000042331 INFLUENCES OF WTO ACCESSION ON SMALL AND MEDIUM ENTERPRISES OF LEATHER AND FOOTWEAR INDUSTRY IN VIETNAM CASE STUDY OF HA NOI AND HAI PHONG ẢNH HƯỞNG CỦA VIỆC GIA NHẬP WTO ĐẾN CÁC DOANH NGHIỆP VỪA VÀ NHỎ NGÀNH DA GIÀY TẠI VIỆT NAM NGHIÊN CỨU TRƯỜ

000042331 INFLUENCES OF WTO ACCESSION ON SMALL AND MEDIUM ENTERPRISES OF LEATHER AND FOOTWEAR INDUSTRY IN VIETNAM CASE STUDY OF HA NOI AND HAI PHONG ẢNH HƯỞNG CỦA VIỆC GIA NHẬP WTO ĐẾN CÁC DOANH NGHIỆP VỪA VÀ NHỎ NGÀNH DA GIÀY TẠI VIỆT NAM NGHIÊN CỨU TRƯỜNG HỢP CỦA HÀ NỘI VÀ HẢI PHÒNG

INFLUENCES OF WTO ACCESSION ON SMALL AND MEDIUM ENTERPRISES OF

LEATHER AND FOOTW EAR INDUSTRY IN VIETNAM CASE STUDY OF HA NOI AND HAI PHONG

Submitted by NGUYEN THANH HA

t ë b THđHG TIN THƯ VIỆN

1 C NN-iíH K ư ớ c ÌÍSOẤ!

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A thesis submitted as a requirement for the degree of

Bachelor o f Business Administration

Hanoi University o f Foreign Studies Faculty o f Management and Tourism

Hanoi December 2009

S f A T E M E N T O F A U T H O R S H I P

"Except where reference is made in the text o f the thesis, this thesis contains no material published elsewhere or extracted in whole or in part from a thesis or any other degree or diploma

No other person's work has been used without due acknowledgment in the main text o f the thesis

This thesis has not been submitted for the award o f any degree or diploma in any other tertiary institution."

Student signature

Hû

A C K N O W L E D G E M E N T S

First o f all, I would like to express my special gratitude to my supervisor, Mr Nguyen Anh Quan for his patient support, valuable comments, constructive criticisms, especially his tolerance to me during every stage o f my paper He really encourages me so much on my work I am also grateful to all o f the teachers who have been teaching me for a long time and offering me precious advice

My special thanks go to Ms Pham Thi Que Anh, my director at CUTS Hanoi Resource Center, for her helpful advice, precious orientation, materials and recommendations 1 would like to take this opportunity to express my deep gratitude to Ms Nguyen Thi Tong, Vice Chairman and General Secretary o f Vietnam Leather and Footwear Association and the staff o f LEFASO and the managers o f shoe enterprises for their valuable experiences, useful materials, long phone calls, as well as their precious time for making this paper possible

I must thank many friends from the faculty, especially who lend me reference materials, give me advice and great incentive and endless support.

Last but not least, I owe a debt o f gratitude to my Family for their whole-hearted encouragement

All the support extended to me during my research has been immeasurable and 1 am so thankful for that

A b s t r a c t

Leather and Footwear Industry is the industry that contributes about 10% to the total national export turnover, just following petrol and rice export At the moment, Vietnam has become an official member o f the World Trade Organization and this event has influenced much on every aspect the country and all industries within its border This has created both opportunities and challenges for the industry, especially small and medium enterprises This paper aims at providing an overall view o f the current situation o f leather and footwear industry and then provides some information about small and medium sized businesses in this industry Through the research, opportunities that would stimulate and challenges that may hinder the competitiveness o f this industry in international market are discussed and suggestions are figured out to guide future development to help the industry maintain its position as one o f the key exporting industry o f the country

Acknowledgements I

A bstract II

Table o f contents Ill

List o f charts and ta b le s IV

Abbreviations V

In tro d u c tio n 1

C h a p t e r 1: Research sig nificance 4

C h a p t e r 2: L ite ra tu re rev ie w 6

2.1 Relevant terms and definitions 6

2.1.1 World trade organization 6

2.1.2 Small and Medium Enterprises 16

2.2 Review o f relevant research 18

2.2.1 Opportunities 19

2.2.2 Challenges 24

C h a p te r 3: M ethodology 32

3.1 The research subjects and research questions 32

3.2 Research design and method 32

3.3 The research process 33

C h a p te r 4: Findings a n d discussions 35

4.1 Overview o f leather and footwear industry 35

4.2 SMEs in leather and footwear industry 43

4.3 Findings 44

4.3.1 Findings from government administration a g e n c ie s '^ 44

4 3 1 1 Improvements in legal framework and business environm ent 45

4 3 1.2 Competitiveness 45

4 3 1.3 Cost controlling 46

4.3.2 Findings from small and medium enterprises in leather and footwear i n d u s t r y ^ 47

4.3.2.1 Improvements in legal framework and business environm ent 47

4.3.2.2 Cost controlling 48

4.3.2.3 Competitiveness o f SMEs in leather and footwear industry 49

4.4 D iscussions 52

4.4.1 Opportunities ^? 52

4.4.1.1 Improvements in legal framework and business environm ent 52

4.4.1.2 Competitiveness o f Vietnamese small and medium leather and footwear enterprises international m a rk e t 55

4.4.1.3 Market expansion 58

4.4.2 Challenges.^ 59

4.4.2.1 Legal reform s 60

4.4.2.2 Market expansion 61

4.4.2.3 Cost controlling 61

4.4.2.4 Competitiveness o f Vietnamese small and medium leather and footwear enterprises international m a rk e t 64

C h a p t e r 5: C onclusions and r e c o m m e n d a tio n s 78

5.1 C onclusion 78

5.2 Recommendations 79

References VIII

Appendix I : Information about anti - dum ping XIX

Appendix 2: Questionnaire for general ideas XXV

Appendix 3: Questionnaire for enterprises XXX

Page Tables

Table 1 : Vietnam Leather and Footwear Export by products 38

Table 2: Production capacities of Leather and Footwear Industry (2005-2008) 39

Table 3: Output - Export capacity o f leather and footwear industry through the period 2000-2010 .40

Table 4: Production capacity based on types o f ownership in 2008 40

Table 5: Contribution o f leather and footwear industry in the total export volume o f the whole country 41

