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Vietnam-US Trade Relations: Evolving Complementarities

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Vietnam- US relations has wittnessed significant developments especially in the areas of economics and trade after 25 years of normalization of Vietnam-US diplomatic ties (1995-2020). Compared with Vietnam’s diplomatic relations with other powers, the Vietnam-US relationship is still quite new and has its own specifics. Due to differences in ideology, disparities in economics, and conflicting strategic goals, this relationship is always interwoven between cooperation and struggle. In the spirit of“Understanding the past, cherishing the present and looking forward to the future”,the leaders of both sides have tried to overcome the differences, uphold the commons and create the favorable conditions for developing the relationship between two countries. Nowadays,the Vietnam – US comprehensive partnership is strongly developedon many fields,in which economic and trade is one of the most successful fields the bilateral cooperationand has achieved many new developments after 25 years, still considered the brightest point and becoming and driving forceVietnam – US overall relationship.

The international and domestic context has great impacts on the Vietnam – USrelations today. The world situation is changing more complicatedly and unpredictably which entails both oppotunitiesand challenges. Fierce strategic competition among major powers is increasing, especially in Asia-Pacific region; the situation of the East Sea (also known as the South China Sea), is complicated, posing a threat peace, stability, security in the region as well as the sovereignty and territorial integrity of the countries. Vietnam is in the process of developing, accelerating industrialization and modernization, so Vietnam needs a peaceful and stable environment, mobilizing capital resources, technology, knowledge and international supports to develop and defend the country. In this context, the two countries will try to make more efforts to promote relationship to the new height. On the one hand, to ensure the national interests of each country, on the other hand to together contribute to building regional security, creating a stable environment, cooperation and development in the future.Therefore, after 25 years of normalization of relations (1995-2020), the two countries have not stopped their efforts to improve the Vietnam-USrelationship on all aspects, in which the economic and trade sector has been playing the most important role and has made breakthrough growth as follow:

– Many important trade agreements and commitments have been signed to promote the Vietnam–US trade relationship such as: “Bilateral Trade Agreement” (BTA) in July 2000 and has officially taken effectsince march 26, 2001. This is an extremely important agreement because it has been creating a solid foundation for further promoting Vietnam–US trade relations by establishing a clear legal framework to ensure benefits for both sides. The Textile Agreement (effectivein 2003), the Aviation Agreement (effective january 2004), etc. In particular, in november 2006, Vietnam officially joined the WTO and the same year, the US government announced to grant Vietnam “Permanent normal trade relations” (PNTR). A major step in investment cooperation was the signing ceremony of the “Trade and Investment Framework Agreement” (TIFA)between Vietnam and the US on June 21, 2007. TIFA has created a foundation for the two countries for developing deeper trade and investment relations through the WTO and the BTA, and to resolve bilateral trade disputes, especially to implement commitments on the protection of intellectual property rights, expanding service market, administrative and legal transparency, thereby creating more favorable conditions for the US investors in Vietnam.

– With many trade agreements continuously signed as above, the US  Foreign Direct Investment (FDI) inflows into Vietnam has also increased continuously and is considered leading investors. According to the statistics of the Ministry of Planning and Investment of Vietnam, by the end of 2019, theUS ranked 11th among 130 countries and territories investing directly into Vietnam, with nearly 1,000 direct investment projects in Vietnam and the total registered capital is nearly 10 billion USD.The US has also kept Official Development Assistance (ODA) for Vietnam at a stable level of over 100 million USD/year. The USis also an investment destination for Vietnam’s businesses. In the first 5 months of 2020, this country’s ranks the second in Vietnam’s overseas investment capital, with 21.72 million USD, accounting for nearly 12%.

According to US Congressional Research Service, this year marks the 25th anniversary of the United States and Vietnam reestablishing diplomatic relations. Over the last 25 years, U.S.-Vietnam economic and trade relations have expanded rapidly. The United States was Vietnam’s 2nd largest trading partner in 2019; Vietnam was the United States’ 13th largest trading partner. Bilateral trade increased by nearly 32% in 2019, and the U.S. trade deficit with Vietnam rose to nearly $56 billion, an increase of 42% over 2018.Two-way trade turnover between Vietnam and US increased nearly 120 times from 451 million USD (1995) to 7.8 billion USD (2005), 45.1 billion USD (2015), 47.15 billion USD (2016), 50.8 billion USD (2017) and 60.3 billion USD (2018). Only in 2017, the value of Vietnamese goods exported to US accounted for more than 20% of the share of Vietnam’s exports to foreign countries. Vietnam is also the largest export market of USin Southeast Asia with rapid growth. Bilateral trade turnover in 2019 reached 77.5 billion USD. The US Business Association in Vietnam (AmChams) predicted that the two countries’ trade turnover could reach $ 80 billion by 2020.

