INDO-PACIFIC INSIGHT SERIES

Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

Australia and Vietnam have a well-developed toolkit for economic cooperation that has yet to be leveraged. Alongside a bilateral Strategic Partnership, both countries share membership in three significant multilateral trade agreements. These cooperative platforms have emerged at an opportune time where Vietnam is at a critical juncture in its growth, and has demonstrated leadership ambitions at regional and global levels. Both countries share an interest in diversifying their trade and investment ties, and seek like-minded partners to shape the Indo-Pacific economic architecture. This task is more important due to the COVID-19 pandemic and conflicts between China and its trading partners. However, Australia and Vietnam are yet to crystallise an economic agenda that takes advantage of these mechanisms. What can both countries achieve with the mechanisms they possess? This report examines how Australia and Vietnam can use their economic cooperation toolkit to diversify their economic relations, shape the Indo-Pacific architecture, and solve problems like critical materials security.

Kyle V. Springer, Senior Analyst, Perth USAsia Centre Volume 14, October 2020 CONTENTS

Executive Summary 3

Tóm tắt 4

Introduction 5

Vietnam’s emergence as an Indo-Pacific leader 7

Room for growth: bilateral economic relations today 9

Diversification driving bilateral economic engagement 12

AANZFTA: Kick-starting trade ties 13

CPTPP: high standards, high stakes 15

RCEP: An Indo-Pacific trade bloc? 19

Economic components of the Australia-Vietnam Strategic Partnership 20

A bilateral critical materials partnership? 23

A purposive bilateral economic agenda 27

Endnotes 28 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

EXECUTIVE SUMMARY

• Vietnam’s role in the Indo-Pacific has been transformed and it is now a player of global significance. This is largely due to high- speed growth as a result of its economic reforms which started in 1986. Vietnam emerged with ambitions to shape the dynamic region of which it is a part through membership in multilateral fora. In 2020, Vietnam is chair of ASEAN and a non-permanent member of the United Nations Security Council (UNSC). • Vietnam’s participation in international economic architecture has been instrumental in its growth. It has also created important connections with Australia, with the two countries sharing membership in three major multilateral trade agreements: AANZFTA, CPTPP, and RCEP. • Alongside these economic linkages, Australia and Vietnam have strengthened broader bilateral relations amid a changing regional context. In 2018, Australia and Vietnam entered into a Strategic Partnership, which promises to expand cooperation into new diplomatic and strategic domains. • Despite possessing this shared toolkit for cooperation, Australia and Vietnam have yet to crystallise an agenda that takes advantage of these mechanisms. What opportunities does this shared foundation present for bilateral cooperation? • Australia and Vietnam can realise their shared interests by pursuing invigorated cooperation in areas such as diversification of their trade and investment relations, shaping the Indo- Pacific economic architecture, and securing critical materials supply chains.

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 3 Úc và Việt Nam: Chương trình hợp tác kinh tế trong thời đại địa lý chiến lược thay đổi

TÓM TẮT

• Vai trò của Việt Nam ở vùng Ấn Độ Dương-Thái Bình Dương đã biến đổi và giờ đây Việt Nam là quốc gia có tầm quan trọng toàn cầu. Điều này phần lớn là nhờ vào những tăng trưởng nhanh chóng đem lại bởi các cải cách kinh tế đã bắt đầu từ năm 1986. Việt Nam nổi lên với tham vọng góp phần định hình các biến chuyển trong khu vực thông qua tư cách thành viên của các diễn đàn đa phương. Vào năm 2020, Việt Nam là Chủ tịch ASEAN (Hiệp hội các Quốc gia Đông Nam Á) và là thành viên không thường trực của Hội đồng Bảo an Liên hiệp quốc (UNSC). • Sự tham gia của Việt Nam vào cấu trúc kinh tế quốc tế đã đóng vai trò quan trọng trong việc tăng trưởng của quốc gia này. Đồng thời cũng đã tạo ra các kết nối quan trọng với Úc, và cả hai nước đều là thành viên trong ba hiệp định thương mại đa phương quan trọng: AANZFTA, CPTPP và RCEP. • Cùng với các mối liên kết kinh tế này, Úc và Việt Nam đã thắt chặt mối quan hệ song phương rộng rãi hơn trong bối cảnh khu vực đang thay đổi. Vào năm 2018, Úc và Việt Nam đã ký kết Quan hệ Đối tác Chiến lược, hứa hẹn sẽ mở rộng hợp tác trong các lĩnh vực ngoại giao và chiến lược mới. • Mặc dù sở hữu bộ công cụ hợp tác chung, Úc và Việt Nam vẫn chưa hình thành được chương trình nghị sự tận dụng các cơ chế này. Nền tảng chung này sẽ mang lại những cơ hội nào cho việc hợp tác song phương? • Úc và Việt Nam có thể biến các lợi ích chung của đôi bên thành hiện thực bằng cách theo đuổi sự hợp tác đã được tăng cường trong các lĩnh vực như đa dạng hóa các mối quan hệ thương mại và đầu tư, định hình cấu trúc kinh tế vùng Ấn Độ Dương-Thái Bình Dương, và bảo vệ chuỗi cung ứng nguyên liệu quan trọng.

TRANG 4 Indo-Pacific Insight Series, Tập 14, tháng 10 năm 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

INTRODUCTION High-speed economic growth since Vietnam’s important juncture in Vietnam’s economic domestic reforms began in 1986 have progress and can be leveraged for further transformed the country’s standing in the Indo- development between Australia and Vietnam. Pacific region. Vietnam was once counted AANZFTA has been a component of economic among the poorest countries in Asia, as well cooperation for the past decade, a period as one of the most isolated from its neighbours that has seen Vietnam rise as one of Australia’s after decades of war. Now it is one of the fastest growing trade markets in Southeast Asia1. fastest-growing economies in the region and The CPTPP is a new and advanced framework, has transformed itself into an important political with strong provisions to support a greater and diplomatic leader in Southeast Asia. Australia-Vietnam investment partnership. While the remaining RCEP members have agreed However, Vietnam sits at a crossroads in its upon the text of the agreement, they have economic history and the policy decisions it yet to finalise and sign it. RCEP offers broader makes now will determine whether it either membership than the CPTPP, and a regionally- goes the direction of advanced Asian focussed foundation for value chain integration. economies or towards the middle-income trap. To avoid the middle-income trap, continue its These mechanisms form a broad-based and economic reform and thereby keep it on the strong foundation for a bilateral partnership, but path of development, Vietnam has chosen to a detailed blueprint for what can be built upon become an active participant in the region’s it has yet to be designed. What opportunities trade architecture. does this shared framework present for Australia- Vietnam political and economic cooperation? Vietnam has as also pursued strategic partnerships with countries such as Australia. This framework has unfolded as part of their In recent years, Australia and Vietnam have active participation in emerging economic progressed their bilateral relations amid a architecture and allows them to cooperate to changing regional context. The two countries advance other regional agreements such as entered into a Strategic Partnership in 2018 RCEP and expand the CPTPP. The preferential that recognised their converging security and trade treatments found in the agreements economic interests in the Indo-Pacific. The which are a part of this framework are Partnership established an annual ministerial- tools to diversify their trade and investment level Economic Partnership Meeting as a new relations. They have an opportunity to act mechanism for developing economic links. within this framework to solve economic problems such as securing supply chains for Australia and Vietnam share the critical materials that underpin regional technological development. a multifaceted framework for political and economic Seldom do two countries share such a robust framework to strengthen their economic ties cooperation. at such an opportune time. This shared toolkit makes Australia and Vietnam ideal partners to Vietnam’s engagement in the international enhance economic cooperation. The recent economic architecture means it now shares shocks to the global economy from COVID-19 membership with Australia in two major and increasing tensions between the US and multilateral trade agreements: the ASEAN- China also necessitate the two countries Australia-New Zealand Free Trade Agreement activating this toolkit. While the economic fallout (AANZFTA), the Comprehensive and Progressive from both COVID-19 and US-China acrimony Agreement for the Trans-Pacific Partnership presents many challenges, it also offers both (CPTPP), and they are also negotiating Australia and Vietnam with opportunities to members of the Regional Comprehensive reorder patterns of economic dependency Economic Agreement (RCEP). These multilateral and rebuild more resilient international frameworks are timely as they come at this economic relations.

