Confluence of interests
As export-oriented Vietnam, whose economy is rendered vulnerable on account of external shocks, might be exploring alternatives, India should go beyond bilateral merchandise trade to exploit the services sector and investment prospects, apart from utilising its deep cultural ties to exercise soft power
Vietnam, a country that had fought over three decades of bloody war (1945-1975) to protect its people from the imperialist aggression of France and the USA, is now considered one of the most promising Tiger Cub economies of Asia. The five developing economies of Southeast Asia: Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are so named to imply that these economies also follow the same growth model as those of the Four Asian Tigers—Hong Kong, Singapore, South Korea, and Taiwan. The economies of the Tiger Cubs are still in the early stages of development and have export-driven models that stress the importance of technology to achieve similar results as their ancestors. Major export items of the Socialist Republic of Vietnam (SRVN) are: clothing, rice, crude oil, and coffee.
The latest WTO trade profile of Vietnam indicates, in 2021, Vietnam attained the world rank of 23rd in export and 20th in imports, and its respective shares in the global exports and imports were 1.5 per cent and 1.47 per cent respectively. In 2020, Vietnam’s five major export destinations were: the US (27.4 per cent), China (17.4 per cent), EU (12.5 per cent), Japan (6.8 per cent), and the Republic of Korea (6.8 per cent). The major importers to Vietnam were: China (32.2 per cent), Korean Republic (17.9 per cent), Japan (17.8 per cent), Chinese Taipei (6.4 per cent), and the EU (5.6 per cent). Data clearly reveal that Vietnam primarily depends on USA and EU markets to export nearly 40 per cent of its goods but the country mostly depends on neighbouring countries in East Asia for its imports.
In 2022, India became the 8th largest trading partner of Vietnam, the 8th largest exporter to Vietnam, and the 10th largest importer from Vietnam. From a meagre USD 200 million in the year 2000, bilateral trade between India and Vietnam has seen steady growth over the years. Vietnam’s custom data for the year 2022 reveal that the total merchandise trade between India and Vietnam crossed USD 15 billion, registering a growth of 13.92 per cent over the last year. India’s exports to Vietnam amounted to USD 7.08 billion while exports by Vietnam to India stood at USD 7.96 billion.
Battle against imperialism
During 1859-93, France slowly colonised Indochina — consisting of the three countries of Vietnam, Laos, and Cambodia. The term Indochina referred to the intermingling of Indian and Chinese influences in the culture of the region. The French created the first Indochinese Union in 1887, and by 1897, French authorities had completed the construction of the new colonial state of French Indochina.
During World War II, it had been invaded by Japan in 1940, which took control of French Indochina. Ho Chi Minh was the leader of the Vietminh — a resistance army that fought for Vietnamese independence. After World War II, Ho Chi Minh captured Hanoi in 1945 and declared Vietnam independent. Thus the Democratic Republic of Vietnam was established.
Incidentally, the noted Indian freedom fighter Netaji Subhash Chandra Bose was also in Vietnam during World War II, from where he launched his armed struggle against the British empire. He stayed his last night at 76, Rue Paul Blanchy (now Hai Ba Trung Road) in Saigon (presently Ho Chi Minh City) on August 17, 1945, before disappearing into the wilderness the next day, reported Times of India.
After the end of World War II, the French tried to take control of Vietnam again, but they were defeated by the Vietminh at Dien Bien Phu in 1954. Peace was discussed in Geneva in 1954 and the Treaty of Geneva agreed that the French would leave Vietnam, and the country would be split until elections could be held. The elections were never held and the country remained divided into North Vietnam (a communist republic) and South Vietnam (a capitalist republic) till 1976 when Vietnam united again and was renamed as the Socialist Republic of Vietnam (SRVN), with its capital in Hà Nội, reported BBC.
The USA got involved in Vietnam’s civil war and sided with South Vietnam since the war broke out in 1956. It was afraid that communism would spread to South Vietnam and then the rest of Asia. The first major contingent of US Marines arrived in 1965. For the next ten years, the USA’s involvement increased. By 1968, over half a million American troops were in Vietnam and the war was costing USD 77 billion a year, reported BBC. On February 3, 1994, President Bill Clinton announced the formal end of the embargo against Vietnam, 19 years after North Vietnamese troops captured Saigon. The decision came as a result of the Vietnamese government’s cooperation in finding the remains of 2,200 Americans missing in action (MIAs), and under pressure from US companies wanting to do business in Vietnam, reported Independent.