According to statistics of Vietnam’s General Department of Customs,in the first 5 months of 2020, although the two countries have been hit hard by the covid -19 pandemic, Vietnam’s trade exchang in goods with US reached 31.11 billion USD, in which Vietnam exported toUSthe amount of goods worth 25.11 billion USD, up 10.6% over the same period last year. The main products exported from Vietnam to US market are textiles and garments; phones and accessories; computers, electronic products & components…. footwears, wooden, with a turnover of each item from $ 1 billion or more. On the contrary, US exported to Vietnam worth 6 billion USD, up 5.4% over the same period last year. The largest group of imported goods with a turnover of “billion USD” from the US market in the first quarter were computers, electronic products and components with a turnover of $ 1.92 billion, up 8.2% over the same period last year. Many American products have been continuing to grow in exports to Vietnam such as wood and wood products, animal feed and raw materials, seafood, vegetables and fruits… In the field of agricultural products, US has been exporting surplus to Vietnam such as corn, soybeans, meat, milk and fruits, with a value of about 400 million USD/year.

– In another economic and trade fields, science – technology and tourism over the years are most remarkable. …. Regarding science – technology cooperation, American and Vietnamese businesses are particularly interested in cooperation on artificial intelligence, creative start-ups, renewable energy, and infrastructure development of information technology and high quality human resource training. In term of  Tourism: in 2019, the American Tourism Association voted Vietnam as one of the 10 most attractive destinations in the world. The number of American visitors to Vietnam has increased steadily every year. The US visitor market continuously ranks in the top 5 source markets in terms of the number of visitors to Vietnam, the average growth rate in the period 2014-2018 was 11.55%. In january 2020, the number of international visitors to Vietnam from America reached 96,500 arrivals, up 19.7%. For the US tourists, Vietnam is a safe, friendly destinations where is capable of holding important international political events, notably the US-North Korea Summit was successfully held in Vietnam in February 2019 attracted worldwide attention. In Vietnam, there are a lot of  large American hotel management groups such as Hilton, Wyndham, JW Marriott, Best Western International, Starwood, Hyatt.

Besides the achievements, Vietnam is still facing challenges in economic and trade cooperation due to the rise of protectionism in the US. The fact that the UShas not yet recognized Vietnam as a market economy that has caused many products of Vietnam to be entangled in anti-dumping lawsuits, pressured and unable to penetrate deeper into America’s market, typically are aquatic products (shrimp, Tra fishes, catfish…), textile and garment products, leather and footwear that are the key products of Vietnam to export to foreign countries. In addition, Vietnam also often faces strict technical barriers to standards when exporting to US, mainly due to the large disparities in economics as well as science – technology potential between the two nations.

In general, the Vietnam –US strategic partnership has achieved remarkable achievements over the past 25 years (1995-2020). The bilateral relationship between Vietnam and the United States has achieved such remarkable achievements thanks to the efforts of the two governments on the foundation of the two countries’ perception of the new era of democratic and public equal values, of mutual understanding and sharing economic and spiritual benefits; of each side’s strengths in global geopolitical relations and the nation’s contribution to peace and prosperity as well as inter-state interdependence in response to global problems. Therefore, the values ​​that the two countries have built in the past 25 years are extremely large and sustainable, and therefore need to be considered as the foundation to create new values ​​in the future of Vietnam – US strategic partnership.

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The Economic Conundrum of Pakistan

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The State Bank of Pakistan (SBP) is due to convene on 20th September 2021. The Monetary policy Committee (MPC) will be announcing its policy rate after retaining it since March 2020. As the world deals with the uncertainty of the delta variant along with the dilemma between inflation and growth, it is a plenary to watch as Pakistani policymakers would join heads to decide the stance on the economic situation. However, the decision would be a tough one. Primarily because the mixed signals could either lead to burgeoning inflation and subsequent financial deterioration or they should guide the central bank to strangulate the growth prematurely. Either way, the policymakers would have to be cautious about the degree of inclination they lean to each side of the argument – economic contraction or growth with inflation.

A poll conducted by Topline Research shows that about 65% of the financial market participants expect status quo; the MPC to maintain the policy rate at 7% to further accommodate economic growth. Pakistan has barely mustered a 4% growth rate after the contraction of 0.4% last year. In this regard, Mr. Mustafa Mustansir, head of Research at Taurus Securities, stated: Visible signs of demand-side pressure are still quite weak. In another survey conducted by Policy Research Unit (PRU): a policy advisory board of the Federation of Pakistan Chamber of Commerce and Industry (FPCCI), 84% of the market participants believe there will be no change in the policy rate. The sentiment implies that the researchers and the business community don’t expect a rate hike in this week’s policy meeting.

