INTERNATIONAL EXPERIENCES OF
ECONOMIC INTEGRATION
Sine the second World war, many developed and developing countries have
undertaken programmes of trade and investment policy liberalization. The
individual and collective action s of these countries have facilitates the process
of globalization and integration that have led to the recent rapid growth of
international trade and investment flows.
The experiences of countries that have undertaken these programmes can be
useful in formulating Vietnam s integration strategy for a number of reasons.
One reason is to provide empirical evidence on the gains from liberalization, to
help inform the domestic debate about reform. Another reason is to see how
other countries have approached particular aspects of the liberalization process,
to learn from successes and failures .The experience of two clauses of country
seem particularly relevant to Vietnam- neighboring market economies in Asean
and other transition economies in Asean and Europe. This subject summaries
some of the available information on liberalization experiences of these 2
groups:
1. The relationship between trade and investment policies and
development.
The relationship between trade liberalization, economic growth and development
has been the subject of considerable analysis in recent years .an emerging
consensus from tins analysis is that countries which maintained open economies
grow faster than courtiers with closed economies, sacs and Warner examined the
average growth of eight always open economies and forty always closed
economies from 1966 to 1990 .the open economies grew at rates of around 6%
while closed economies grew at about 2%. A recent study by Frankel and Romer
show that opening trade has a strong effect on productivity –estimating that a
percentage point increase in the ratio of trade to GDP is associated with a 2.04%
encrease in labor augmenting productivity (Frankel and Romer 1999).
Several cross country studies and evaluations of the literature have stressed the
importance of other policies besides open trade and investment (Papageorge,
Michael and Choksi 1990, Rodrik1998)
Roderick, for example, argues that openness must be complemented by
appropriate domestic investment strategies and mechanism for resolving
conflicts, especially those created by macroeconomic shocks and imbalances
The issues of the role of open trade and investment policies has also received
attention in assessments of the (pre crisis) success of a number of East Asean
economies-Hong Kong, Indonesia, Japan, the Republic of Korea Malaysia,
Singapore, Taiwan, and Thailand. Much of the discussions of the performance of
these economies centered on the issue of the role of government, but these is
strong agreement that there was a common emphasis on export led growth based
on competitive real exchange rates and a desire and ability to use foreign
technology. But the successes of these countries in providing growth,
development and poverty reduction was a attributable to a much broader range of
complementary policies. A recent studied published by the world bank offers
conclusions about policy organized 6 themes (Stiglitz 1996). They are:
1. Policy that sustained a more equitable distribution of in come and that
supported basic education for women as well as men contributed to
economic progress
2. As the East Asian economies grew and became more complex
government had less need to assume an active role and, in any case,
found it more difficult to manage production activities
3. Governments played an active role in creating institutions and an
institutional infrastructure that enabled markets to work more
effectively.
4. Such things as provident funds encouraged the accumulation of physical
and human capital, establishment of prudential regulations and policies
that encouraged education and receptivity to foreign investment
5. Industries which would have a high pay off to R and D were identified
by government; and
6. Governments intervened in capital market allocation
2. Selected experiences of trade and industry policy reform.
While the finer point on the links between openness and growth may not have
been satisfactorily resolved, policy markets around the world are pursuing more
open trade policies with firm conviction < and in most cases fairly compelling
evidence > about the benefits of liberalization. Asian market economies East and
South East Asian. Most East Asian and South East Asian economics have
undertaken trade liberalization at some time.
1. Korea undertook major liberalization programmes in 1965-1967
focusing on loosening QRs, and in 1978-1979, concentrating on tariff
reduction. Export rose rapidly after both periods of liberalization, from
4-40% of GNP between 1964 and 1983 continued tariff reductions
during the 1980s brought the average tariff down from 24%in 1983 to
10% in 1992 (dean, desai and Riedel 1994).
2. Singapore undertook major liberalization efforts in the period 1968-
1973, as part of the push towards export orientation. This period was
characterized by relatively stable prices, rapid growth in capital inflows
and imports, rapidly growing labor productivity (averaging around 6%
per annum, and a rapid expansion of manufacturing).