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 5 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

PAGE 6 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

VIETNAM’S EMERGENCE AS AN INDO-PACIFIC LEADER Vietnam’s economic reforms constituted a From its present economic state, Vietnam can transition from a command economy to a go two directions. If it can maintain its gross ‘socialist-oriented market economy’. Reforms domestic product (GDP) per capita growth were wide-ranging and included liberalising close to 7 percent, then achieving a level of restrictions on private enterprise, ending price development comparable to counterparts controls, allowing property ownership, and like Taiwan, Korea, and China is within its relaxing restrictions on foreign investors. Known reach6. However, if growth dips below 4 as Đổi Mới, these reforms commenced over percent, then Vietnam risks falling into the thirty years ago have triggered rapid economic doldrums within which some of its middle- growth and transformed the country’s status on income Southeast Asian counterparts now find the Indo-Pacific stage. Held back by a legacy themselves trapped. of colonialism, war, and the failures of the command economy and economic planning, Vietnam’s economic patterns and its policy it was once among the poorest countries in posture suggest it will go down the path of its Asia. However, Vietnam’s poverty rate has since advanced Asian neighbours. The changes fallen from 60 percent to 20 percent in the past in Vietnam’s economy track closely those twenty years2. of China, which launched its own historic economic reforms in 1978. Movement of the Vietnam is now one of the most promising workforce out of low-productivity agriculture growth stories in the region and has and into higher productivity and higher demonstrated ambition to assert itself as paying industrial and manufacturing jobs was a player of global significance through a major driver of China’s growth. Vietnam is involvement in various multilateral fora. Vietnam experiencing the same trend7. Also supporting initially emerged as a political leader in ASEAN, its economic performance, Vietnam has to which it was a latecomer in 1995. Now it has enjoyed favourable demographics and today arisen as a powerful regional player, having it has a youthful population with a growing and stepped onto the global stage with an agenda urbanising middle class. and mandate to shape the dynamic region of which it is a part. In 2020, Vietnam is chair of Vietnam’s participation in international ASEAN and is also a non-permanent member of economic architecture has been instrumental the United Nations Security Council (UNSC). in its growth. Vietnam joined the World Trade Organisation (WTO) in 2007 with Australia’s Throughout the period of Vietnam’s Đổi Mới strident support8. Its continued engagement with reforms, Australia has been an important multilateral trade agreements in the Indo-Pacific partner. Australia featured as one of a handful region is a positive sign that it will continue of Western countries the Vietnamese Communist its economic reform and trade liberalisation. Party wanted to improve relations with when Its active participation in trade agreements the Đổi Mới reforms were launched in 19863. like AANZFTA, RCEP and the CPTPP have all Australia was an early investor in Vietnam as played a role in transforming it into an engaged early as 1988 and quickly became one of actor in the Indo-Pacific region. This has also the top five foreign investors in the country4. made Vietnam attractive as an alternative Australian-owned companies were among the manufacturing hub to China. first foreign companies to set up operations 5 in Vietnam . These early achievements Amongst developing reflected Australia’s recognition of Vietnam’s economic potential. economies, Vietnam is a leader in pursuing trade liberalisation. Vietnam now sits at a critical juncture in its developmental trajectory.

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Table 1 – Vietnam’s Participation in Free Trade Agreements (FTAs)

Agreement Entry-into-force ASEAN Free Trade Area (AFTA) 1993 ASEAN-People’s Republic of China Comprehensive Economic 2005 Cooperation Agreement ASEAN-Republic of Korea Comprehensive Economic Cooperation Agreement 2007 ASEAN-Japan Comprehensive Economic Partnership 2008 Japan-Vietnam Economic Partnership Agreement 2009 ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) 2010 ASEAN-India Comprehensive Economic Cooperation Agreement 2010 Vietnam-Chile Free Trade Agreement 2012 Republic of Korea-Vietnam Free Trade Agreement 2015 Eurasian Economic Union-Vietnam Free Trade Agreement 2016 Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) 2018 ASEAN-Hong Kong SAR FTA 2019 Vietnam-European Union Free Trade Agreement 2019 Regional Comprehensive Partnership Agreement (RCEP) Under negotiation Vietnam-Israel Free Trade Agreement Under negotiation Vietnam-European Free Trade Association FTA Under negotiation

Source: Asia Regional Integration Center, Asian Development Bank (ADB), https://aric.adb.org/

Vietnam’s ambitious economic reforms under Đổi Mới and its integration into the regional The US-China trade war and architecture have helped it foster a competitive COVID-19 has accelerated foreign investment regime. Vietnam has a central location in Southeast Asia. Sharing interest in Vietnam’s a land border with China, its proximity and manufacturing capabilities. infrastructure linking it with the region’s largest economy has kept trade costs low9. Coupled with comparatively low wages, it has become The US-China trade war and the COVID-19 an attractive alternative to China as a pandemic have energised this process. Soaring manufacturing hub. As China’s economy has US tariffs on Chinese manufactures have grown, its labour costs have risen, undermining prompted companies to move or consider its comparative advantage in the low- and moving operations from China to Vietnam to medium-skilled manufacturing sectors. avoid duties. Companies are re-examining their value chains to see where they could This has prompted some companies to pursue be over-exposed to the effects of US-China what is called a ‘China plus one’ value chain economic tensions. Vietnam has so far made strategy. Under this strategy, companies keep itself ever more attractive as an alternative to assets in China, while relocating labour-intensive China because of its early success in controlling stages of production to other countries with the spread of COVID-19, allowing economic more competitive labour costs10. For example, activity and production to quickly resume12 . a factory in Vietnam could be used as an Three of Apple’s manufacturing partners have assembly site before the final product is moved planned to set up production facilities there13. back to China for more value-added stages or Other technology manufacturers, including US shipped to market. Vietnam does not ‘replace’ firms such as Dell, Microsoft, Google, and HP China in the value chain, but acquires a have announced plans to locate new facilities greater role – a phenomenon known as ‘global or move existing operations to industrial zones production sharing’11. in Vietnam14.

PAGE 8 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

ROOM FOR GROWTH: BILATERAL ECONOMIC RELATIONS TODAY Australia and Vietnam set an ambitious goal in 2019 to become top ten trading partners and Australia and Vietnam double their current bilateral investment levels15. have not set a timeline for However, no clear timeline for achievement has been attached to this goal. Currently Vietnam achieving declared trade and is Australia’s 14th largest export and 12th largest investment goals. import partner16. These rankings are reflected on the other side, with Australia ranking as Vietnam’s 14th largest export destination and Evaluating Australia-Vietnam bilateral economic 12th largest import source17. For trade with ties in its regional context helps to measure its Vietnam to reach Australia’s top ten within performance compared to their other bilateral the decade, two-way trade needs continued relationships. Figure 1 shows Australia’s share growth of 10 percent per year until 202718. For of two-way trade with key Asian partners as a Australia to reach Vietnam’s top ten, two-way percentage of total trade. The graph reveals trade needs consistent growth of 14 percent per that Australia’s trade is highly integrated with year until 202719. These estimates are based on Asia. Partners like China and Japan hold a positive growth scenarios and are likely to be large share of Australia’s trade and the ASEAN curbed by the disruptive effects of COVID-19 on bloc (without Vietnam) tracks close with global trade. Japan. On its own, Vietnam makes up only a small component of Australia’s broader trade with Asia.