Table 6: Export Revenue o f Footwear by m arkets 45

Table 7: Entreprises based on types o f economic ow nership 44

Table 8: The importance o f factors o f production for each enterprise 48

Table 9: Labor demand based on technical and professional le v e l 70

Figures Figure 1 : Leather and footwear Export turnover (2005-2008) 39

Figure 2: Enterprises’ attitudes towards legal reform s 48

Figure 3: The material structure o f enterprises 49

Diagrams Diagram I : The structure o f W TO 7

Diagram 2: Agreements Establishing W T O 12

Boxes Box 1 : Phu Yen leather and footwear handicraft village in Flanoi 75

A bb re via tio ns

1 WTO: World Trade Organization

2 SMEs: Small and Medium Enterprises

3 LEFASO: Vietnam Leather and Footwear Association

4 MFN: Most-favored nation

5 NT: National treatment

6 ANCI: Associazione Nazionale Comuni Italiani

7 FES1: Federation of the European Sporting goods Industry

8 CAD: Computer-aided design

9 CAM: Computer-aided manufacturing

10 V1NATAS: Vietnam Textile Association

11 MUTRAP: Multilateral Trade Assistance Project

12 ODA: Official Development Assistance

13 FDI: Foreign Direct Investment

14 FII: Foreign Indirect Investment

15 GSP: Generalized System o f Preferences

16 GSO: General Statistics Office

17 ASEAN: Association o f South East Asia Nations

18 ASEM: Asia - Europe Meeting

19 APEC: Asia - Pacific Economic Cooperation

20 AFTA: ASEAN Free Trade Area

21 BTA: Bilateral Trade Agreement

22 EC: European Commission

23 CEO: Chief Executive Officer

24 VINASME: Vietnam Association o f small and medium enterprises

World trade has been increasing for centuries as explorers have discovered trade routes and the technology of transport has improved (David and Scott, 2005) In stead o f confrontation with each other like before World War II, countries in the world are transferring to a new trend o f discussion and cooperation The last two decades o f the twentieth century observed a remarkable movement in the pace o f openness or globalization (Muhammad, 2007) The integration o f countries through flows o f goods and services, financial assets, technology and cultural interaction has reached unprecedented levels (Stern, 2001) Now it is widely accepted that openness is as an important element o f good economic policy and trade liberalization is a necessary step in achieving it (Obstfled and Rogoff, 1996; Winters, 2001; and Mackay and Winters, 2004) Economic theory gives many reasons for trade liberalization to enhance economic growth (Winters, 2002; Stern, 2001; Berg and Krueger, 2003; Mackay and Winters, 2004) The rewards from exploiting globalization can be substantial, since openness to international trade and investment facilitates the acquisition o f inputs and technologies which strengthen growth and increase efficiency (Muhammad and Qazi, 2004) The world is becoming more integrated, goods and trading in services are crossing borders in line with globalization and regionalization processes Since 1986, Vietnam, as a part o f the world, has been opening its economy to cooperate with other countries not only in Asia but in other regions as well Trade liberalization is generally an ally in the fight against poverty:

it tends to increase incomes, provide more resources to tackle the problem o f poverty and while it will generally affect income distribution, it does not do so in a systematically adverse way (Winters, 2001; and David and Scott, 2005) As indicated by Ministry o f Foreign Affairs, international organizations and foreign countries have helped Vietnam a lot efficiency o f reducing poverty process has been improved They not only help us with financial but also technical sources, sharing experience with the government enable the country to attain its target To the end o f 2004, the ratio o f poor households in the country was more than 8% while the targeted rate that was set out in the Ninth General Assembly

o f Socialist Party was reducing the poor households to 10% Thanks to trade liberalization, our country is being modernized and industrialized In the industrialization

and modernization process of the society, the country has carried out a comprehensive and basic reform in order to stabilize and open its economy, enhance freedom of choice for economic units and competition to change the management system in the most basic way The government is aiming at turning Vietnam into a modernized industrial country

in 2020 Trade liberalization leads to faster economic growth because it reduces distortions in price relativities and allows those activities with a comparative advantage to develop (Ron and Quang, 2000) Since Vietnamese government has adopted the Renovation (Doi Moi) policy to the economy, reforms have been undertaken exclusively

in all sectors o f the economy and creating significant changes to the country Up to now, Vietnam has achieved rather sustainable high GDP growth rate by opening its economy and liberalizing its trading activities with other countries And the growth rate of Vietnam

in recent years is always from 6-8% To integrate into the world market, Vietnam has achieved some important steps to integrate more deeply with the world

• In 1995, Vietnam became the seventh member o f ASEAN (Association o f South East Asia Nations) As an official member o f ASEAN, Vietnam was accepted to join AFTA (ASEAN Free Trade Area) in December 2005 and began to follow its commitments in January 2006

• In March, 1996, Vietnam took part in ASEM (Asia - Europe Meeting) from the establishment o f this organization

• After that, Vietnam joined APEC (Asia - Pacific Economic Cooperation) in 1998

• 2 years later, in July 2000, Vietnam and the U.S signed a bilateral trade agreement (BTA) to facilitate trading activities between the two countries The agreement came into effect on 10th December 2001

• In 2003, Vietnam took part in the free trade area ASEAN - China, ASEAN - Korea and Comprehensive economic partner ASEAN - Japan

• To January 2007, Vietnam was considered as an official member o f the world’s largest trade organization - WTO (World Trade Organization)

Trading activities with other countries are being more and more expanded Bilateral and multilateral trade agreements between Vietnam and partners have been signed to promote merchandise and service exchange and investment within and across the borders o f each

side In the past few years, Vietnam has witnessed a remarkable increase in FDI To

2007, General Statistics Office (GSO) reported that this kind of capital increased to US$ 21.348 billion with the highest capital amount invested in manufacturing industry o f US$

10 billion Year 2008 ended impressively with FDI o f US$ 64 billion (VCCI, 2008) with the highest capital amount invested also in manufacturing industry o f US$ 28.9 billion Regarding enterprise development, establishing a new business in Vietnam has been easier since 2000 with the enforcement o f a new and unified Enterprise Law This law has made it easier for setting up new private companies From the data collected by GSO, the number o f non-state enterprises made up o f 93.96% the total number o f enterprises in Vietnam, in which private enterprise rate was 28.42% However, according to the World Bank's report o f Doing Business 2010 for selected economies, Vietnam is ranked the 91st

in 2009 and will go down to the 93rd out o f 183 economies in the world in 2010 with regards o f ease o f doing business Although the business environment has been improved through policy and politic reforms, doing business in Vietnam is considered not so easy Like many other Asian countries Vietnam’s economic growth depends heavily on export According to Ms Chi Lan from the Governmental Economic Research Department, exporting ratio contributed much to GDP growth, for example, in 2003, when GDP increased by 2%, it was contributed by 1% in export Petrol, rice and leather and footwear products are the key exporting industry o f the economy However, the changing environment has negatively affected the export turnover o f these industries With the view to maintaining sustainable growth in export turnover, the export structure will have

to be changed in the future (Thien, 2009) Leather and footwear industry is the industry that constitutes 10% o f the total national export turnover (LEFASO, 2009) Despite the growth o f the industry in the past few years, there are many issues that need to be looked

at to create sustainable development when the competition pressure is increasing

C h a p t e r 1: RESEARCH SIGNIFICANCE

With the topic o f “ Influences of WTO accession on small and medium enterprises in Leather and Footwear Industry - Case study o f Ha Noi and Hai Phong”, the purpose of this research is to provide an analysis on opportunities and challenges that WTO accession may influence the development o f SMEs in the leather and footwear industry Being aware o f the significant role o f joining the world's largest trade organization, this paper focuses on analyzing the current situation of leather and footwear-producing small and medium enterprises in Vietnam, critically presents the opportunities and challenges these enterprises are faced with when Vietnam become an official member o f WTO; and then suggests some recommendations to help these enterprises adapt more quickly and effectively with the world market It is expected that with findings from a survey among leather and footwear small and medium enterprises in Ha Noi and Hai Phong, this paper will be beneficial to all relevant parties - from SMEs themselves to State agencies and industry bodies (trade association, etc.) - in assessing the current situation o f the industry and SMEs development therein; finding ways to improve the industry’s competitive advantages in order to develop their business more effectively in a larger and diversifiedmarket

