in the field of trade economy, this is evidenced from the trade figures between the two countries which have reached 45.3 million. The relationship between the two countries is mainly focused on three sectors which include trade and business, politics and security, and people to people exchange. Some agreements also appear to have been agreed by both parties along with the increased visits of the two state actors in turn.

With the election of Joko Widodo in the second period recently, cooperation between the two countries is likely to increase.

Why?

To date, Indonesia has accepted 28 joint projects with a value of $ 91.1 billion, under the guise of the BRI. The projects include the Sei Mankei special economic zone; phase two for Kualanamu airport; clean energy development in the Kayan river in North Kalimantan; the construction of a special economic zone in Bitung, South Sulawesi, and Kura island in Bali. These projects were carried out by private parties from Indonesia and China.

The latest, Indonesia has also signed another BRI cooperation package in April 2019, which contains 23 cooperation packages in investment and trade projects. The cooperation package include the development of four economic corridors, the high-speed train and technology development project, and the development of education. The 23 projects have produced investment value of US $ 14.2 billion.

Several projects by China have not yet been fully realized in Indonesia. The projects that were initiated in the BRI collaboration still found obstacles such as budget and license. The realization of the budget in the amount of 50 billion USD has only touched the 3 billion USD figure, which means that some projects have not yet been implemented.

For this reason, China is expected to make maximum efforts to meet the target projects that have been initiated previously. This will also help China in covering up the issue of project failure faced by Indonesia and published by several international and national media.

Moreover, China’s expected efforts to accelerating the BRI project is in line with its goal to realize the BRI in 2049. That year was chosen along with the 100th anniversary of the founding of the People’s Republic of China. Indonesia’s territory which is quite strategic has become one of China’s attractions in making Indonesia one of the important routes for its BRI.

With some of the above explanation that some BRI projects have not been fully realized, these two things reinforce the reasons for China in accelerating the BRI project in Indonesia.

In addition, Jokowi’s previous leadership period focused on infrastructure investments. This can be seen with several Infrastructure projects that are currently being implemented in several regions of Indonesia. Nonetheless, these infrastructure projects have not yet been fully achieved, especially during the recent transition period whereby the government has been occupied with other issues.

In this context, Jokowi may see the BRI as opportunities for the Indonesian government which has a vision of equitable development in the country. Collaboration under the BRI is seen to benefit the Indonesian government in realizing its infrastructure development in the near future.

Recommendations for both

2To reap the full benefits of the expectedly growing China-Indonesia relations, there are several steps that should be taken by Indonesia and China. The Indonesian government should learn how other countries in Asia, such as Pakistan, Sri Lanka, Bangladesh, the Maldives, Kyrgyzstan, Tajikistan and Laos. They are countries that received investment from China that ended in a debt trap project, whereby they all had to give up all assets that had been financed from the Chinese project.

One example is how Malaysia renegotiated the BRI project, because Malaysia felt disadvantaged by the BRI project cooperation agreement. As a result, the projects’ costs are reduced from the initial agreement fee. Studying Malaysia’s policies, the Indonesian government should be aware of Indonesia’s position in cooperation with China, that Indonesia has a fairly high bargaining position. Because China needs Indonesia to achieve its economic goals in the BRI project, which would not have been possible without Indonesia.

In recent years along with the commencement of the BRI, China has made several efforts as a self-branding tool that aims to build its good image. In Indonesia, China began to introduce its country through various ways, one of which is cultural efforts such as through media and cultural efforts. However, this does not seem able to change the sentiment because the efforts are still limited and not widely implemented. To this date, negative perspectives on Chinese foreign investment is still found among the people who are contributing to the policy making of the Indonesian government.

In fulfilling its vision, China is expected to be able to use soft-power in building its image in ensuring its investments provide benefits that can boost national economic growth.

*Ramadha Valentine and Dimas Permadi are analysts on Indonesian political economy

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Southeast Asia

Reducing gender gaps in Asia and Pacific essential to realizing region’s potential

Ingrid van Wees

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Over the past two decades, the Asia and Pacific region has made progress in reducing gender gaps in certain areas, most notably education. According to the World Economic Forum’s 2018 Global Gender Gap Report, 6 out of 25 developing Asian countries had attained gender parity in education. In 12 out of 18 Asia Pacific countries analysed in the Report, women outnumber men in tertiary education enrolment rates. 

However, these improvements in skills and professional training for women have not translated yet into progress towards equal economic and professional clout. 

Gender gaps persist in labour force participation, gendered-segregation of the labour market, financial inclusion, and representation in senior managerial positions across the corporate world. This is the only region in the world where the labour force participation rate of women is declining. Meanwhile, a growing body of research on the future of work in the region has highlighted the high concentration of women in informal and vulnerable work, and that the bulk of unpaid care work is disproportionally being carried out by women.  