Figure 1 – Asian partners share of Australia's Two-Way Trade

30%

25%

20%

15% SARE OF AUSTRALIA’S TWO-WAY TRADE

10%

5%

0% 8 9 1 11 1 13 1 15 16 17 18

China Japan Rest of ASEAN India South Korea Vietnam

Source: Author’s Calculations, UNCTADStat Database, 2020

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However, within the context of ASEAN, they features as a minor trade partner compared have more significant trade integration. While to Vietnam’s immediate neighbours. These Thailand, Singapore, and Malaysia absorb relative measures of economic integration belie almost three quarters of Australia’s trade with a positive trend in absolute growth in bilateral Southeast Asia, Australia’s share of trade with trade relations. Vietnam has doubled since 201220. Vietnam’s share of Australia’s trade with ASEAN sits close Since the implementation of AANZFTA in 2009, to that of Indonesia and far surpasses trade the value of bilateral two-way trade between 21 with its immediate ASEAN neighbours such as Australia and Vietnam has grown significantly . Cambodia and Laos. In this context, Vietnam is By 2014 trade was at $8 billion, having more by no means a minor partner for Australia. than recovered from its drop during the 2008 global financial crisis. After a short plateau, the Vietnam’s trade is also well-integrated with its value of trade began to climb again in 2016. neighbours. Figure 2 shows Vietnam’s share of The compound annual growth rate of two-way two-way trade with key Asian partners including trade between 2008 and 2019 was a significant Australia, as a percentage of its total trade. 10 percent22. Trade with China, the rest of ASEAN, Japan, and Korea takes a commanding share. Interestingly, Looking forward, with CPTPP in place and Vietnam’s share of trade with the rest of ASEAN if RCEP is completed, both countries have has declined alongside its increased shares with an even broader framework within which to China and South Korea. This reflects Vietnam’s expand trade ties and achieve the growth rates integration into Northeast Asian value chains in trade needed to make their respective top- and the ‘China plus one’ trend. Australia ten lists. There are challenges ahead for bilateral

Figure 2 – Asian partners share of two-way Vietnamese trade

25%

20%

15% SARE OF VIETNAM'S TWO-WAY TRADE 10%

5%

0 8 9 1 11 1 13 1 15 16 17 18

China Japan Australia India South Korea Rest of ASEAN

Source: Author’s Calculations, UNCTADStat Database

PAGE 10 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

trade in the face of the global economic crisis billion24. These figures are tiny compared to created by the COVID-19 pandemic as trade Australia’s investment into Asian partners like contracts. The economic dislocation from the Japan (AUD$139.6 billion) and China (AUD$85.3 pandemic will weigh on efforts to improve billion)25. In 2019, Vietnamese total investment in trade relations. Australia was a much smaller AUD$784 million26. Compare these figures to Australia’s top sources Investment is an equally important measure of of investment from Asia, which are Japan economic integration as trade in goods and (AUD$241.1 billion), Hong Kong (AUD$140.7 services. At this stage, Australia and Vietnam’s billion), and Singapore (AUD$99.9 billion)27. It is bilateral investment levels are surprisingly low clear that neither country is a significant investor given their progress on two-way trade and in the other’s economy. However, this is an Australia’s history as a top investor in Vietnam area where improvement can be made under 23 during the Đổi Mới era . In 2019, Australia’s total CPTPP’s investment provisions. investment in Vietnam stood at only AUD$2.9

Minister for Planning and Investment Dung with TTI Simon Birmingham signing the Australia Vietnam Economic Partnership. Photo Credit: DFAT.

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DIVERSIFICATION DRIVING BILATERAL ECONOMIC ENGAGEMENT This overview of their relative economic relations these measures threaten approximately A$2 also reveals that Australia and Vietnam face billion worth of exports. a similar economic dilemma. They are both highly trade exposed and seek to diversify their On top of the trade measures, the Chinese economic partnerships in the region to mitigate government in June 2020 issued warnings the risk of trade shocks. Vietnam’s prominence advising students and tourists not to travel as a major trading economy puts it at high risk to Australia, citing racist incidents against 29 of negative measures from its large trading Asians . China is Australia’s leading source of 30 partners like China and the United States. international students and is now the top origin of tourist travellers31. A significant decrease in Vietnam runs a trade surplus with the United Chinese students and tourists threatens already States, which has made it a target for fragile Australian education and tourism protectionist tariffs under President Trump. industries reeling from the economic impact In July 2019, the US placed a 400 percent of COVID-19. tariff on Vietnamese steel, concerned that exporters were attempting to evade their A major task for both countries tariffs on Chinese steel by transhipment to Vietnamese ports. The U.S. Department of is to diversify their economic ties Treasury threatened to label Vietnam a with Indo-Pacific partners. currency manipulator in 2019, but did not follow through. So far, Vietnam has not been the target of retaliation from China. Its integration Vietnam has rapidly growing trade relations with into Chinese-led value chains and the fact many countries, but most prominently South that China has large investments there might Korea, which surpassed trade with the rest of shield Vietnam from such trade sanctions in ASEAN in 2016 (Figure 2). One country that both the meantime28. Australia and Vietnam have a paucity of trade ties with is India (Figure 1 and 2). If both countries Australia has not managed to go unscathed are to diversify their economic partnerships, by the trade war either. Recent actions by India must be a component because of China have revealed the extent to which some its economic potential and geopolitical of its major service and merchandise exports prominence in the region. Vietnam has a are over-exposed to the Chinese market and mechanism for trade engagement with India subject to geopolitical retaliation. In May 2020, through the ASEAN framework (Table 1) but China struck Australian barley exports with an 80 Australia lacks a trade agreement with India, percent tariff. China has also extended actions bilateral or otherwise. Australia and Vietnam’s against Australian beef exports, another major shared membership of the completed AANZFTA industry by invoking Sanitary and Phytosanitary and CPTPP agreements and the yet-to-be- (SPS) measures against abattoirs in Queensland, completed RCEP offer considerable scope for banning them from exporting to China. Together bilateral expansion in trade and investment.

PAGE 12 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

AANZFTA: KICK-STARTING TRADE TIES AANZFTA is a minilateral trade agreement of origin regime, a firm could use compliant that includes all ten ASEAN countries plus Australian-produced materials in a value-added Australia and New Zealand. It was the first multi- export and still access preferential tariff rates member regional trade agreement negotiation when exporting to another ASEAN country or undertaken by Australia. For Vietnam, it was New Zealand32. This created an incentive for an early exercise in trade negotiation outside ASEAN members to use Australian inputs in their of the ASEAN Free Trade Area. AANZFTA built manufacturing value chains. This is particularly on the 2006 bilateral settlement both countries important for Australia’s trade with Vietnam as it agreed on as part of Vietnam’s accession to the has emerged as a major manufacturing hub. World Trade Organization (WTO), which was a major step in normalising Vietnam’s economic AANZFTA is successful as a ‘living, breathing’ relations with the rest of the world. When both agreement in that its parties continue to countries signed AANZFTA in 2009, Australia negotiate updates and amend its provisions also formally recognised Vietnam as a market in response to changes in the economy and economy and as an equal WTO trading partner. business environment. In 2015, the First Protocol to Amend the Agreement Establishing AANZFTA One of the principal advantages of AANZFTA made changes to the rules of origin chapter for Vietnam and Australia is that it served as and an annex on certification procedures. In a substitute for a bilateral FTA. At the time 2020, negotiations will be held to review and negotiations began in 2005, Vietnam was potentially upgrade other elements of AANZFTA. early in its trade policy transformation, having The FTA Joint Committee (FJC) was scheduled recently begun the process of joining the WTO, to meet in New Zealand in June 2020, however and it had no bilateral agreements in force. this was postponed due to COVID-19. Proposed It concluded only one bilateral with Japan amendments include work plans to upgrade the before AANZFTA went into force. Most of its chapters on investment, customs procedures other agreements fell under the ASEAN ‘plus’ and trade facilitation, trade in services, and framework with its dialogue partners, like those competition33. There is a plan to develop a with China, Japan, and Republic of Korea government procurement chapter without (See Table 1). market access obligations. AANZFTA committees are also examining chapters affected by the AANZFTA serves as a substitute conclusion of RCEP negotiations. for a bilateral FTA, and its wide- Going forward, Australia and Vietnam stand ranging tariff provisions will to benefit from further developments within AANZFTA. As Vietnam’s importance as an complete entry in 2020. industrial hub continues to develop, demand for Australian resources has the potential to Another advantage is the agreement’s grow. Under the AANZFTA framework, Australia is advancement of trade liberalisation. 2020 is well-poised to provide its products and inputs to a significant year for Vietnam and Australia Vietnam under a favourable trade regime. under AANZFTA’s wide-ranging tariff provisions. Australia is scheduled to eliminate 100 percent AANZFTA has significantly of its tariffs on imported goods from other reduced tariffs to 0 percent on members that meet the agreed rules of origin criteria. Vietnam is scheduled to eliminate 90 many of Australia’s exports to percent of its tariffs under the same framework. Vietnam. AANZFTA opened an opportunity for Australia and Vietnam to become more integrated into regional value chains. Under the regional rules