Vietnam’s development model
During the last three decades, Vietnam has improved remarkably in all the development parameters (refer to table). For example, in 1990, its Human Development Index (HDI) was 0.482 which has improved to 0.703 in 2021. In the same year, India, with an HDI score of 633, ranked 132 out of 191 countries. In comparison, Vietnam’s rank was 115.
If one compares Vietnam and India’s performance parameters, as mentioned in table, it conveys how fast a war-ravaged country has reconstructed its economy and reduced poverty from a whopping 45.7 per cent in 1990 to less than one per cent in 2021. In India, 10 per cent of its population is still very poor. The other remarkable achievement for Vietnam has been the per capita income increase of its citizens from a mere 130 USD to 3,590 USD in the said period. This income figure is much higher than the current per capita GNI of Indians at 2,150 USD.
A UNU World Institute for Development Economics Research (UNU-WIDER) paper by Chaponnière, Cling, and Zhou (2008) claimed that Vietnam had been following China’s footsteps. According to the authors, at the beginning of the 1980s, Vietnam faced alarming economic difficulties: an acute shortage of basic consumer goods (even for staple food products), growing external debt, increasing macroeconomic imbalances (inflation, public sector and trade deficits), and a slowdown of economic growth. In December 1986, Vietnam embarked on a radical reform programme called ‘Doi moi’ (Change and Newness) that marked the adoption of ‘market socialism’. China had initiated a similar reform programme in 1978. The reform started in the rural areas where agriculture was virtually de-collectivised, farmers were given more autonomy, and prices were liberalised. A private sector was authorised, consisting mainly of small and medium-sized enterprises. Major elements of central planning were dismantled.
The external liberalisation process was also initiated at a rapid pace. Following the end of the US embargo in 1993, Vietnam speeded up its process of international integration. Three trade agreements have had a major impact on trade liberalisation and increased market access. Progress was made in a number of areas, including reduction in maximum import tariff rates, the implementation of tariff reductions associated with membership of ASEAN in 1997.
In 2000, Vietnam signed a bilateral trade agreement (USBTA) with the United States, opening the doors of the American market to Vietnamese products (submitted to quotas). As Vietnam’s exports to the US have been granted most favoured nation (MFN) status since 2002, the average tariff on Vietnamese imports into the USA dropped from some 40 per cent to 3-4 per cent. The state monopoly of foreign trade was abandoned. Tariff exemptions were introduced for inputs used in the production of export goods; the non-tariff barriers were reduced.
Vietnam joined the WTO at the beginning of 2007 (five years after China), almost two decades after the adoption of Doi moi. As a member of the WTO, Vietnam benefits from the MFN status in all member countries. This also means that quotas will no longer be applied to Vietnamese exports, and has to apply WTO rules.
It has been observed that since the adoption of Doi moi, and following the East Asian ‘Dragons’, Vietnamese trade policy has mixed the import substitution measures and export subsidies to promote an export-led growth strategy. Export subsidies have played a key role in the exports surge, especially for textile and clothing products.
Vietnam has efficiently used the strategic shift of global supply chain operations, during the last decade, to its advantage. China-Plus-One Policy, coined in 2013, is a global business strategy in which companies avoid investing only in China and diversify their businesses to alternative destinations. However, officials and companies in Japan and the United States had begun mulling a diversification strategy away from China as early as 2008, reported Madhyam.org. Referring to GVC statistical profiles of WTO, Amita Batra (2023) commented that among the South and Southeast Asian economies, Vietnam led in taking advantage of the opportunities arising from the regional shift in global value chain (GVCs).
Between 2010 and 2018, Vietnam showed a dramatic evolution in the foreign value added (FVA) component of its gross exports and, hence, its GVC integration. As against less than 5 per cent for Asia and India, Vietnam registered an annual increase of 17.3 per cent in the FVA component of its gross exports over this period. This helped Vietnam to register significant gains in its share of global merchandise exports. From a low of 0.5 per cent in 2010, Vietnam’s share increased more than threefold to 1.6 per cent in 2020, making it the 20th largest goods exporter in the world. India’s share, in contrast, had remained stagnant at 1.6 per cent during this period. Vietnam seems poised to consolidate its position as the most attractive destination for MNCs diversifying away from China.