Female participation in the labour force in 2018 ranged from 60.1% in East Asia at the top end of the spectrum to only 25.9% at the bottom end in South Asia, according to the International Labour Organization (ILO). When women do work, they are often segregated into “feminized” sectors, where wages are typically lower. Wages are not yet equal. In developing Asia, the gender wage gap (75%) is lower than the global average of 79%
    
Women’s share in managerial positions across Asia varies significantly. In the corporate sphere, three countries in this region are among the top 10 economies worldwide with women in senior management positions, higher than the global average of 25%. They are the Philippines at 39%, Thailand at 37%, and Indonesia at 36%. On the other hand, there are countries in the region at the lower end, for example Japan with only 7%.  

Women’s representation on corporate boards is even lower than at the managerial level.  This ranged from 11.6% in Indonesia to 1.9% in South Korea. In 2011, India and Malaysia established 30% mandatory gender diversity quotas for senior management and board positions in corporations. However, implementation has been slow. As of 2016, women accounted only for 8.6% on corporate boards in Malaysia and 5.2% in India.  

Banking at the most senior management level in particular remains male territory in the region, since the share of female representation at this level reached only 6.9% on average, according to data gathered by the Financial Times.

While developing countries in Asia and Pacific are embracing new financial technology to make rapid progress on financial inclusion, the gender gap is felt here too. Women accounted for just 35% of bank depositors and borrowers in these countries in 2016. 

Increasing women’s participation in the workforce and closing the wage gap would have a tremendous growth impact for the region. ILO in 2017 estimated that this could add $3.2 trillion to Asia and Pacific region economies.

Increasing women’s access to finance can have life-changing impacts on not only their lives, but those of their families and communities. For example, women-led small and medium-sized enterprises in Sri Lanka are benefitting from facilitated access to credit to grow their businesses through an ADB project, which has been further supplemented by a grant from the Women Entrepreneurs’ Finance Initiative (We-Fi). Since last year, over 323 women’s businesses,  employing 3,934 people, have financially benefitted from the project. 

Financial institutions targeting female clients will be more successful at understanding and responding to customers’ needs if their personnel mirrors the market. Including female professionals and managers in research product selection and marketing will lead to better custom-tailored products.  That is one reason why ADB’s Trade Finance Program has been running a gender initiative to support its participating banks to improve its workplace gender equality/family-friendly policies.

There is growing evidence that gender equality in management and leadership results in higher productivity, more diverse decision-making, and better and more sustainable results. This is particularly true for female leaders in the banking sector. A study by the International Monetary Fund recently found that a higher share of female senior leaders is associated with greater stability and more prudent management. 

Moreover, it is true for any type of organization that effective women leaders provide positive role models and contribute to changing social perceptions about women and girls.  Policymakers and multilateral development banks like my own must lead by setting good examples, and work with the banking sector to address the gender gaps. 

On its part, ADB is committed to accelerating progress in gender equality in its developing member countries. And it is championing the cause within its own institutional structure and corporate culture.

Among other sectors, ADB supports various projects with a gender focus in such areas as technical and vocational education and training, urban and water, rural development, transport, and renewable energy. It has also provided technical assistance for legal and judicial reforms in support of gender equality, as well as women’s leadership within government and communities at all levels.

Last year, 56% of ADB’s sovereign and nonsovereign lending at entry had strong gender design elements. ADB is setting even higher standards for itself. In July 2018, ADB’s Board of Directors approved a long-term corporate strategy called the Strategy 2030. Under this, ADB aims to ensure 75% of its projects in the public and private sector will include gender designs by 2030. 

Strategy 2030 sets gender equality and women’s empowerment as one of its operational priorities for the next decade. ADB will promote women’s economic empowerment by expanding entrepreneurship opportunities for women and promoting their access to quality jobs in higher-paying sectors and the science, technology, engineering, and mathematics sectors where women struggle to enter. 

ADB’s approach is also informed by a recognition of the importance of tackling discriminatory social norms and institutions. It includes  supporting legal, institutional, and governance reforms at public level to explore measures are carried out to remove gender-based discrimination, enhance women’s participation in public resource allocation, and support leadership at all levels

Another major thrust is reducing the domestic responsibilities faced by women through improved water, electricity, and transport infrastructure. In the Asia Pacific, women spend from 2 to 11 times more time on unpaid care work (caring for family members, cooking, cleaning, fetching water, etc.) than men. That time spent represents an important barrier to pursuing economic pathways.