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Table 2 – Tariffs for Australia’s Top 20 Merchandise MFN TARIFF Exports to Vietnam (2018-19 Financial Year) BOUND UNDER VALUE RATES AANZFTA RANK COMMODITY MILLIONS (AUD) (MIN-MAX) 2020 1 Coal 1,791,198 3-5% 0% 2 Iron ores & concentrates 621,576 0% 0% 3 Cotton 374,154 0-20% 0% 4 Live animals (excl seafood) 374,019 0-10% 0% 5 Ferrous waste & scrap 335,608 0-3% 0% 6 Wheat 290,581 5% 0% 7 Aluminium 206,750 0% 0% 8 Copper 189,148 0% 0% 9 Zinc 179,687 0% 0% 10 Fruit & nuts 179,226 7-40% 0% 11 Cereal preparations 144,961 10-40% 0% 12 Confidential items of trade 91,544 N/A N/A 13 Beef, f.c.f. 89,969 14-30% 0% 14 Lead 72,906 0% 0% 15 Liquefied propane & butane 65,842 5% 5% 16 Plastic plates, sheets & film 59,269 6.5-10% 0% 17 Medicaments (incl veterinary) 56,466 0-15% 0%* 18 Milk, cream, whey & yoghurt 51,912 10-35% 0% 19 Barley 45,794 3% 0% 20 Edible products & preparations, nes 43,293 5-40% 0%

*Except 3004.90.51; 3004.90.94; 3004.90.98

Source: DFAT (2020) Trade Statistical Pivot Tables, Australia-level SITCr4, https://www.dfat.gov.au/about-us/publications/Pages/trade-statistical- pivot-tables; World Trade Organisation (2020) Tariff Download Facility

PAGE 14 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

CPTPP: HIGH STANDARDS, HIGH STAKES The conclusion of the CPTPP after the US exit and most dynamic economy. A few months from the deal in 2017 is arguably one of the most later, on the sidelines of the May 2017 Asia- important developments in international trade. Pacific Economic Cooperation (APEC) trade The agreement consists of eleven members (it ministers’ meeting, hosted in Vietnam, ministers is also known as the TPP-11): Australia, Brunei reaffirmed the value of the TPP and discussed Darussalam, Canada, Chile, Japan, Malaysia, how to finalise it with the eleven of the original Mexico, New Zealand, Peru, Singapore, and signatories34. Underscoring Vietnam’s leadership Vietnam. As a bloc, it currently accounts for and initiative, the country chose to stay in the about 10 percent of the global economy. agreement even though it stood to gain the least from it without market access to the US35. Australia and Vietnam both recognised the value of the CPTPP, even without the United A year later, the CPTPP was signed in Santiago, States. The two countries were instrumental Chile. The agreement entered into force for in keeping the agreement alive after the Australia in December 2018 and January 2019 US withdrew. When President Donald Trump for Vietnam. What makes the CPTPP important notified TPP partners that he would withdraw for Australia-Vietnam economic relations is the the United States from the agreement in framework of standards the agreement sets for January 2017, it looked as if the treaty was its members, its reform agenda, which in turn dead and analysts were sceptical that the TPP adds to the value of being a member of the could withstand the departure of its largest trade bloc.

The features of the CPTPP that distinguish it from other agreements is its reform agenda and the standards it places on its members. These are the ‘high quality’ elements analysts refer to when describing the agreement. They include the following:

An investor-state dispute settlement (ISDS) mechanism to enforce provisions minimum standard of treatment compensation if APT ER investment is appropriated and ISDS safeguards. C INVESTMENT 9

Guarantees that SOEs act in accordance with commercial P considerations when it purchases or sells a good or service STATE-OWNED A TER C public availability of a listing of SOEs within a timeframe from ENTERPRISES (SOES) AND 17 entry into force. DESIGNATED MONOPOLIES

Builds on existing WTO TRIPS (Trade-Related aspects of Intellectual APT Property Rights) agreement: covers copyright, trademarks, ER INTELLECTUAL C geographical indications, patents, industrial designs, confidential information, plant variety protection, and civil, border and criminal PROPERTY 18 enforcement. Not subject to ISDS.

P A TER C Effective enforcement of domestic labour laws elimination of LABOUR 19 forced or compulsory labour from supply chain.

P A TER C Supports effective compliance and observance of domestic ENVIRONMENT 20 environmental laws cooperation among members in environmental protection and conservation.

P A TER TRANSPARENCY AND C 26 Requires members to adopt or maintain domestic laws and ANTI-CORRUPTION regulations which criminalise and punish corrupt behaviour in matters related to international trade or investment.

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 15 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

The agreed-upon standards and behaviour in SOEs as an important institution to achieve a these domains should give business partnerships socialist-oriented market economy37. between Australia and Vietnam less friction, which is essential in business relations across Outside of the CPTPP framework, Vietnam two different cultures, governments, and legal has sent mixed signals about the progress systems. One of the most important aspects the country will make on SOEs. In 2013, of the CPTPP is the standards that it sets for the international business community was business conduct within the bloc and how disappointed when amendments to Vietnam’s these could transform foreign investor’s outlooks constitution did not encompass sweeping towards the agreement’s less-developed reforms to its state-owned sector, enshrined 38 members. Australian business in Vietnam in Article 19 of the 1992 constitution . This can now compete with local firms in a fairer constitutional advantage meant that the business environment, lowering the risks of doing government geared policy towards allowing business there. SOEs to operate under less strict legal frameworks and granting them easier access to land and capital39. Article 51 of the current Vietnam’s participation in constitution adopted in 2013 ensures that in the CPTPP makes it clear that it is a economy the “state economic sector plays committed liberaliser in an era the leading role”40. However, this is not to say Vietnam has made no progress on reforming of increasing protectionism. SOEs. In 2019, the Prime Minister of Vietnam issued ‘Decision 26’ which approved a list of A common complaint from foreign investors in 27 SOEs in which the state would begin to phase 41 Vietnam is that their ventures do not compete out its dominant share . on a ‘level playing field’ with their state-owned The CPTPP continued efforts to address tariff competitors. The CPTPP’s provisions for state- and non-tariff trade barriers. While most owned enterprises (SOEs) are important for tariffs were reduced under AANZFTA, CPTPP growing investor confidence in Vietnam. implemented more progressive tariff reductions The CPTPP is seen as an exogenous lever for and tariff elimination for major products. domestic reform, particularly in the difficult area Specific deliverables that liberalise trade and of SOEs. Once an important part of Vietnam’s investment between Australia and Vietnam economy, its state-owned sector has suffered include agricultural products, wine and beer losses now that it competes with international (See Figure 3), and seafood tariffs have been firms. This has prompted the government to eliminated completely. CPTPP also contains step in to give SOEs a number of advantages additional market access for Australian Liquified and keep them viable. SOEs are blamed for Natural Gas (LNG) in Vietnam. LNG has a 5 crowding out private sector economic activity 36 percent tariff until it is completely eliminated in in the provinces where they are most active . 2026 (See Figure 3). Conservative political leaders nonetheless see

PAGE 16 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

Figure 5 – Progressive Reductions of Vietnamese Tariffs on Australian Goods Under CPTPP

Source: Vietnam’s CPTPP Tariff Schedule

Under the CPTPP, Australia raised the threshold more flexible trade flows. Research suggests for review of private foreign investment in strong investment partners also have greater non-sensitive sectors to AUD$1.1 billion for levels of bilateral trade42. Vietnam and all other trade bloc members. The CPTPP also provides an Investor State Dispute Settlement (ISDS) mechanism to help improve The CPTPP investment investor confidence. As discussed above, framework creates a new investment will be an important indicator of economic integration in the future since current opportunity to confidently stocks are so low. Investment growth reflects a expand Australia-Vietnam high degree of confidence in the stability of the investment partnerships. receiving country’s business environment. It also requires a more significant commitment than