The government is aiming at turning Vietnam into a modernized industrial nation At the moment, many industries are paid attention to develop in order to achieve this target The results o f this research would enable State agencies to acknowledge the role o f this industry in the economy and its current development Thanks to the information, the government would give out suitable supporting policies to help leather and footwear industry develop and contribute more into the national economy in the future

The Vietnam Leather and Footwear Association in its claim as an organizer, coordinator and facilitator, targets at cooperating, assigning economic activities among member enterprises in the field o f manufacturing, business transactions, exporting and importing, providing supplies, and selling products Through the Association’s actions, the industry’s capacity will be utilized, product quality as well as effectiveness will be increased and competitive advantage of the whole industry will be enhanced The Association is the representative o f the member enterprises This research does not have

the ambition o f providing a thorough, complete guideline for planning process o f the Association, but giving some worthy suggestions from a closer look on the real situation

o f this industry after two years o f WTO accession

For SMEs in the industry, the research aims at highlighting the opportunities and challenges they have to experience when they compete within the international market Recognizing the opportunities and challenges for their sector, each enterprise may figure out what they need to do to improve their business along with having the country’s comparative advantage like cheap labor, available natural resources for their production Finally, for the whole sector, through the case study o f Ha Noi and Hai Phong, the research wishes to give some recommendations for concerned parties in order to have rational movements towards an effective industry

C h a p t e r 2: LITERATURE REVIEW

This chapter firstly provides some definitions o f “WTO”, “small and medium enterprises”, and some criteria to classify small and medium enterprises in some neighbor countries The next part o f this section will be continued by literature review o f relevant research

2.1 Relevant te rm s a n d definitions

2.1.1 W T O

There are a number o f ways o f looking at the WTO It’s an organization for liberalizing trade It’s a forum for governments to negotiate trade agreements (www.wto.org 2009) It's a place for them to settle trade disputes It operates a system o f trade rules Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other (www.wto.org 2009) The WTO began life on 1 January 1995, but its trading system is half a century older (www.wto.org 2009) Since

1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system It did not take long for the General Agreement to give birth to an unofficial, de facto international organization, also known informally as GATT Over the years GATT

evolved through several rounds o f negotiations The last and largest GATT round, was

the Uruguay Round which lasted from 1986 to 1994 and led to the W TO’s creation (www.wto.org 2009) Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements now cover trade in services, and in traded inventions, creations and designs (intellectual property) There is a fact that more and more countries are going to join WTO Although entering WTO requires countries to open their market, thus, causing obstacles and challenges for them, the benefits o f a member still overwhelm those challenges As a result, there are 153 members in this organization up to now (wto.org, 2009) The structure o f this organization can be is demonstrated in the following chart:

Diagram 1: The structure o f WTO

Ministerial Conference

General Council meeting as

Dispute Settlem ent '

Body

IGeneral Council

{General Council meeting as

Trade Policy Review Body

Appellate Body

Dispute Settlement panels

Committees on

Trad« and Environment

Tiade and Development

Trade, debt and finance

Trade and technology

Council for Trad e Related A sp ects

of In telle ctu al Property Rights

■ Subsidies and Countervailing

■ Measures

g Anti-Dumping Practices Customs Valuation

* Rules of Origin

■ Import Licensing

q Trade-Related Investment Measures

Doha Developm ent Agenda:

TNC and its bodies

Trade Negotiations Committee

Reporting to General Council (or a subsidiary)

Reporting to Dispute Settlement Body

PlLnlateral committees inform the General Council or Goods Council of their activities, although these agreements are not signée by all WTO members

Trade Negotiations Committee reports to General Council

The General Council also meets as the Trace Policy Review Bocy and Dispute Settlement Body

Source: World Trade Organization

This organization has its own procedures to help a country join international market with other countries in the world The procedures to help a nation become an official member

o f WTO may be easy in theory, however, in reality, the process is more difficult It took China 13 years to complete all the procedures to join this organization As regulated in Article XII o f the WTO Agreement states that accession to the WTO will be “on terms to

be agreed” between the acceding government and the WTO Accession to the WTO is

essentially a process o f negotiation — quite different from the process o f accession to other international entities, like the IMF, which is largely an automatic process Because each accession Working Party takes decisions by consensus, all interested WTO Members must be in agreement that their individual concerns have been met and that outstanding issues have been resolved in the course o f their bilateral and multilateral negotiations (www.wto.org) All documentation examined by the accession Working Party during the process o f negotiation remains restricted until completion o f the process

In the Article XII, one nation can apply for WTO accession if it can meet this term defined by WTO: “Any state or customs territory having full autonomy in the conduct of its trade policies is eligible to accede to the WTO on terms agreed between it and WTO

Members” (www.wto.org) If one nation has decided that it would like to join this trade

organization, the accession process commences with the submission o f a formal written request for accession by the applicant government This request is considered by the General Council which establishes a Working Party to examine the accession request and, ultimately, to submit the findings o f the Working Party to the General Council for approval The Working Party is open to all Members o f the WTO (www.wto.org) Then,

the applicant government presents a memorandum covering all aspects o f its trade and legal regime to the Working Party This memorandum forms the basis for detailed fact

finding by the Working Party After this nation has submitted its memorandum, Subsequent Working Party meetings will see the examination o f questions posed by WTO Members based on the information provided in the memorandum and the replies

provided by the applicant government After examining all aspects o f the existing trade

and legal regimes o f the acceding government, the Working Party goes into the substantive part o f the multilateral negotiations involved in accessions (www.wto.org) This determines the terms and conditions o f entry for the applicant government Terms and conditions include commitments to observe WTO rules and disciplines upon accession and transitional periods required to make any legislative or structural changes where necessary to implement these commitments At the same time, the applicant government engages in bilateral negotiations with interested Working Party members on concessions and commitments on market access for goods and services The results of

these bilateral negotiations are consolidated into a document which is part o f the final

“accession package” (www.wto.oru) The “accession package” consists o f three documents which represent the results o f both the multilateral and bilateral phases outlined above These are:

• A Report o f the Working Party containing a summary o f proceedings and conditions o f entry and a Protocol o f Accession

• Schedules of market access commitments in goods and services agreed between the acceding government and WTO Members (www.wto.org)

Once both the Working Party's Draft Report and Protocol o f Accession and the market access commitments in goods and services are completed to the satisfaction o f members

o f the Working Party, the “accession package” is adopted at a final formal meeting o f the Working Party1 The documents are then presented to the General Council or the Ministerial Conference for adoption Once approved by the General Council or the Ministerial Conference, the accessions package is redistributed as a non-restricted

document (www.wto.ort*) Two final documents will be issued:

• The Decision o f the General Council

• The Protocol o f Accession o f the new entrant a Protocol o f Accession annexed to the Report which states that the country accedes to the WTO Agreement, defines the Schedules and outlines final provisions for timing o f acceptance o f the Protocol and full membership o f the WTO (www.wto.org)

Once approved by the General Council o f Ministerial Conference, the applicant is then free to sign the Protocol o f Accession stating that it accepts the approved “accessions package'’ subject to ratification in its national parliament Normally three months is given from signature o f the Protocol o f Accession for this to take place Thirty days after the applicant government notifies the WTO Secretariat that it has completed its ratification

1 Source: w w w w to o r g

procedures, the applicant government becomes a full Member o f the WTO (www.wto.org).