However, the macroeconomic indicators paint a bleak picture for Pakistan’s economy: warranting a tougher policy response. The external trade figures released by the Pakistan Bureau of Statistics (PBS) project a debilitating situation for the national exchequer. According to the data, Pakistan’s trade deficit has increased to $7.5 billion in the first two months (July-August) of the fiscal year 2021-22. The deficit stands at $4.1 billion: 120% higher than the same period last year. Due to the accommodative policies implemented by the government of Pakistan, the trade deficit has already climbed 26% up to the annual target of $28.4 billion, set in the fiscal budget 2021-22. Despite excessive subsidies, the bi-monthly exports have only grown by 28% to stand at $4.6 billion. And while it is an increase of nearly a billion dollars compared to the same months in the preceding year, the imports have more than perforated the balance of payments.

During the July-August period, the imports have grown by a whopping 73% to stand at $12.1 billion: 22% of the annualized target. What’s more worrisome is the fact that despite a free-float currency mechanism, the exports have failed to turn competitive in the global market. According to the data released by PBS, Pakistan’s exports have dropped from their previous levels for three consecutive months. And despite a 39% net currency depreciation in the past three years, the exports continue to drift sluggish around the $2 billion/month mark. Yet, the imports are accelerating beyond expectation: clocking a 95% increase last month alone. Clearly, something is not working.

Moreover, while the forex reserves with the State Bank stand at a record high of around $20 billion, the rapid depreciation in the rupee is gradually damaging the financial viability of Pakistan. According to Mettis Global, a web-based financial data and analytics portal, the rupee recently slipped to its all-time low of 168.95 against the greenback. While the currency reserves are at their peak, the rupee continues its losing streak as the State bank has refrained from intervening in the forex market to artificially buoy the currency. Primarily because the IMF program stands contingent on letting the rupee float and find equilibrium. As a result, the rupee is touted to breach the 170 rupees against the US dollar mark by next month. The bankers around Pakistan have urged the State Bank for an intervention to put an end to “abnormal volatility in spite of increased reserves.” However, an intervention seems highly unlikely as the SBP Governor, Dr. Reza Baqir, already warned regarding currency devaluation in the last policy meeting: citing supply constraints, debt repayments, and increased imports as primary reasons for the temporal slump.

Nonetheless, almost 10% of the market participants, according to the survey, expect a rate hike of 50 basis points in the policy rate to hedge against inflation. Furthermore, analysts at Topline Securities expect a hike of 25 basis points to counter “vulnerabilities in the current account and control inflationary pressures.” Regardless of the prudent beliefs in the market, however, a few players actually believe that a rate cut of 50-100 basis points is plausible in the meeting. They argue that while the Consumer Price Index (CPI) – a national inflation measure – refuses to let down, the core inflation of Pakistan has dropped perpetually down to 6.3% in August. A stratum of the business community, therefore, also believes that the policy rate should be gradually brought down to 5% to match the regional dynamics.

I somehow find this notion ironic, as the government has already doled billions of dollars in subsidies, provided lucrative loans, and slashed taxes periodically. Yet, the exports have stayed relatively redundant. While it may not be the most effective time to hike the policy rate and tighten the monetary policy, in my opinion, a cut in the policy rate would be detrimental – catastrophic for the current account and incendiary for prevailing inflation.

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Global Revolution in the Crypto World: Road to Legalization

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The raging popularity of virtual currencies is hardly unheard of in today’s day and age. If not by the damning crackdown in China, price swings in cryptocurrencies – especially bitcoin – are definitely deemed perpetual and inherent: unlikely to go away. And while the volatility does bring along a unique thrill to retail investors, the experienced pundits of the financial world are expectedly skeptical. Regardless of the apparent discomfort and resistance to tap into the pool of virtual currencies, policymakers across the world are aware that the future is digital. Therefore, while digital fiat seems to be the direction of most developed economies to counter the decentralized giants, the economic gurus are preparing to harness the mania on another front as well – before the craze overtakes the globe.

The first – and most popular – cryptocurrency is undoubtedly bitcoin. In the aftermath of China’s crackdown on mining activities, bitcoin lost more than half of its valuation. However, acceptance around the world in the past few weeks has helped the currency to buoy past the slump. Bitcoin currently stands at a market cap of $863.8 billion: flirting with the $46,000 mark. Naturally, the rest of the crypto world flows in tandem as fanatics have placed bets for the currency to breach the $50,000 psychological mark again in the following months. However, the rally is largely attributed to the blooming acceptance by governments around the world; something the officials were wary of to avoid risks and uncertainty. However, I still don’t understand the change of perception given the market is more volatile than ever.