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 17 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

Enlarging the CPTPP’s membership is one encourages aspirant economies to engage agenda item for Australia and Vietnam as informally with all CPTPP members before and they work together to shape the region’s trade after submitting a formal request to join46. In this architecture. Vietnam’s successful membership context, it is hard to see South Korea’s accession in the bloc is an important test case to as a straightforward process. A combined encourage other ASEAN countries to join43. There effort between Vietnam (a major trade and is a strong incentive for Australia and Vietnam investment partner of South Korea), Australia, to expand the agreement’s membership and other CPTPP partners will be needed to to include ASEAN countries and advanced expand membership to include a country such Northeast Asian economies. According to the as South Korea. Peterson Institute of International Economics, a ‘TPP-16’ scenario would include significant For lesser developed economies interested gains for both countries. This scenario assumes in joining the CPTPP, accession costs are current CPTPP members plus countries that high. Aspirant economies must be able to expressed interest in joining the TPP in the past: demonstrate how they will comply with 47 Indonesia, South Korea, the Philippines, Taiwan, the existing provisions of the CPTPP . This and Thailand. Under this scenario, benefits of the necessitates policy changes in challenging agreement would virtually replace what was lost areas for lesser developed economies such as by the United States leaving the agreement44. market access for goods, services, investment, The gains alone should be attractive to potential financial services, government procurement, members. A TPP-16 would increase Australia’s state-owned enterprises, and temporary exports 6.3 percent and Vietnam’s by 23.5 business visas. Vietnam and Australia have a percent by 203045. role to play here in assisting aspirant countries, especially with regard to ASEAN economies. There are challenges for CPTPP enlargement Based on its own experience with the CPTPP, to overcome. Atop the CPTPP’s hierarchy of Vietnam is a convincing case for other ASEAN largest economies sits Japan, and its buy-in countries with a similar development level to will be necessary for new entrants to the trade join. It can help develop policy pathways for bloc. This would pose a potential roadblock aspirant ASEAN countries to comply with the for South Korea’s entry into the CPTPP as the agreement’s rules. Australia would benefit from two countries have been embroiled in trade accession of additional ASEAN members as it disputes since 2019 and legacies of colonialism seeks to diversify its exports, and it can play a and wartime occupation simmer beneath role in facilitating the accession process with their bilateral relations. The accession process other CPTPP members.

PAGE 18 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

RCEP: AN INDO-PACIFIC TRADE BLOC? The Regional Comprehensive Economic to increase trade between ASEAN countries. Partnership Agreement (RCEP) is a regional Completing RCEP under its watch as ASEAN trade agreement originally consisting of all ten chair is a stated goal and would constitute a ASEAN members ‘plus’ ASEAN’s current FTA major deliverable for Vietnam’s diplomacy if it partners of China, South Korea, Japan, Australia, were successful. Deputy Foreign Minister Nguyen New Zealand, and India. After 30 negotiation Quoc Dzung, responsible for coordinating rounds, text of the agreement is undergoing its chairmanship, said in 2019 that Vietnam a technical legal review and is slated for would do its best to enable the signing of RCEP completion in 2020. However, it will likely be during its tenure49. However, the COVID-19 finalised without India, which withdrew from the pandemic is likely to complicate Vietnam’s deal in November 2019. The remaining fifteen efforts, as international travel bans and social members comprise 29 percent of the global contact restrictions make conventional trade economy by members’ share of world GDP negotiations impracticable. and alongside the North American Free Trade Agreement (NAFTA), it is one of the world’s Australia and Vietnam have a shared interest largest regional trade blocs in-waiting48. RCEP in the completion of RCEP. Not only for what is a key piece of regional trade architecture it delivers for their effort to expand trade, but focussed at the core of the Indo-Pacific also for how it will underpin an economic region, which will continue to drive global justification of the Indo-Pacific, a regional economic growth even in the aftermath of the construct to which both Australia and Vietnam COVID-19 pandemic. are committed. Where it can, Australia’s help to complete the deal would build their leadership profile within the region. If it can be completed, If successful, RCEP will integrate even without India, RCEP is an important step the Indo-Pacific region into a signalling that despite broader trends towards single trade bloc, within which protectionism and isolationism, a plurality of countries in the region can set aside their goods and services will flow differences and reach an agreement on trade. more freely. Moreover, RCEP supports ASEAN centrality and supports the ASEAN Economic Community, both important nodes of Vietnam’s diplomacy and Vietnam is in a position to push for the engagement with the broader region. finalisation of RCEP in 2020 under its chairmanship of ASEAN, but the COVID-19 RCEP’s single set of rules of origin (ROO) pandemic might undermine its ability to do so. provisions will allow greater value chain When Vietnam took up chairmanship in January integration with Northeast Asian economies 2020, it prepared an ambitious agenda goal such as China, Japan, and South Korea. For to conclude RCEP. Furthermore, the annual example, a Vietnamese manufacturer can theme is a “Cohesive and Responsive” ASEAN, use Australian inputs and still qualify for tariff and one of its five main foci is deepening intra- preferences when exporting value-added ASEAN economic integration, creating the goods to China. This result was not easy to perfect climate to facilitate a push towards the achieve among the original sixteen negotiating agreement’s completion. Even though RCEP is parties, all with disparate procedures of an ‘ASEAN plus’ agreement, it has the potential determining where a good originates from50.

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 19 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

However, the result means there will now be an ECONOMIC COMPONENTS OF THE agreed-upon protocol for determining the origin of goods within the Indo-Pacific region. This AUSTRALIA-VIETNAM STRATEGIC places Vietnam as a potential regional value PARTNERSHIP chain powerhouse. Likewise, it situates Australia as a key provider of essential agricultural and The rise of geoeconomics creates a new mining inputs. impetus for both countries to seek economic solutions for strategic problems. In March RCEP will continue to reduce non-tariff trade 2018, Australia and Vietnam agreed upon costs, which remain high in the Indo-Pacific. a new framework for bilateral cooperation, While the plethora of trade agreements in the signing a strategic partnership covering areas region has significantly reduced tariffs, non- of cooperation in a wide range of domains. tariff barriers to trade have continued to prove While there has been a major focus on the more difficult to remove. RCEP, through its defence and security components to this rules for customs procedures, quarantine, and agreement, economic cooperation and technical standards will make it easier to move development are also key features. These goods between RCEP countries with a degree elements now have renewed importance of transparency on how those goods will be as both countries seek to cooperate in the handled ‘at the border’. aftermath of the COVID-19 pandemic and in a region experiencing increasing geoeconomic Despite its promises for regional trade, RCEP’s tension. The preeminent mechanism for future is uncertain. Reflecting the disparity in economic cooperation in the partnership is the the development levels and trade policies of annual ministerial-level Economic Partnership its members, negotiations have dragged along Meeting. The first meeting was held in Adelaide for a cumbersome 30 rounds spanning almost a in November 2019 and presided over by trade decade. India’s departure from the agreement ministers from both countries. This is the ideal at this late stage could make finalising the forum for high-level discussion of an agenda for agreement complicated. This is a significant bilateral economic cooperation. loss for Australia and Vietnam, both of which needed RCEP as a mechanism to engage with India to assist their economic diversification The preeminent economic efforts. Negotiating partners made many cooperation forum in the concessions to keep India in the agreement, Australia-Vietnam Strategic and now that it has left, this could send the remaining parties back to the drawing board51. Partnership is the annual ministerial-level Economic Partnership Meeting.

PAGE 20 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

POLICY COMMITMENT UNDER STRATEGIC PARTNERSHIP52 RECENT PROGRESS Table 3 –

Deepening the bilateral trade and 23 August 2019

Key Economic Components of the 2018 Australia-Vietnam Strategic Partnership investment relationship through global and Prime Ministers agreed to develop an regional economic integration. Enhanced Economic Engagement Strategy aimed at becoming top ten trade partners and doubling investment 53 .

4 November 2019

Australia, Vietnam and thirteen other member countries concluded the RCEP 54 .