The WTO agreements cover goods, services and intellectual property They spell out the principles of liberalization, and the permitted exceptions They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets They set procedures for settling disputes2 They prescribe special treatment for developing countries They require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted, and through regular reports by the secretariat on countries’ trade policies These agreements are often called the W TO ’s trade rules, and the WTO is often described as “rules-based”,

a system based on rules But it’s important to remember that the rules are actually agreements that governments negotiated (www.wto.org)

The chapter on WTO agreements focuses on the Uruguay Round agreements, which are the basis o f the present WTO system Additional work is also now underway in the

WT O T his is the result o f decisions taken at Ministerial Conferences, in particular the meeting in Doha, November 2001, when new negotiations and other work were launched The table o f contents o f “The Results o f the Uruguay Round o f Multilateral Trade Negotiations: The Legal Texts” is a daunting list o f about 60 agreements, annexes, decisions and understandings In fact, the agreements fall into a simple structure with six main parts: an umbrella agreement (the Agreement Establishing the WTO); agreements for each o f the three broad areas of trade that the WTO covers (goods, services and intellectual property); dispute settlement; and reviews o f governments’ trade policies (www.wto.org) The agreements for the two largest areas — goods and services — share

a common three-part outline, even though the detail is sometimes quite different They start with broad principles: the General Agreement on Tariffs and Trade (GATT) (for goods), and the General Agreement on Trade in Services (GATS) The third area, Trade - Related Aspects o f Intellectual Property Rights (TRIPS), also falls into this category although at present it has no additional parts (www.wto.org) Then come with extra

2 Source: w w w w to.org

agreements and annexes dealing with the special requirements of specific sectors or issues Finally, there are the detailed and lengthy schedules (or lists) o f commitments made by individual countries allowing specific foreign products or service-providers access to their markets For GATT, these take the form o f binding commitments on tariffs for goods in general, and combinations of tariffs and quotas for some agricultural goods For GATS, the commitments state how much access foreign service providers are allowed for specific sectors, and they include lists o f types o f services where individual countries say they are not applying the “most-favored-nation” principle of non­discrimination (www.wto.org) Underpinning these is dispute settlement, which is based

on the agreements and commitments, and trade policy reviews, an exercise in transparency Much o f the Uruguay Round dealt with the first two parts: general principles and principles for specific sectors At the same time, market access negotiations were possible for industrial goods Once the principles had been worked out, negotiations could proceed on the commitments for sectors such as agriculture and services

Diagram 2: Agreements Establishing WTO

The basic structure of the WTO agreements: how the six main areas fit together — the umbrella WTO Agreement, goods, services, intellectual property, disputes and trade policy reviews

Umbrella

Basic principles GATT GATS TRIPS

Additional details Other goods Services annexes

agreements andannexes

M arket access Countries’ schedules Countries’ schedules

commitments o f commitments of commitments(and

MFN exemptions)

Dispute settlement DISI’I 11 SH 1 1 I I M I N 1

Transparency

Source: World Trade Organization

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more But a number of simple, fundamental principles run throughout all of these documents These principles are the foundation o f the multilateral trading system (www.wto.oru)

The first principle is trade without discrimination and it can be understood more through

2 sub-principles as following:

1 M ost-favoured-nation (MFN): treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners Grant someone a special favour (such as a lower customs duty rate for one o f their products) and you have to do the same for all other WTO members This principle is known as most-favoured-nation (MFN) treatment It is so important that it is the first article o f the GATT, which governs trade in goods (www.wto.org) MFN is also a priority in the GATS and the TRIPS, although in each agreement the principle is handled slightly differently Together, those three agreements cover all three main areas o f trade handled by the WTO Some exceptions are allowed For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside Or they can give developing countries special access to their markets Or a country can raise barriers against products that are considered to be traded unfairly from specific countries And in services, countries are allowed, in limited circumstances, to discriminate But the agreements only permit these exceptions under strict conditions In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong (www.wto.org).

2 National tre a tm e n t: T rea tin g foreigners and locals equally Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents This principle o f “national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 o f GATT, Article 17 o f GATS and Article 3

o f TRIPS), although once again the principle is handled slightly differently in each o f these National treatment only applies once a product, service or item o f intellectual property has entered the market Therefore, charging customs duty on an import is not a violation o f national treatment even if locally-produced products are not charged an equivalent tax (www.wto.org)

Secondly, lowering trade barriers is one o f the most obvious means o f encouraging trade The barriers concerned include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively From time to time other issues such as red tape and exchange rate policies have also been discussed Since G ATT’s creation in 1947-48 there have been eight rounds of trade negotiations (www.wto.org) A ninth round, under the Doha Development Agenda, is now underway At first these focused on lowering tariffs (customs duties) on imported goods As a result o f the negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had fallen steadily to less than 4% But by the 1980s, the negotiations had expanded to cover non-tariff barriers

on goods, and to the new areas such as services and intellectual property Opening markets can be beneficial, but it also requires adjustment The WTO agreements allow countries to introduce changes gradually, through “progressive liberalization” Developing countries are usually given longer to fulfill their obligations (www.wto.org)

Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives businesses a clearer view o f their future opportunities With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits o f competition — choice and lower prices The multilateral trading system is an attempt by governments to make the business environment stable and predictable In the WTO, when countries agree to open their markets for goods or services, they “bind” their commitments (www.wto.org) For goods, these bindings amount to ceilings on customs tariff rates Sometimes countries tax imports at rates that are lower than the bound rates Frequently this is the case in developing countries In developed countries the rates actually charged and the bound rates tend to be the same A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade One o f the achievements o f the Uruguay Round of multilateral trade talks was to increase the amount o f trade under binding commitments In agriculture, 100% o f products now have bound tariffs The result o f all this: a substantially higher degree o f market security for traders and investors (www.wto.org)

The system tries to improve predictability and stability in other ways as well One way is

to discourage the use o f quotas and other measures used to set limits on quantities o f imports — administering quotas can lead to more red-tape and accusations o f unfair play (www.wto.oru)