3. The Philippines has had four episodes of liberalization: 1960-1965
when comprehensive import controls were dismantled and the foreign
exchange system war decontrolled; 1970 - 1974, when modest tariff
rationalization of quantitative restriction occurred along with substantial
tariff reforms; and 1990 to the present, involving tarifftation of
quantitative restriction and major tariff reduction. Reforms have not
been associated with the same improvement in economic performances
as in other Asia economies, because of substantial reversals of
liberalization in intervening periods, incomplete liberalization of
agricultural trade, continued domestic regulation and poor
macroeconomic policies.
4. Thailand replaced an inward looking import substitution strategy with an
export-oriented approach to industrialization in the 80s. Trade and
investment liberalization and domestic reform of key sectors has been
central to this strategy. A major tariff reform initiated in 1982 was
abandoned because of the import on revenues. However, with a
strengthening fiscal situation, tariff reform was restarted in the late
1980s. In the 1990s, a comprehensive tariff reform was begun,
accompanied by a significant reduction in goods subject to import
licensing.
A major study that covered liberalization episodes in most of these countries
highlighted some important lessons: (Papa Georgiou, Michaely & Choksi 1991)
1. Getting the macroeconomic variables right appears to be especially
important. In some countries, such as the Philippines in the 80s,
liberalization was derailed by macroeconomic policy failure.
2. Misdealing the causes of an increase in the current account deficit can
stall liberalization, as it did for the Republic of Korea in 68 and 90.
3. When well managed, the short-term costs of reform can be
accommodated and adjustment is quicker than many have thought
4. Employment fears seem to be overstated. Liberalization can lead to job
growth, as it did in manufacturing in the Philippines and Korea.
5. Strong, fast and sustained reform seems to lead to higher economic
growth. Liberalization leads to an outward orientation of the economy-
most clearly seen in Korea.
The financial crisis in East Asian has been a significant setback for some of these
economies and had had a pronounced effect on global trade patterns. The sharp
depreciations of the currencies in the region, coupled with a severe contraction
in demand, have led to a large fall in import, in affected economies. While
currency depreciations improved the competitiveness of exports, financial and
corporate sector problems prevented the competitive gains from being rapidly
translated into export growth. Nevertheless, the effect on trade balances has been
significant, with the most severely affected economies recording large trade
surpluses with the rest of the world. Most crisis-affected countries have
maintained or even accelerated programmes for trade and investment
liberalization as Thailand, the Philippines, Malaysia & Singapore.
A recent examination of the lessons for Vietnam from the experience of east
Asians newly –industrialized economies highlighted the differences between
globalization of liquid capital and the other developments also captured under the
term globalization; international trade; trade financial; long-term foreign equity
investment technology transfer; and the global transfer of useful information,
knowledge and skills.
3. The report identified a range of lessons to learn from the crisis,
including:
1. Effective macroeconomic management is a necessary but not a
sufficient condition for sustainable development –policies impacting
on the incentive structure and efficient markets are also critical;
2. State - directed and state – influenced lending in commercial areas has
heavy inefficiency costs which contribute to a build up of financial and
structural imbalances, financial instability and crisis;
3. Government failure with respect to withholding essential information
or enforcement of corporate transparency accountability and financial
reporting can trigger financial crisis;
4. The volatility of liquid global capital can destabilize developing
countries if domestic financial markets are shallow and under
developed, and
5. Inadequate prudential supervision of the financial sector can enable
market failure in banking sectors;
4. Transition economies
A number of countries in central and Easter Europe and formal members of the
Soviet Union have undertaken major trade liberalization exercises as part of their
programmes of transition toward market –oriented economic structures.
Most of these economy experiences sharp fall in economic activity in the early
stages of the transition- and some are continuing to experience considerable
economic distress. But many are recovering from the initial shocks associated
with the end of central planning and the dissolution of former economic unions’
agreements. The World Bank has argued that those economies that liberalizer
rapidly tended to experience faster recovery. (WB 1996). However, the Bank
recognized that it is difficult separate out the effects of liberalization from those
of other factors including the initial point of departure, the overall transition
strategy, the speed with which the institutional underpinnings of a market
economy could be developed or deconstructed, and the success of stabilization
policies.