Last week’s headlines were all about El Salvador and its adoption of bitcoin as a legal tender. The fiasco that followed was hardly a surprise. Though the incident bolstered the crypto critics, the event projected nothing that was a mystery before the launch. A glitch in the virtual wallet, called “Chivo Wallet,” was one of the countless impediments that had already been warranted as risky by economists around the globe. While the problem was resolved in a matter of hours, the price of bitcoin nosedived by 19% from the 4-month high of $53,000. President Nayib Bukele boasted about “buying at a dip” yet overlooked a crucial aspect from a broader perspective. He failed to realize that a minor glitch in his small nation was significant enough to send the currency spiraling; that in mere hours, billions of dollars were wiped from the global market. All because the app couldn’t appear on the designated platforms for a few hours.

What happened in El Salvador is a vital example to analyze. The resulting confusion is exactly why a passage of regulation is being placed. If the domestic and international markets are to rely upon cryptocurrencies in the near future, then the need for a detailed framework becomes even more amplified.

Recently, Ukraine became the fifth country in weeks to legalize bitcoin. However, while the Ukrainian parliament adopted a bill to legalize the cryptocurrency, regulations are put into place to handle its precarious and volatile nature. Unlike the loose move by El Salvador, Ukraine did not facilitate a rollout of bitcoin as a form of payment. Moreover, the parliament has refrained from placing bitcoin on an equal footing with Hryvnia – Ukraine’s national currency. Primarily because adding another currency prone to unprecedented and wild swings in value could prove complex in policymaking matters including drafting fiscal budgets and taxation planning. And while Kyiv is pushing to lean further into bitcoin to gain more access to global investment, the authorities are prudent. Therefore, unlike the brazen entry by El Salvador, the Ukrainian authorities are underscoring a strategy to learn about the crypto world before bitcoin is etched into Ukrainian law forever.

Meanwhile, the United States is proving rather stringent against the rise of bitcoin – and the crypto world – as nightmares of another financial crisis are caging a progressive adoption. The lawmakers are already vigilant to put braces on the market before it blooms beyond control. The Infrastructure Bill recently passed by the senate provides a hint of direction being adopted by the US legislators. The tax provision, estimated to collect $28 billion over a decade, has been placed as a regulation of the crypto market that stands at a valuation of $2 trillion. The Treasury directives are driven to mobilize the Internal Revenue Service (IRS) to tax crypto brokers while monitoring mandated reporting requirements. The goal is obvious: gradually tighten the screws before regulating the uncharted territory as any other capital market. However, the bill is purposefully vague regarding market actors deemed as brokers under the new law. Naturally, the frenzy follows as miners are left scrambling to define the meaning of a broker in an extremely complex and unorthodox market mechanism. It is clear that prominent lawmakers, like Senator Elizabeth Warren, are the main driving forces to put a leash on the emerging market.

Furthermore, the US Security and Exchange Commission (SEC) has been vocal about Treasury’s long-awaited intervention in the crypto market. Allegedly the virtual currencies have come across as a key tool for tax evasion in the United States. Therefore, much of the lobbying to amend the tax provision in the infrastructure bill is to limit the strictness of application rather than simplifying the vague terminologies. Moreover, the Treasury Department has also been active in discussing the financial stability of Stablecoin – crypto assets pegged to the US dollar and other fiat currencies. While extreme volatility is not a risk in this scenario, the Federal agencies – particularly the Financial Stability Oversight Council (FSOC) – have been keen to set tougher regulations over the market with more than $120 billion in circulation. The move has been swift since the tax provision made its way into the Senate debate. The main intent to regulate stablecoin – particularly Tether – is to harness the market, primarily because the sector acts as an unregulated money market mutual fund holding massive amounts of corporate debt. A plunge in price is enough of a spark to send ripples through the fixed income markets: posing a financial threat to the entire market. Thus, the FSOC is touted to be mobilized soon to probe and regulate the market as it continues to grow.