In 2016, ADB Management took bolder actions and set higher targets to improve workplace gender balance by enhancing recruitment of talented women, career management, training, development, and retention of female staff within ADB. ADB also has a gender target for various levels of management that is closely monitored and transparently reported upon. Leadership development programmes are now being conducted to prepare women for senior positions and enable senior staff to become better managers of diverse teams. 

Gender equality will indeed be at the heart of ADB’s priorities under Strategy 2030 and across the institution. 

On a wider scale, women’s empowerment is not just an objective in itself; it is essential to achieving inclusive and sustainable development in Asia and the Pacific. Given the economic, environmental, and technology challenges facing society in Asia and Pacific, it is about time to utilise the ingenuity, creativity, and energy of the region’s entire population. To do this, countries must fully engage women; and educate and empower them to allow for their contribution. At the same time, we should ensure we include, educate, and equip all men and boys for this transition to make this journey together and leave no one behind.

ADB

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Southeast Asia

How Countries in Southeast Asia are Working Together to Accelerate Human Capital Development

MD Staff

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In their decades-long efforts to spur strong economic growth and significantly reduce poverty, countries in the Association of Southeast Asian Nations (ASEAN) also successfully improved education and health outcomes for their people. Today, however, ASEAN’s average indicators on education, skills development, and health are below what is expected of its current income levels. These persistent gaps can undermine future growth and prosperity in the region.

To thrive in the global economy, where new technologies will create industries that have yet to be imagined, and where the changing nature of work prizes higher-order skills, ASEAN countries will have to go back to basics – and invest in its children.    

The challenge is significant. Almost a third of children in the region have stunted growth due to chronic malnutrition, making them highly prone to life-long cognitive and physical limitations. These can lead to poor school performance and diminished career prospects overall. And though schooling rates are high across ASEAN, limited education quality generates large learning gaps – 21 in 100 children have low reading comprehension skills at the end of primary school. Some 15% of 15-year-olds living today will not reach the age of 60 mainly due to noncommunicable diseases such as diabetes, cancer, and cardiovascular and respiratory illnesses. Both issues are partly a result of unequal access to basic services, including healthcare and education, which in turn contributes to widening income inequalities.

ASEAN countries, while linked geographically and economically, have varying levels of life expectancy, job productivity, and education quality. At the core of these challenges is the need among all countries to accelerate human capital development. This month in Bangkok, Thailand, leaders from the region came together to discuss how to take this further.

“Disparity, poverty, education and health, remain a challenge in ASEAN. We have to make Human Capital Development an integral part of our development,” ASEAN Secretary-General Lim Jock Hoi told the ASEAN High-Level Meeting on Human Development on September 9, 2019.

Organized by Thailand’s National Economic and Social Development Council (NESDC) and Ministry of Foreign Affairs, the World Bank and UNICEF, the high-level meeting was designed to facilitate dialogue among member states to share successful policy frameworks and emerging challenges, as well as help identify new approaches to human capital development and move towards a set of common, yet adaptable, policy directions.

ASEAN has their work cut out for them. The World Bank’s Human Capital Index projects that upon adulthood, children born in ASEAN today will be just 59% as productive as they could have been. To change this, political commitment to shift public investments to the right places is critical. 

Thailand, for example, reduced the rates of child stunting from 25 to 11% over the last 30 years through targeted, community-based nutrition programs in areas with high levels of poverty. The successful approach brought together health, agriculture, education, water and sanitation by close community-level coordination to address malnutrition.

Anutin Charnvirakul, Deputy Prime Minister and Minister of Public Health, shared how Thailand kickstarted its Universal Health Coverage (UHC) scheme in 2002 even though it was still regrouping from the 1997 Asian Financial Crisis. The UHC scheme entitled every Thai citizen to essential health services, and coverage reached 100% in 2018.

“UHC is about national commitment. We don’t have to wait until we are rich to get UHC. We just have to commit,” Anutin said.

Other countries in the region have also performed well in various areas. Vietnam stands out with its high-quality basic education system due to its commitment to education reform and substantial public spending, while Singapore initiated successful schemes to retrain and employ older workers.

Experts presented delegates with data that illustrated how globally, investments in health and education, especially for young children, generates high returns on productivity. It gives the future workforce the necessary cognitive and social skills to navigate a knowledge-based economy. The meeting ended with recommendations for accelerating human capital development in ASEAN. These include fighting malnutrition with nutritious foods and quality healthcare, orienting the entire education system around improved learning for the young and lifelong learning for adults, and achieving UHC to provide everyone with quality health services and financial protection from health-related shocks to their income.

But as Laurence Chandy, UNICEF’s Director of Global Insight and Policy Office, reminded participants, to realize these goals, countries will have to make “fiscal commitments and more importantly set clear policies for implementation that are specific to each country.”

World Bank

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