Another is to make countries’ trade rules as clear and public (“transparent”) as possible Many WTO agreements require governments to disclose their policies and practices publicly within the country or by notifying the WTO The regular surveillance o f national trade policies through the Trade Policy Review Mechanism provides a further means o f encouraging transparency both domestically and at the multilateral level (www.wto.oru)

The WTO is sometimes described as a “ free trade” institution, but that is not entirely accurate The system does allow tariffs and, in limited circumstances, other forms o f protection (www.wto.oru) More accurately, it is a system o f rules dedicated to open, fair and undistorted competition The rules on non-discrimination — MFN and national treatment — are designed to secure fair conditions o f trade So too are those on dumping (exporting at below cost to gain market share) and subsidies The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade Many o f the other WTO agreements aim to support fair competition: in agriculture, intellectual property, services, for example The agreement on government procurement (a “plurilateral” agreement because it is signed by only a few WTO members) extends competition rules to purchases by thousands o f government entities in many countries And so on (www.wto.oru)

The WTO system contributes to development On the other hand, developing countries need flexibility in the time they take to implement the system’s agreements And the agreements themselves inherit the earlier provisions o f GATT that allow for special assistance and trade concessions for developing countries Over three quarters o f WTO members are developing countries and countries in transition to market economies During the seven and a half years o f the Uruguay Round, over 60 o f these countries

implemented trade liberalization programmes autonomously At the same time, developing countries and transition economies were much more active and influential in the Uruguay Round negotiations than in any previous round, and they are even more so in the current Doha Development Agenda (www.wto.oru) At the end o f the Uruguay Round, developing countries were prepared to take on most o f the obligations that are required o f developed countries But the agreements did give them transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions — particularly so for the poorest, “least-developed” countries A ministerial decision adopted at the end o f the round says better-off countries should accelerate implementing market access commitments on goods exported by the least-developed countries, and it seeks increased technical assistance for them More recently, developed countries have started to allow duty-free and quota-free imports for almost all products from least-developed countries

On all o f this, the WTO and its members are still going through a learning process The current Doha Development Agenda includes developing countries’ concerns about the difficulties they face in implementing the Uruguay Round agreements (www.wto.org)

2.1.2 Small and m edium enterprises

To date, a single, universally accepted definition o f the term small and medium-sized

enterprise (SME) still remains elusive among countries and blocs across the world Each

country defines SME based on its economy’s characteristics and states o f technological development in order to devise programs to support these targeted firms (Thai, 2008) Since there are “significant differences in aggregate income and its distribution, in production structures and capabilities, and in industrial and technological characteristics among economies” (Asasen and Asasen 2003), it is not unexpected that the definition of SME will vary greatly from one country to another Some countries distinguish between small and medium-sized firms, while others put them all into one category Some use the capital investment criterion, while others do not That is also the case with assets and annual sales criteria Furthermore, the level o f labor and capital intensity required by firms differs noticeably among countries and across different sectors within a country (Mai, 2008) This is because different countries give preference to different areas A country with a focus on labor-intensive industries such as the textile industry will not put

as high a capital investment benchmark to categorize a firm as an SME as does a country with a focus on capital-intensive industries such as the automobile industry.

In Europe, it is defined by EC that the category o f micro, small and medium-sized enterprises (SMEs) is made up o f enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro In the UK sections 382 and 465 o f the Companies Act 2006 define a SME for the purpose o f accounting requirements According to this a small company is one that has a turnover of not more than £6.5 million, a balance sheet total o f not more than £3.26 million and not more than 50 employees A medium-sized company has a turnover o f not more than £25.9 million, a balance sheet total o f not more than £12.9 million and not more than 250 employees It is worth noting that even within the UK this definition is not universally applied By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with fewer than 100 employees, while medium-sized business often refers to those with fewer than 500 employees

Different Asian countries introduced different definitions o f SME In general, SME is classified by the number o f employees and the amount o f capitals or turnover In People Republic o f China, SMEs diversifies with industry (Office of Small and Medium Enterprise Promotion o f Thailand, 2003) However, the measurement tool is employment Businesses that have less than 100 employees will be considered as a small and medium enterprise In Japan, it is based on both employment and assets to classify a SME If a company has less than 300 employees or the assets are less than ¥10 million, it is a small and medium-sized (Office o f Small and Medium Enterprise Promotion o f Thailand, 2003) In Singapore, small and medium-sized businesses are also based on employment and assets, however, the criteria are different for manufacturing and service orientation

In manufacturing sector, SME is an entity that has less than SS12 million fixed assets, while in service sector an entity that has less than 100 employees is regarded as small and medium (Office o f Small and Medium Enterprise Promotion o f Thailand, 2003)

In most economies, smaller enterprises are much greater in number In the EU, SMEs comprise approximately 99% o f all firms and employ between them about 65 million

people In many sectors, SMEs are also responsible for driving innovation and competition Globally SMEs account for 99% o f business numbers and 40% to 50% of GDP The official definition by the Vietnamese government (Government Decree

90/2001/ND-CP dated November 23, 2001) is stated as follows: “SM Es are independent

production and business establishments which make business registration according to the current law provisions, each with registered capital not exceeding VND 10 billion (equivalent to US$ 621,774.547) or annual labor not exceeding 300 people On the basis

o f the concrete socio-economic situation o f each branch or locality, in the course o f implementing the support measures and programs, both or either o f the above-m entioned criteria on capital and labor may be applied in a flexible m anner.” As it can be seen from

this definition, SMEs in Vietnam are so small with regard to scope in comparison with SMEs in some other countries (LEFASO, 2006) After joining the WTO, Vietnam has developed its dynamic economy with the appearance o f medium and small-sized enterprises The survival o f these enterprises directly influences the national economy As Wikipedia demonstrates, they take an important part in stabilizing the economy The scope o f this kind o f enterprises is relatively small so the adjustment is easier As indicated by Trade and Business Information Center in the article “Overall picture o f SME development in Vietnam - US experience”, SMEs have contributed to ensuring the stable development o f the economy; maximizing resources for the nation’s development investment and satisfying various demands o f economic sectors It also has actively contributed to employment and income generation at low cost for the additional one and half million people entering the labour force annually, not to mention its role in maintaining the high mobility o f the labour market Moreover, apart from being a dynamic sector in the economy, SMEs play an important role in narrowing the development gap amongst localities, between urban and rural areas, and helps preserve craft sectors where a large-scale industrial production is inefficient As it was demonstrated by Mr Chi - CEO o f SeaBank, small and medium sized businesses are in

25 industries, employ several million people annually and contribute around one third to the gross domestic product (GDP) in 2008

2.2 Review of relevant research

2.2.1 O p p o rtu n ities

It has been more than 2 years since Vietnam became the I50lh member o f WTO It is not

a too long period to judge the influences that WTO brings about to the country, however,

it is time we had a look at the economy to find out what changes has happened The information about the changing environment may suggest some reforms or adjustment needed to deal with in order to help enterprises develop in the right direction There have been some brief reports from government agencies assessing the possible effects on Vietnamese enterprises They figure out opportunities and challenges that businesses have experienced for the last 2 years As it can be seen that joining WTO can bring about many opportunities for enterprises that can utilize favorable conditions in the world market, however, it also creates challenges for businesses that do not respond quickly to improve its competitiveness against others from foreign markets