Among the transition economies, China's approach to liberalization has been a
strong influence on the directions adopted in Vietnam. The institutional
framework for production, trade and finance in Vietnam at the beginning of
"Doi moi" closely resembled that of China a decade earlier with trade largely
conducted through specialized trade SOES, and a banking system structured
around 4 specialized state owned commercial banks. China's gradualist approach
to reform appears to have been a model for Vietnam's renovation process, and
very similar problems have been experienced (especially with regard to the
linkages between state enterprises and the banking system). However, both
economies avoided the precipitous declines in trade and production experience
by former members of the Soviet Union.
5. Lessons from transition economics
Overall, seven key lessons emerge from the experience of transition economies
(WB 1996). These are:
1. Consistent policies, combining liberalization of markets, trade and new
business entry with reasonable price stability can achieve a great deal
even in countries lacking clear property rights and strong market
institutions.
2. Differences between countries are very important both in setting the
feasible range of policy choice and in determining the response to
reform.
3. An efficient response to market processes requires clearly defined
property rights - and this will eventually require widespread private
ownership.
4. Major changes in social policies must complement the move to the
market - to focus on relieving property, to cope with increased mobility.
6. Meeting the institutional challenges of integration
Membership of the WTO pose significant institutional challenges for transition
and developing economics. Many of new agreement reached during the Uruguay
round place strong requirements on domestic policy, administrative and
regulatory institutions. This in turn has meant that the accession process has
become more demanding and time consuming.
For mat transition economies, governments traditionally controlled trade through
state trading enterprises, and had no need for institutions dealing with aspects of
international trade in goods and services, such as IPR, standards, sanitary controls
procurement. (Michalopoulos 1998). However, WTO membership requires that
policies and institutions dealing with these issues be brought into line with the
provisions of the main agreements of the organization.
Individual countries, especially small transition economies, have little leverage
in market access negotiations: hence the potential benefits they may be able to
obtain from such a strategy may be very small. At the same time, maintaining
protection through relatively high tariffs and protected agriculture and service
sectors simply means that they impose cots to their own economies by foregoing
the benefits of a more liberal trade regime, which in the first instance accrue to
the country itself. If, on the other hand, countries bind tariffs at levels higher than
those applied and assume few commitments regarding agriculture and services,
both of which are possible under WTO rules, they are subject to another risk:
they create the opening for domestic interests to exert political pressure for
additional protection in the future.
The experience of some Former soviet Union countries has been that placing
limited offers on the table during accession negotiations serves mainly to delay
the process - accession Working Parties have been known to simply ask the
country to submit a revised offer before serious negotiations occur
(Michalopoulos op cit).
CONCLUSION
International experiences of economic integration are very useful for Vietnam in
the Renovation cause. However, Vietnam should collect the experiences and
lessons carefully from the liberalization process, transition economies and the
financial crisis in East Asian, Asian and Europe that relevant to Vietnam. In order
to step forward to national Industrialization and Modernization for the welfare of
the people, strong nation and Just and civilized society.
SOEs: State owned enterprise
R and D: Research and development
NTBs: non- - tariff barriers
MFN: Most favored nation
IPR: Intellectual Property Rights
AFTA: ASEAN Free Trade Area.
GATT: General Agreement on tariffs and Trade.
UNDP: United Nations Development Programme.
REFERENCES
1. Saigon time (No 165, 166)
2. BBC 2000. China: WTO entry said consistent with socialist economy,
BBC Monitoring Asian - pacific - Economics, London, 3 January
3. Nguyen, V.C 1998. International Economic Integration Hanoi, mimeo
4. International Business
5. Chang, H 1997. Vietnam's Integration into the world Economy, Hanoi.
6. Mc Catty, A. 1999. Vietnam's integration with ASEAN
7. Luu Tien Hai: Viet Nam - An important link of Viet Nam investment.
(International Affairs Review)
8. ASEAN meet: Time of trial (Business Viet Nam August 2001 issue)