Promoting market access and trade facilitation measures, including for agricultural 29 August 2019 and seafood products. A National Farmer’s Federation delegation and the Australian Minister for Agriculture visited Vietnam 55 .

Establishment of an annual ministerial-level 29 November 2019 Economic Partnership Meeting to identify opportunities to expand trade and investment. The 1st annual Economic Partnership Meeting held 56 .

Supporting commercial 2020 and business-to-business Planned high-level business delegation engagement. from Australia to visit Vietnam 57 .

November 2019

Australian table grape growers visited Vietnam to boost trade relations 58 .

An economic partnership that will help May 2019 Vietnam achieve economic reform, human CSIRO, Australia’s national science resource development, private sector agency, and Vietnam's Ministry of Science engagement, climate change, gender and Technology launched Vietnam's euality and innovation. Future Digital Economy 59 .

une 2019

Australia’s Minister for Foreign Affairs and Minister for Women signed an MoU on empowering women in diplomacy 60 .

Building an agriculture partnership, joint 2020 research and technical assistance projects Ongoing Australian Centre for International to improve the competitiveness of Vietnams 61 agriculture sector and promote reliable Agriculture Research (ACIAR) projects . supply chains. 2020

Expected establishment of Vietnam-Australia Centre in anoi 62 .

Strengthening mutual interests in March 2020 energy, resources, the blue economy and environmental cooperation and Austrade hosted webinar to connect climate change. renewable energy exporters to the Vietnamese market 63 . PAGE 21 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

There are other parts of this partnership that fit in This framework is a new feature of bilateral with a broader economic and strategic agenda relations and justifies a fresh look at new and focussed on the region. They support and emerging challenges that call upon the unique recognise the importance of ASEAN centrality resources and advantages of both countries. in the economic and political architecture that It would not be limited to bilateral cooperation is developing in the region. This includes RCEP either, and other third parties or coalitions that and other ASEAN-centric political and security both countries have existing ties with would dialogues such as the East Asia Summit (EAS), only multiply the impact of their policy agenda. ASEAN Regional Forum (ARF), and the ASEAN One area of long-term impact that would Defence Ministers’ Meeting Plus (ADMM+)64. start as a bilateral effort with regional effects is cooperation towards securing the materials value chains that support high-technology industry growth in the Indo-Pacific.

PAGE 22 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

A BILATERAL CRITICAL MATERIALS PARTNERSHIP? Vietnam and Australia are well-placed 21st century innovation and economic to explore how their bilateral economic development65. Their value chains are exposed cooperation could help secure critical to risk and their production is often dominated materials supply chains. Critical materials are by one country, making their supply an enticing classified as a range of metals and minerals tool for geopolitical leverage66. Here are some which are essential inputs into high technology examples of critical materials, the technologies applications that are the foundation for they support, and their supply concentration:

COBALT Is predominantly used in the manufacture of rechargeable batteries in consumer electronics. 60 percent of global production is concentrated in the Democratic Republic of the Congo (DRC), known for its political instability and armed conflicts67. China is the world’s leading producer of processed cobalt, most of it coming from the DRC68. Australia has significant reserves of cobalt and the third-largest volume of mine production in 201969.

LITHIUM Is a major component of rechargeable batteries. Lithium is also used in special ceramics, optics, and in the nuclear fuel cycle. Australia produces 58 percent of global lithium and in 2019 all Australian hard rock lithium was processed downstream in China70. Overall, China refines just over half of the world’s lithium71.

NICKEL Is another battery material but is also used in specialty steels and magnets. 29 percent of refined nickel comes from China, sourced from countries in Southeast Asia such as Indonesia, which is the top nickel extractor72. Indonesia reinstated a ban on nickel ore exports in January 2020 to keep processing in-country73. Australia possesses the most significant nickel reserves after Indonesia74.

RARE EARTH MINERALS Are a key component in permanent magnets used in electricity- generating turbines and electric motors and are therefore critical to the development of clean technologies such as electric vehicles (EVs). China is the dominant extractor and processor of rare earth elements, controlling 80 percent of market share75. Australia and Vietnam have reserves. An Australian company has the only commercially operating production supply chain that exists outside of China.

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 23 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

Rare earth elements offer one example of Australia is endowed with an abundance how prone critical materials supply chains of critical mineral deposits that are actively are to geopolitical manipulation. China has being mined and processed. Australia would used its near-monopoly over rare earth oxides be an ideal partner, both as a supplier and production as a tool of economic coercion. technology transfer partner to help develop In 2010, China cut off rare earth supply to the Vietnam’s industrial capacity to mine and Japanese in the midst of the Senkaku/Diaoyu process critical materials. Vietnam is in a good islands dispute. In 2019, China sent signals that position to insert itself into the value chain. The threatened to halt supply to the United States existing trade regime of AANZFTA provides a as their protracted trade war simmered. Cutting strong trade framework under which to develop off rare earths supplies to either country would a value chain where Vietnam can supplant have been disastrous for their high-technology China as a midstream partner. Under AANZFTA, manufacturing sectors76. Australian critical materials have advantageous preferential tariff treatment in Vietnam (See After the 2010 China-Japan rare earths Table 4). Meanwhile, CPTPP is important for the dispute, Japan sought a partnership with investment and regulatory standards that it sets, Vietnam as a potential alternative supplier and encouraging the supply of capital in this sector. processor. Vietnam has significant reserves of rare earths but very low mine output77. A Vietnam would be particularly competitive in 2010 agreement with Japan made it a partner stages of the value chain where labour costs are for the “exploration, mining, development, high. A complete Australia-Vietnam final market and separation and production of rare earth value chain could be structured so that Australia minerals in the country”78. Both nations launched does the mining and initial processing. Then a joint research centre in 2012 which began materials are sent to Vietnam for advanced preliminary testing of instruments to separate refining before the final product stage. With and refine rare earths79. By 2017, Vietnam Australia’s support, Vietnam’s insertion into became Japan’s top supplier80. critical materials value chains will be a step towards the resolution of the production concentration and supply chain problems that Combining Australia’s geology plague the industry. and technical know-how with Vietnam’s growing industrial capacity will help create more secure critical mineral value chains.

PAGE 24 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

Table 4 – Vietnamese Tariffs on Critical Materials Under AANZFTA

MFN BOUND RATES 2020 (MIN-MAX) TARIFF

COBALT 0% 0% Ores & concentrates % % Cobalt oxides 3 0 Cobalt chlorides % % Cobalt mattes; products of cobalt metallurgy; 5–15 0 and unwrought cobalt. 0–3% 0%

LITHIUM 3% 0% Lithium oxides Lithium carbonates 5% 0% Primary cells and primary batteries % % Li-Ion electric accumulators, including separators 20 0 0–25% 0%

NICKEL 0% 0% Ores & concentrates % % Nickel oxides 3 0 Nickel sulphates 5% 0%

RARE EARTH ELEMENTS % % Rare-earth metals 3 0 Compounds or mixtures of rare-earth metals 3% 0%

Source: Vietnam's Tariff Schedules under AANZFTA; World Trade Organisation (2020) Tariff Download Facility.

Vietnam has strong trade connections with for international firms to relocate manufacturing advanced economies that are integrated into operations, its industrial capacity for value- value chains such as Japan and South Korea. added, downstream processing will grow. As Vietnam becomes a preferred destination As industries such as consumer electronics,

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 25 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

clean technology, and electric vehicles grow presented above, an exploratory dialogue in Vietnam, it will also increase its demand with a view towards a bilateral MoU on critical for critical materials, giving it even more of materials cooperation should be included as an incentive to secure supply with partners an agenda item for the next bilateral Economic like Australia. To examine the opportunities Partnership Meeting.