As it was summarized by Mr Le Van Dinh (2008), the Vice Minister o f the Ministry o f

Industry and Trade spoke that opportunities for Vietnamese enterprises relate to m a r k e t /

expanding, business environment improvement, attractive destination f o r investment, and more reasonable p riced goods and materials Results from a research on ‘WTO accession’s influences on Vietnamese industry, industry policy and export supporting’ from Library development policy o f German in 2005 concluded that multilateral regulations applied for international trade aimed to create the same competitive conditions for enterprises from each nation Thanks to that, Vietnamese enterprises will

gain more equal fo o tin g in trading and commerce activities with other members within

the organization

Moreover, with these similar regulations, companies may increase their export into these

countries since they can enjoy m ost-favored-nations or national treatm ent rules like

other countries in a specific identical export market Bilateral agreements between Vietnam and other WTO members will also enable the import barriers to go down to some level that was agreed upon between the two economies

In his research entitled “ Vietnam joins WTO - Opportunities, challenges and solutions that need to be done”, Mr I ran Nguyen T u yer/(2004) from the Central Institute for Economic Management said that there were many opportunities for Vietnamese enterprises when Vietnam became an official member o f WTO.

Firstly, WTO accession w ould stim ulate econom ic a nd social reform s a n d renovate

institutions, first o f all enhance the process o f completing legal system, create a stable,

clear, transparent and favorable business environment for business and manufacturing activities o f all enterprises in any economic sectors This process would enable rapid and stable growth for the economy WTO regulations basically aim at trade liberalization by cutting down tariffs and procedures, eliminating quotas, simplifying administrative procedures

In addition, regulations and procedures would be clearer The transparency principle requires all State bodies to publicize information about policy, legislations and procedures, etc related to business activities o f enterprises3 This is an opportunities for enterprises to handle necessary information to establish and carry out business plans more

effectively The year of 2007 witnessed the most significant influences when public

policy was improved, reducing discrimination among different economic types o f

ownership Specifically, the process o f business license registration, tax code provision, and reducing ‘sub-licenses’ have exerted positive influences on business activities (Vinh, 2008) According to Minister o f Home Affairs - Do Quang Trung - the center of administrative reforms in 2007 was to examine, reform administrative procedures and sub-licenses As Minister o f the Ministry o f Planning and Investment, the preliminary investigation of about 200 licenses found out that there were about 40 sub-licenses o f ministers and sectors that needed to be eliminated Due to these changes, enterprises were encouraged to achieve high growth rate, contribute most to GDP growth rate in 2007 In January 2008, Vietnam-based VinaCapital Investment Management in the December

issued o f its VinaCapital Funds M onthly reports that real GDP growth for 2007 was

8.5% The total industrial production value at current price in 2007 was VND 1,469,272.3

3 In the bro c h u r e “ W T O a n d e n te r p ris e s ” , V C C I , 2008.

billion, in which the value o f manufacturing industry was VND 1,254,536.2 billion, increasing 17.6% compared to that o f 2006 (www.gso.tiov.vn).

Secondly, it was supposed by Mr Tuyen4 that WTO accession would stimulate trading-

activities and technology transferring, enhance bilateral and multilateral economic

y

partnership between Vietnam and other countries The fact that discrimination barriers

have been eliminated also enhanced exporting activities for enterprises In 2007, the manufacturing industry continued to maintain high production capacity, especially in agricultural product-based and labour - intensive sectors (like garment and textile, footwear, marine products processing, handicrafts, etc) It means that Vietnam still possesses competitive advantage in these sectors The country’s export turnover5 in 2007 reached US$48 billion, up US$8.2 billion from 2006 and surpassing the 3.1 percent growth target set by the government Through opening up the market for merchandise, service, and investment, reducing tariff and non-tariff barriers, and reducing discrimination6 among 153 member countries7 within WTO, Vietnamese companies would have the ability to expand their manufacturing and business activities due to easier access to many other markets and new partners

T h ird ly , becoming an official member o f the WTO, Vietnam would have favorable

conditions to attract fo reig n investm enifO D A , FD I and FI1) Thanks to these sources o f

investment, the country may enjoy new technology, techniques and know-how to develop its domestic industries As stated by the Trade and Business Information Center (2008), more and more advanced technologies from foreign countries have been imported into the country This event also made Vietnam in general and the manufacturing industry become an attractive destination for foreign investors8 Furthermore, Vietnamese enterprises have had more chances to access many sources o f advanced technology, types

4 T h e C entral Institute for E c o n o m ic M a n a g e m e n t

5 A c c o r d in g to the article “ V ietn am one y ear after j o i n in g W T O ” by th e T rad e an d B usin ess Inform atio n

o f services and raw materials as well as easier access to foreign markets to enable them to earn more foreign currency.

M oreover, Vietnam would benefit fro m being able to use the W TO's dispute settlement

system in international econom ic relationship WTO member helped the country to

improve its position among other countries in trade disputes like anti-dumping cases;

In addition, WTO has its special a n d differential treatment (SDT) fo r developing

countries Vietnam is still a low-income country As indicated by the Ministry o f Finance

till 2007, Vietnam’s GDP per capita was US$ 833, less than US$1000, therefore, it was able to receive special treatments For example, the government is exempt from export subsidies in agriculture As per the WTO commitments, Vietnam, as a developing economy may apply supporting policies encouraging production called ‘Development program’9 These supports are not forbidden by the WTO as these are special terms for developing countries like Vietnam In the ‘Development program’, the government may support investment, inputs for poor people, low-income citizens or farmers in difficult areas (the Ministry o f Industry and Trade, 2007) Furthermore, our country has more time

in reducing tariffs compared to developed countries and that would enable Vietnamese enterprises to develop manufacturing and business activities to be more competitive Figures from a report by the Ministry o f Finance in the Conference disseminating WTO commitments of Vietnam (2006) showed that the average cut down tariff reduction level for industrial products in developing countries was 24%, as compared to 37% o f the developed ones

WTO jo in in g also encourages the developm ent o f enterprises to adopt new standards and norms, enhancing com petitiveness in the economic integration process o f the country

Some o f these regulations include implementing intellectual property rights protection, environmental or labour standards, or rule o f origin, etc Accordingly, Vietnamese companies have to study these regulations carefully and renovate its production,

9 “ V i e t n a m ’s C o m m it m e n ts o f W o rld T ra d e O rg a n iz a tio n accessio n” , th e M inistry o f In dustry an d Tra de, 2007

operation and management activities to ensure that these regulations are strictly adhered to.

also analyzed possible effects that WTO accession may bring to Vietnam in a brochure entitled ‘WTO and enterprises’ In the brochure, it is said that enterprises do not have direct rights and obligations from WTO regulations However, they would encounter effects from WTO through influences that are brought about by Vietnam and other member states implementing their rights and obligations under WTO regulations