Nonetheless, a section of economists fear that Vietnam has reached an inflection point in its economic development and needs to look for new models. GDP growth at 2.6 per cent indicates that Vietnam is getting affected in the global slowdown. This is one of the major limitations of export–led growth models. In the case of Vietnam, the share of merchandise trade to GDP is at 182 per cent (table) which makes the economy extremely vulnerable to external shocks like global recession and pandemic. Apparently, Vietnam will have to find an alternative sustainable model of development. The nation should not rely too much on past successes and has to make upgrades to its current economic model if it wants to continue to flourish, warned the World Bank.
Merchandise trade between India and Vietnam has increased manifold during the last two decades. In 2021, the main products that India exported to Vietnam were hot-rolled iron (USD 1.29 bn), frozen bovine meat (USD 371 mn), and corn (USD 310 mn). During the last 26 years, the exports of India to Vietnam have increased at an annualised rate of 16.7 per cent, from USD 124 mn in 1995 to USD 6.82 bn in 2021. In the same year, the main products that Vietnam exported to India were telephones (USD 913 mn), broadcasting equipment (USD 543 mn), and copper pipes (USD 376 mn). During the last 26 years, the exports of Vietnam to India have increased at an annualised rate of 26.3 per cent, from USD 15.1 mn in 1995 to USD 6.51 bn in 2021. The trading profile indicates the thrust of Indian export to Vietnam is on agricultural products while Vietnam exported mainly manufactured items to India. Interestingly none of the countries have traded any service.
At a recent meeting with the Indian Minister of External Affairs Subrahmanyam Jaishankar, Deputy Minister Hang suggested that the two countries increase the exchange of delegations at all levels, enhance economic connectivity, and promote cooperation in trade, investment, and tourism. In addition to tourism, India is in a position to export educational services to Vietnam at an affordable cost.
Notwithstanding the rapid growth in trade between India and Vietnam, investment levels have remained low. With about USD 1.9 billion invested in Vietnam, India is only the 25th largest investor in the country. Vietnam’s presence in India is even more limited, with an investment of just USD 28.55 million spread across six projects, reported Mint.
Both India and Vietnam are partners of the Indo-ASEAN Free Trade Agreement. Also, since 2000, India and Vietnam have been two important participants of the Mekong-Ganga Cooperation (MGC), an initiative by six countries — India and five ASEAN countries, namely, Cambodia, Lao PDR, Myanmar, Thailand and Vietnam — for cooperation in tourism, culture, education, as well as transport and communications. As India-ASEAN Service Trade Agreement has not yet been ratified, India and Vietnam should explore the possibility of a bilateral agreement to boost investment and services trade.
“Culture, Commerce and Connectivity” form the three important pillars of India’s priorities and integration with respect to the ASEAN region. India enjoys a long cultural association with the Indo-China region, of which Vietnam is an important country. It may be noted that when India’s President Ram Nath Kovind visited Vietnam in 2018, he began his visit from Da Nang, a place believed to have a rich historical civilisational connection with India. Da Nang is famous for its world heritage site ‘My Son’, which is the origin and home of the Hindu Cham civilisation which dates back 2000 years, and the ancient temples of their people, constructed by the kings of Champa between the 4th and 13th centuries AD, which also have Buddhist connections. This further strengthens its ties to India, considering that Buddhism originated in the Indian subcontinent, as President Kovind also pointed out.
Though Rabindranath Tagore also visited Saigon in June 1929, socialist Vietnam preferred to remain silent on him as the philosophy promoted by Tagore and his works conformed to the orientalist discourse of the spiritual East. Such colonial appreciations of Tagore did not meet the spirit of any Vietnamese national and class struggles, thus he was made invisible in postcolonial Vietnamese historiography, alleged Chi P. Pham (2016) of the Vietnam Academy of Social Sciences.
As the current generation of Vietnam intellectuals are more inclined to explore the oriental views, and are showing interest in the writings of Buddha and Tagore, India may explore the possibility of using its soft power to establish stronger relations with countries of the Mekong region. Buddha, Tagore, and Gandhi are icons of India who can show some light to the turbulent world. Let them show us the way to get out of this encircling gloom.
Views expressed are personal