PAGE 26 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

A PURPOSIVE BILATERAL ECONOMIC AGENDA Australia and Vietnam have a strong foundation completion and as both countries seek to upon which to build an economic partnership. diversify their economic relations. The existing frameworks of AANZFTA, CPTPP and their bilateral strategic partnership are • As RCEP promises to help to further integrate part of this foundation. RCEP will be another Australia and Vietnam into Northeast Asian welcome addition if it is completed. These value chains, they should work together to trade mechanisms present opportunities ensure its conclusion. for cooperation in the following areas: • A discussion on how both countries can work diversification of their trade and investment together to lead international economic relations, shaping the Indo-Pacific economic recovery from the COVID-19 pandemic. architecture, and using their economic partnership to secure critical materials • Australia should explore ways it can support supply chains. Vietnam’s diplomatic leadership in Southeast Asia and on the global stage. Going forward, Australia and Vietnam can use their annual, ministerial-level Economic • Both countries should identify how their Partnership Meeting to undertake the following economic partnership can help secure action items and shape a bilateral agenda: critical materials value chains and explore the prospect of a bilateral MoU on critical • Australia should identify which of its high- materials cooperation. risk exports could be diversified to Vietnam under the existing trade regime. Australia and Vietnam cannot afford to be passive. The challenges that they face in the • Australia and Vietnam should collaborate Indo-Pacific region necessitate a proactive to encourage other major Indo-Pacific pursuit of a shared agenda. They share the economies to join the CPTPP to maximise its tools at this moment to work together and benefits. crystallise their agenda for cooperation in the • Explore how to use CPTPP’s provisions to context of the present challenges. If they can increase bilateral investment. do this now, then they will position themselves as accomplished partners with the ability • A discussion on how to engage India in the to positively shape outcomes in the region. Indo-Pacific economic architecture, this Together they will be prepared to manage will be important as RCEP draws near to future crises and thrive when prosperity returns.

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 27 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

ENDNOTES

1 DFAT (2020), Vietnam Country Brief, ‘Trade and Investment’, 23 Kyle Springer (2018), Vietnam as a G20 country: towards an https://www.dfat.gov.au/geo/vietnam/Pages/vietnam-country- Australia-Vietnam economic partnership, Perth: Perth USAsia Centre, brief https://perthusasia.edu.au/getattachment/Our-Work/Vietnam-as-a- 2 The World Bank (2013), ‘Poverty Reduction in Vietnam: G20-Country/PU-058-IPIS-V10-VietG20-WEB-Final.pdf.aspx?lang=en- Remarkable Progress, Emerging Challenges’, https://www. AU worldbank.org/en/news/feature/2013/01/24/poverty-reduction-in- 24 Australian Bureau of Statistics (2020), 5352.0 - International vietnam-remarkable-progress-emerging-challenges Investment Position, Australia: Supplementary Statistics, https://www. 3 Michael C. Williams (1992), Vietnam at the Crossroads, Chatham abs.gov.au/ausstats/[email protected]/mf/5352.0 House Papers, The Royal Institute of International Affairs, London. 25 Ibid. 4 Ibid. 26 Ibid. 5 Kyle Springer (2018), Vietnam as a G20 country: towards an 27 Ibid. Australia-Vietnam economic partnership, Perth, Perth USAsia Centre, 28 Dr Lam Thanh Ha (2019), ‘Chinese FDI in Vietnam: Trends, Status https://perthusasia.edu.au/getattachment/Our-Work/Vietnam-as-a- and Challenges’, ISEAS Perspective, 24 April, Singapore: ISEAS- G20-Country/PU-058-IPIS-V10-VietG20-WEB-Final.pdf.aspx?lang=en- Yusof Ishak Institute, https://www.iseas.edu.sg/images/pdf/ISEAS_ AU Perspective_2019_34.pdf 6 Tom Barker and Murat Üngör (2019), ‘Vietnam: The next Asian 29 ABC (2020), ‘China cautions students about ‘racist incidents’ Tiger?’ North American Journal of Economics and Finance, 47:96- during coronavirus pandemic if they return to Australia’, 10 June, 118, https://doi.org/10.1016/j.najef.2018.11.010 https://www.abc.net.au/news/2020-06-09/china-warns-students- 7 Ibid. not-to-return-to-australia-after-coronaviru/12337044 8 Stephen Smith (2008), ‘Australia and Vietnam - Partners for the 30 Australian Department of Education, Skills and Employment Future’, Australian Foreign Minister’s Speech to the Australian (2020), Student Number Data, https://internationaleducation.gov. Chamber of Commerce, 2 July, https://foreignminister.gov.au/ au/research/DataVisualisations/Pages/Student-number.aspx speeches/2008/080702_ hanoi.html 31 Austrade (2019), ‘China takes top spot in Australia’s tourist 9 Dr Jeffrey Wilson (2019), Blueprints for the Indo-Pacific: rankings,’ https://www.austrade.gov.au/news/economic-analysis/ Infrastructure and connectivity programs for regional integration, china-takes-top-spot-in-australias-tourist-rankings Perth: Perth USAsia Centre, https://perthusasia.edu.au/PerthUSAsia/ 32 DFAT (2009), ‘AANZFTA National Interest Analysis’, http://www. media/Perth_USAsia/Speakers/Final-Blueprints-for-the-Indo-Pacific- austlii.edu.au/au/other/dfat/nia/2009/6.html PUASC-LOW-RES.pdf 33 10 The Eleventh Meeting of the FTA Joint Committee, 1 – 3 May 2019, Dezan Shira and Associates (2018), ‘China +1: The new face of Melbourne, https://www.dfat.gov.au/sites/default/files/summary-of- manufacturing in Vietnam’, Vietnam Briefing, 4 April,https://www. outcomes-aanzfta-11th-fjc.pdf vietnam-briefing.com/news/china1-new-face-manufacturing- 34 vietnam.html/ DFAT (2019), ‘CPTPP News’, https://dfat.gov.au/trade/ agreements/in-force/cptpp/news/Pages/cptpp-news.aspx 11 Prema-Chandra Athukorala and Jayant Menon (2010), 35 ‘Global Production Sharing, Trade Patterns, and Determinants of Mireya Solis (2017), ‘Why Vietnam will shape the future of the TPP’, Trade Flows in East Asia,’ ADB Working Paper Series on Regional Washington DC: Brookings, 19 May, https://www.brookings.edu/ Economic Integration, https://www.adb.org/sites/default/files/ blog/order-from-chaos/2017/05/19/why-vietnam-will-shape-the- publication/28515/wp41-global-production-sharing.pdf future-of-the-tpp/ 36 12 Huong Le Thu (2020), ‘Vietnam’s Successful Battle Against Nguyen Van Thang and Nick J. Freeman (2009), ‘State-owned COVID-19’, Asia Unbound, Washington, DC: Council on Foreign enterprises in Vietnam: are they ‘crowding out’ the private sector?’, Relations, https://www.cfr.org/blog/vietnams-successful-battle- Post-Communist Economies, 21(2): 227-247, https://www.tandfonline. against-covid-19 com/doi/pdf/10.1080/14631370902778674?needAccess=true 37 13 Yahoo! Finance (2020), ‘Apple Partner Pegatron Plans New Quan Xuan Dinh (2000), ‘The Political Economy of Vietnam’s Facilities in Vietnam’, January 21, https://finance.yahoo.com/news/ Transformation Process’, Contemporary Southeast Asia, 22(2): 360- apple-partner-pegatron-plans-facilities-142802394.html 388. https://www.jstor.org/stable/25798497 38 14 Vietnam Investment Review (2020), ‘Foreign groups step up Kyle Springer (2013), ‘Constitutional Reform Not the Only Avenue plans to enter or expand in Vietnam’, 5 May 2020, https://www. for Economic Reforms in Vietnam’, 20 December, CogitAsia, vir.com.vn/foreign-groups-step-up-plans-to-enter-or-expand- Washington, DC: Center for Strategic and International Studies, in-vietnam-76012.html?fbclid=IwAR0S-9Ekzxl3Wbpe2aTtyxYl_ https://www.cogitasia.com/constitutional-reform-not-the-only- RXb4fSFqaXYr9h6zamPetU1eDF9PsGIKA8 avenue-for-economic-reforms-in-vietnam/ 39 15 Prime Minister of Australia (2019), ‘Joint Statement Between Murray Hiebert and Kyle Springer (2013), ‘Amending Vietnam’s Viet Nam and Australia’, https://www.pm.gov.au/media/joint- Constitution: Why Washington Cares’, Washington, DC: Center for statement-between-viet-nam-and-australia Strategic and International Studies, https://www.csis.org/analysis/ amending-vietnam%E2%80%99s-constitution-why-washington-cares 16 DFAT (2020), Vietnam country and economy factsheet, https:// 40 www.dfat.gov.au/sites/default/files/viet-cef.pdf International Labour Organization (2013), ‘Unofficial English 17 translation of the Constitution of the Republic of Vietnam adopted Ibid. by the National Assembly on 28 November 2013’, http://www. 18 Author’s calculations, DFAT Trade Statistics, https://www.dfat.gov. ilo.org/dyn/natlex/docs/ELECTRONIC/94490/114946/F114201808/ au/trade/resources/trade-statistics/trade-in-goods-and-services/ VNM94490%20Eng.pdf Pages/trade-in-goods-and-services 41 Baker McKenzie (2019), ‘Vietnam Issues Decision No. 26 on 19 Author’s calculations, UNCTADStat Database, https://unctadstat. the List of State-Owned Enterprises to Be Equitized by End-2020’, unctad.org/EN/ https://www.bakermckenzie.com/en/insight/publications/2019/09/ 20 Author’s calculations, UNCTADStat Database, https://unctadstat. vietnam-issues-decision-no-26 unctad.org/EN/ 42 Lionel Fontagné (1999), ‘Foreign Direct Investment and 21 Author’s calculations, DFAT Trade Statistical Pivot Tables, https:// International Trade: Complements or Substitutes?’, OECD Science, www.dfat.gov.au/about-us/publications/Pages/trade-statistical- Technology and Industry Working Papers No. 1999-03, Paris: OECD pivot-tables Publishing. 43 22 Author’s calculations, DFAT Trade Statistical Pivot Tables, https:// Mireya Solis (2017), ‘Why Vietnam will shape the future of the TPP’, www.dfat.gov.au/about-us/publications/Pages/trade-statistical- Washington DC: Brookings, 19 May, https://www.brookings.edu/ pivot-tables blog/order-from-chaos/2017/05/19/why-vietnam-will-shape-the- future-of-the-tpp/