Becoming a member o f WTO, export-oriented enterprises also gains some advantages (VCCI, 2008) F irst o f all, most o f import duty into WTO member states will be reduced

or committed to reduce (on a specific progress) and will not be increased again Moreover, members are not to discriminate importing goods among different countries Therefore, opportunities for competition between Vietnamese merchandise and merchandise imported from other countries in the same market are equal in principle Along with tariff measures, WTO members are not allowed to apply non-tariff barriers (for example quota, importing abandonm ent ) except for limited cases (such as defense measures, technology barriers ) on goods from other countries to ensure protect consumers and environment in local environment Due to that, Vietnam businesses would

be relieved o f the anxiety about fierce or unreasonable import limitation measures in importing market With regards to importing regulations, it is mandatory for WTO members to adhere to common rules o f custom procedures, custom valuation, rule o f origin, merchandise testing, and import licensing, etc As a result, import procedures in all these countries will be rather reasonable and unified Thus, export-oriented companies will be ensured in some certain way that import procedures will not fluctuate too much in one market and among different markets

One of the most important impacts that WTO accession has on Vietnam economy is that import tariff into Vietnam for most of kinds o f merchandise reduce gradually from January 2007 The reduction level and progress is dependent on the types o f good, in which there are some groups that have deep reduction level like machine and equipment,

construction material, motorbikes and cars (VCCI, 2008) Besides, import procedures and conditions do follow rules o f transparency, limiting non-tariff measures; therefore, they are more simple, predictable, and reasonable So, those enterprises that use imported materials, machines and equipments, would enjoy more stable and convenient supply along with stable procedures, conditions, and competitive prices.

2.2.2 Challenges

However, external opportunities may also be challenges for enterprises if they do not develop and adapt quickly with the international market Along with opportunities that WTO brings about for enterprises, Mr Tuyen10 also analyzed some challenges"

companies have to face when Vietnam becomes a WTO member Firstly, Vietnam has to

follow its com m itm ents and obligatiofis'related to trading activities, services, investment and properly rights that are compatible with WTO principles As a consequence,

enterprises also have to implement these regulations and standards When Vietnam has been a member o f the World Trade Organization, enterprises have to follow property rights law, which can be a problem for them as this issue has not been so popular in our country

Secondly, the country has to open its merchandise and service market fo r other WTO

members especially in high-end service sector like: banking, insurance, transportation,

finance, auditing (Tuyen, 2004) This means mounting competitive pressures f o r domestic

enterprises, who may incur losses, or face default and liquidation risks, since their market

space is narrowed down, and they are often weaker and smaller in size as compared to foreign companies; Moreover, these firms have weak financial capacity, limited deep knowledge and skills in management in international market, lack o f cooperation and they only took part in low value added stages in the value chain12 (Vinh, 2009) Negative effects on business environment concentrate mainly on some particular groups of

10 The C entral Institute for E c o n o m ic M a n a g e m e n t

1 In th e research “ V ie tn a m jo i n s W T O - O pportu niti es, challenges and solutions th at need to be d o n e”

12 In th e C o n f e r e n c e s u m m a r i z in g W T O influ ences on V ie tn am o f T h e M inistry o f In dustry a nd Trade in February 2 0 0 9

enterpriseslj> Benefits o f State - granted monopoly or protection measures by the government are 1 1 0 longer available or reduced significantly as compared to the previous period Fair competition challenges would emerge for groups o f enterprises that have been protected by the government till then by subsidies, import limitation measures, high tariffs, and market entry barriers like registration business licenses or conditions, etc Advantages in information or privileges resulted from informal relationship between enterprises and administrative agencies will be eliminated in the long-term when the business environment is clarified and adjusted mainly through legal instruments (VCCI,2008) In the past, the government has imposed high tariff on imported cars (Vietnam Information Treasure, 2008) or alcoholic drinks like beer and wine (sabeco.com, 2008) Now, these supporting measures would be cut down or no longer exist This fact requires that enterprises have to renovate its operation as the environment is changing To all enterprises, the business environment with increasing number o f competitors that have large potential in capital, technology and management ability would make the competitive process fiercer and they have to experience more obstacles Many state companies have changed to joint-stock companies such as Vinamilk, Vietcombank,

Vinaconex, etc (abin.vn, 2007) Till the end o f 2008, there were 5,414 State - owned

enterprises which have been restructured14 Among them, 3,836 firms were equitized They are reorganized as limited liability companies or joint - stock companies pursuant

to the Law on Enterprises

However, there are many companies which are not prompt and sensible, so they may have to face with difficulties, loss and may end up bankruptcy or have to go into liquidation Up to now, there are still many State Corporations that invest in other sectors with low economic efficiency, or encounter continuous loss, using land for incorrect and inefficient purposes In 2007, 224 business units o f 16 investigated State Corporations'? did make loss This number contributed 10% to the total number o f state - owned businesses The report on November 4, 2009 Standing Committee o f National Assembly

13 In th e b ro c h u r e “ W T O and e n te r p ri s e s ” , V C C I , 2008

14 T h e M in is try o f Fin an ce, 2009

15 V ietn am National A u d itin g carried o u t 135 a u d it in g activities in 35 cities and p ro v in c e s , 20 M inistries,

23 B u s in e s s Gro ups an d C o r p o ra tio n s

indicates that the total liability o f corporations is VND 286,918 billion lent from credit institutions and through issuing domestic bonds The report informs that the total credit liability o f 7 Corporations16 is VND 128,786 billion, increasing 20.54% compared to the end o f 2007 and contributing nearly 10% o f the liability structure o f credit institutions There have been many companies that have over due debts and fall into bad debt situations For example, Civil Engineering Construction Corporations o f the Ministry o f Transport of Vietnam have the largest amount o f over due debts with the estimated total outstanding loan o f VND12,300 billion Most o f them are bad debts, which have been treated as off - balance sheet accounts under contingency risks by commercial banks.