The crypto world has been cited by global lenders such as IMF as a haven for money laundering and tax frauds. Such tags could lead to negative credit ratings and ineligibility to gain investment and aid packages, especially when debt-ridden countries like El Salvador dabble along without any fixed legal framework. However, with broader regulation, like the steps taken by the US and Ukraine, the risk could be minimized. Another area is to initiate with experienced investors before gradually easing market restrictions for retail investors. A prime example is Germany which recently allowed institutional investors to invest as much as 20% of their holdings in bitcoin and other crypto-assets. While the portion still congregates to billions of dollars, such deft institutional investors are trained enough to manage and monitor trillions of dollars in a vast array of capital markets. Moreover, such large-scale institutional investment firms already have strict regulatory requirements and thus, by default, are bound to consciously maintain conservative holdings.

In my opinion, the crypto market is the financial future of the technological utopia we aspire to build. The smart choice, therefore, is to learn the system down to its spine. Correct the loopholes and irregularities while monitoring experienced professionals participating in an open market. Sketch and amend the legalities and a financial framework along the way. And gradually let the market settle as second nature.

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CPEC: Challenges & Future Prospects

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Global economy paradigm is shifting from the West to the East while China is torch bearer in this context with it’s master stroke OBOR project. The beauty of this unique project is that it provides a new trade corridor and a new route to at least 60 countries. If we make an educated guess, then about 80% of the world population would get benefit from this project. This project can be divided into “Silk Road economic belt” and Maritime silk road”. For disbursement of funds, five financial institutions are opened so that the complete burden should not fall on China. Now it has been a proven fact that the US, few Western countries and India are lobbying and conspiring against the OBOR project.  

The most important project of this initiative is CPEC as it gives China access to the most important geo-strategic location of Gwadar that had always been dream of Russia and NATO for their strategic, military and economic interests in the region. The only project which gives landlocked countries access to the sea. CPEC certainly can be game changer due to its potential of creating mass industrial productivity, exports, and job creation not only for Pakistan but for entire South Asian region.  

Due to various factors, there are always chances that mistrust may prevail among Pakistan and China, which can have a direct impact on Pakistan’s economy. The economy plays a fundamental role in the development and strengthening of any country, but unfortunately, Pakistan was unable to stabilize this sector for decades. As soon as the situation becomes better, another incident of unrest happens. Attacks like the Dasu hydropower plant in Khyber Pakhtunkhwa or like Serena Hotel Quetta are preplanned efforts of our enemies like India to destabilize the project. Although, it has been accepted by Chinese think tanks on various occasions that the security situation has improved in Pakistan during the recent few years. 

Luckily, due to the US withdrawal from Afghanistan, Indian investment is also dying. There is no doubt that the economic stability that Pakistan will achieve after the completion of CPEC cannot be digested by an eternal enemy like India. India is intensifying its covert operations against CPEC, as its discomfort is growing day by day with the cozying Pak-China relations. Modi’s government believes that once operational, CPEC will reduce its sphere of influence in Central Asia, IIOJ&K, and Afghanistan.  The terrorist network formulated in Afghanistan to create unrest in Pakistan under the garb of diplomatic activities has also been jeopardized. As CPEC passes through Gilgit-Baltistan which India claims as a disputed territory but their claim was rejected out rightly by Pakistan and China. Now India may try to reinstate its sleeper cells inside Pakistan to disrupt CPEC.

CPEC in particular offers a win-win situation for participating nations and it has a strong component of social development, poverty alleviation, and demographic uplift, unlike similar programs offered by other international donors. CPEC would not impact its balance of payments of Pakistan at any stage. The payment schedule is very relaxed. It’s about geo-economics and the establishment of a non-exploitable economic system. Another point is that CPEC is a transparent project with all its details present on its websites. The projects of CPEC are not only confined to specific areas but its network is present in the whole of Pakistan. 

Although, it’s correct that Pakistan has a risky security environment, but Pakistan has taken various positive steps in this regard like raising two “Security Divisions” in Pakistan Army, incorporating special paramilitary forces, increasing intelligence apparatus, and improving local police networks.  

There are eight main core areas linked with CPEC which are ‘integrated transportation system’, ‘information network infrastructure’, cooperation in ‘energy related’ fields, ‘trade and industrial parks’, ‘agricultural development and poverty alleviation, ‘tourism’, ‘social development and non-government exchanges’ and lastly ‘financial cooperation’. CPEC is now attracting other countries around the world who are also expressing their desire to join it. 

In present circumstances, the CPEC projects must be completed as soon as possible so that Pakistan’s geographical location can be truly exploited. Our narrative building part is weaker in International media as India and other lobbies are floating a huge bulk of anti-CPEC stories with fake facts and figures, we have to give proper rebuttal and our side of the story must be backed with verified facts and figures. Another point to be focused on is that a prosperous Balochistan would strengthen CPEC’s foundation. This is a real game-changer and we have to engage maximum countries of the world in this project to get moral, social, and financial support. 

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