F u rth e rm o re , WTO joining requires us to ensure a legal and regulatory system 'that is

compatible with WTO regulations (Tuyen, 2004) The law enforcement system also needs

to be strengthened An incomplete legal system is also considered a challenge for enterprises as this means no consistent and unified regulatory framework (VOVNews,2009) Companies may not understand and have full knowledge about all documents that may apply for them In the Ninth Central General Meeting o f the Communist Party o f Vietnam Central Committee, it was said that: “ Many domestic resources and potentials has not been utilized and used properly The efficiency and quality o f economic social development is not so good and weaknesses in economic policy and administration framework do not enable us to utilize our strengths in social and political stability in order to attract foreign investment” Specifically, the competitiveness o f the economy, domestic enterprises and goods are not as good as that o f other countries in the region

Not only is the competitiveness o f the economy so weak, the same thing occurs with the ability o f each sector Vietnamese industries still concentrate on manufacturing for

import substitution and do not have a clear and detailed strategy that could increase efficiency and effectiveness (Tuyen, 2005);

16 They can be m e n tio n e d to as: : V ietnam N atio n al Petroleum and G as G roup, Electricity o f V ie tn am ,

V in ashin B usines s G r o u p , V ie tn a m N ational C oal and Minera l Industries G ro u p - V in a c o m in , Vietnam Post an d T e le c o m m u n ic a tio n G ro u p , and th e V ietn am N ational Textile and G a rm e n t G ro u p

Mr Tuyen also proposed lhat many enterprises lack information and knowledge o f the

WTO accession process and requirements., while the understanding and knowledge o f international market, laws and customs o f these enterprises were still limited To be

competitive in the international market, enterprises need to change and adapt quickly with the changing environment Moreover, enterprises executives are required to be prompt and sensible with diversified market

Furthermore, implementing rules on intellectual property rights would increase expenses significantly and affect technology advancement capacity/producing process o f many enterprises17 Moreover, eliminating and reducing supporting activities means that businesses which enjoy subsidies from the government would be in further difficulties Although statistics in 2007 showed that Vietnam reached achievements in increasing export value as well as diversifying export products, however, merchandise exporting in general and manufacturing goods in specific demonstrated certain weaknesses18 Increase

in export turnover is vulnerable to outside conditions (since imported material ratio in exporting goods like garment and textile, footwear is too high)

Another big challenge for all businesses was that the development in some sectors o f

infrastructures did not catch up with the pace o f economic growth, leading to inefficiency

in industrial developm ent'9 For example, in dry seasons, the country often experience

electricity shortage The price o f electricity imported from neighbouring countries are too high, therefore, there have been power cuts during this season This problem also negatively affects the manufacturing activities o f enterprises as the power cuts may happen during working hours o f factories

Dr To Huy Rua also had a research entitled “The influences of WTO accession process

on Vietnam economy” The researcher also analyzed some opportunities and challenges that WTO joining may bring about the economy He also emphasized that as soon as Vietnam became a member o f WTO, competition among countries that have any same

17 In the bro ch u re “ W T O an d en terp rises” , V C C I, 2008

18 M U T R A P , 2008

19 In the bro ch u re “ W T O an d en terp rises” by V C C I, 2008

export products would be fiercer Except for raw petroleum, most o f our exporting products like agriculture, maritime and garment did not have favorable positions in the world market There has always been fierce competition among exporting countries including Vietnam Our export products are mainly based on low price as a competitive advantage in the world market The short-term advantage o f low expenses can not ensure long-term competitiveness for Vietnamese products (Mitsuo, 2009) Basically, increase

in export demand would be an advantage for us, however, it was required that enterprises have good preparations in many aspects including priority in technology innovation, cutting down prices, increasing productivity and capacity, and increasing export product quality

The most important WTO influences, in terms o f social aspects, was the bankruptcy o f a significant number o f enterprises in all economic sectors (Rua, 2004) Due to that, those businesses would lay off a large number o f employees And the unemployment rate in the society would increase quickly in short -term

Not only enterprises that manufacture mainly for domestic consumption experience challenges but export-oriented businesses also have to cope with their own hurdles*0 Having gained benefits from WTO membership the export value o f Vietnam is expected

to increase quickly However, abnormal growth in quantity with the main competitive advantage o f cheap goods may be one source o f risk that these types o f goods are more likely to be sued in importing market, including anti-dumping, anti-subsidy or safeguard lawsuits Those lawsuits would cause much damage to Vietnamese exporters, for example, companies have to pay high costs (money, time and human resource) One type

o f “strict” punishment like additional duty level along with importing duty or import limitation measures would also affect negatively on business activities in these markets

As referred in the article entitled ‘New challenges for leather and footwear industry in Vietnam’ by Enterprise Forum, following E U ’s announcement, Vietnam leather footwear originated from Vietnam was eliminated from the list o f countries that can enjoy GSP (favorable tariff for poor countries) from January 1, 2009, which put leather and footwear

20 In th e b ro c h u r e “ W T O and en te r p rise s” , V C C I, 200 8

industry in a difficult situation As also mentioned in the article, Vietnam may not avoid a new investigation, when the deadline for applying anti-dumping measures on shoes imported from Vietnam is October 2008 The GSP provides developing countries with unilateral tariff preferences and a duty free quota regime21 The European Commission’s office in Vietnam explained that if GSP-covered imports from a country such as Vietnam represent 15% o f all imports into the EU from the total number o f GSP beneficiaries, then that country's sector is competitive enough not to need preferential treatment.

The fact that large exporting market like EU and American changed their policy and regulations also involves many risks for enterprises At the moment, Vietnam is still considered as a non-market economy based on bilateral negotiation with the U.S, and the period for transformation is at least 12 years The United States o f America worried that Vietnam’s export products would increase significantly into this market like the case of Chinese products The non-market regulations enable enterprises in this nation to impose high anti-dumping duties on Vietnamese enterprises During that period, Vietnam still has to face many challenges with regards to anti-dumping and anti-subsidies cases From

1991 to now, Vietnam has experienced 8 anti-dumping law cases, in which 5 of them have ended, and the 3 others are still in investigations (national assembly, 2007) Once it

is decided that anti-dumping duty is to be imposed on a product, the price o f this product would be higher and more expensive in importing market, thus, reducing its competitiveness

In Section II o f the research ‘Assessing the overall influences o f WTO accession when Vietnam became a member o f WTO’ by MUTRAP ^2 0 0 8), chapter [ y focused on influences for SMEs in Vietnam This chapter summarized the conclusions o f the APEC Ministerial Conference on SMEs in 1997 that challenges which those enterprises had to face with in general and in all countries were classified in five categories:

• Access to finance /

21 In the article “ V ie tn a m fo o tw e a r trips o v e r preference an d anti - d u m p in g s n a g s ” , 2008, H o n g K ong

T ra der, In tern atio nal m a r k e t n ew s

• Access to land and assets

• Poor infrastructures

• Significant and quick renovation in operation and management activities

Many o f those challenges and negative impacts referred above have been demonstrated in reality WTO accession creates both opportunities and challenges in the market As mentioned about the conditions and macro-economic policy WTO membership created negative influences to the economy Because o f quick liberalization o f domestic market, including sensitive and infant sectors, Vietnamese companies have to face with fierce competition from foreign competitors A number o f enterprises that are doing business in the industries that lack o f competitiveness have to liquidate, so unemployment would increase Moreover, capital flows into the country may bring about risks and deepen current weaknesses o f the structure and macro - economy, especially those capital flows

o f investment (indirect investment) that might be easily drawn out when there are changes in business conditions or investor expectation (Anh, 2004) All these problems would affect business activities and sustainable development of SMEs Because o f the small size and lack o f business experience, SMEs may be affected more by capital flows and monetary policy

In summary, joining WTO has created opportunities for Vietnamese enterprises in terms

o f market expanding; easier market penetration; efficiency in business activities through economic and social reforms to improve business and legal environment; enhancing technology and know how transfer and investment; and enterprises development to adopt new standards and norms Along with these opportunities, some challenges that should be