PAGE 28 Indo-Pacific Insight Series, Volume 14, October 2020 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

44 Peter A. Petri, et al. (2017), Going It Alone in the Asia-Pacific: 64 DFAT (2018), ‘Joint Statement on the Establishment of a Strategic Regional Trade Agreements Without the United States, Washington, Partnership between Australia and Viet Nam,’ 15 March, https:// DC: Peterson Institute of International Economics, https://www. www.dfat.gov.au/geo/vietnam/Pages/joint-statement-on-the- piie.com/publications/working-papers/going-it-alone-asia-pacific- establishment-of-a-strategic-partnership-between-australia-and- regional-trade-agreements-without-united viet-nam 45 Ibid. 65 Jeffrey Wilson (2019), Critical Materials for the 21st Century 46 DFAT (2020), ‘Comprehensive and Progressive Agreement for Indo-Pacific, Perth: Perth USAsia Centre, https://perthusasia.edu. Trans-Pacific Partnership (CPTPP): Accession Process’,https://www. au/getattachment/Our-Work/2019-Perth-USAsia-Centre-Annual- dfat.gov.au/sites/default/files/annex-to-cptpp-com-2019-d002.pdf Report-(2)/ITZ-Issues-Brief.pdf.aspx?lang=en-AU 66 47 Ibid. Ibid. 67 48 Jeffrey Wilson (2019), ‘India’s RCEP exit a setback, but not Jeffrey Wilson (2020), Strategies for Securing Critical Material a disaster’, 6 November, Perth: Perth USAsia Centre, https:// Value Chains, Perth: Perth USAsia Centre, https://perthusasia.edu. perthusasia.edu.au/blog/india%E2%80%99s-rcep-exit-a-setback,- au/getattachment/Our-Work/Strategies-for-Securing-Critical- but-not-a-disaster Material-Value-Ch/Final-Strategies-for-securing-critical-material- value-chains-PUSAC-WEB.pdf.aspx?lang=en-AU 49 Xinhua (2019), ‘Vietnam to do best to enable RCEP signing in 68 2020,’ 18 November, http://www.xinhuanet.com/english/2019- US Geological Survey (2020), USGS Mineral Commodities Summary 11/18/c_138564364.htm for Cobalt, January, https://pubs.usgs.gov/periodicals/mcs2020/ mcs2020-cobalt.pdf 50 Jeffrey Wilson (2019), ‘What’s the deal about rules-of-origin in 69 the RCEP negotiations?’ 8 July, Perth: Perth USAsia Centre, https:// Ibid. perthusasia.edu.au/blog/what%E2%80%99s-the-deal-about-rules-of- 70 Jeffrey Wilson and Kirsten Martinus (2020), The Governance of origin-in-the-rcep battery value chains: security, sustainability and Australian policy 51 Jeffrey Wilson (2020), ‘Has Japan become the kingmaker for options, Perth: Future Battery Industries Cooperative Research trade deals in the Indo-Pacific?’ 30 January, Perth: Perth USAsia Centre and Perth USAsia Centre, https://perthusasia.edu.au/ Centre, https://perthusasia.edu.au/blog/has-japan-become-the- getattachment/Our-Work/The-governance-of-battery-value-chains/ kingmaker-for-trade-deals-in PU-141-Energy-Report-WEB.pdf.aspx?lang=en-AU 71 52 Adapted from: DFAT (2020), Joint Statement on the Establishment Ibid. of a Strategic Partnership between Australia and Viet Nam. https:// 72 Ibid. www.dfat.gov.au/geo/vietnam/Pages/joint-statement-on-the- 73 US Geological Survey (2020), USGS Mineral Commodities Summary establishment-of-a-strategic-partnership-between-australia-and- for Nickel, January, https://pubs.usgs.gov/periodicals/mcs2020/ viet-nam mcs2020-nickel.pdf 53 Further details at: https://www.pm.gov.au/media/joint-statement- 74 Ibid. between-viet-nam-and-australia 75 54 Jeffrey Wilson (2020), Strategies for Securing Critical Material Further details at: https://www.dfat.gov.au/trade/agreements/ Value Chains, Perth: Perth USAsia Centre, https://perthusasia.edu. negotiations/rcep/Pages/regional-comprehensive-economic- au/getattachment/Our-Work/Strategies-for-Securing-Critical- partnership Material-Value-Ch/Final-Strategies-for-securing-critical-material- 55 Further details at: https://nff.org.au/media-release/agricultural- value-chains-PUSAC-WEB.pdf.aspx?lang=en-AU trade-mission-moves-to-vietnam/ 76 ‘Are we ready for a rare-earths trade war?’ By Jeffrey Wilson. The 56 Further details at: https://www.pm.gov.au/media/joint-statement- Lowy Interpreter. 18 June 2019. https://www.lowyinstitute.org/the- between-viet-nam-and-australia interpreter/are-we-ready-rare-earths-trade-war 57 Further details at: https://vietnam.embassy.gov.au/hnoi/190823_ 77 US Geological Survey (2020), USGS Mineral Commodities Summary Jointstatement.html for Rare Earths, January, https://pubs.usgs.gov/periodicals/mcs2020/ 58 Further details at: https://tasteaustralia.net.au/aust-viet-trade-ties/ mcs2020-rare-earths.pdf 78 59 Further details at: https://research.csiro.au/aus4innovation/ BBC News (2010), ‘Rare earths supply deal between Japan and foresight/ Vietnam’, 31 October 2010, https://www.bbc.com/news/world-asia- pacific-11661330 60 Further details at: https://vietnam.embassy.gov.au/hnoi/ 79 MR190613.html Ichiko Fuyono (2012), ‘Japan and Vietnam join forces to exploit rare earth elements’, 13 July, Scientific American,https://www. 61 Further details at: https://www.aciar.gov.au/East-Asia/Vietnam scientificamerican.com/article/japan-vietnam-join-forces-exploit- 62 Further details at: https://vietnam.embassy.gov.au/hnoi/190823_ rare-earth-minerals/ Jointstatement.html 80 Grace Hearty and Mayaz Alam (2019), ‘Rare Earths: Next Element 63 Further details at: https://www.austrade.gov.au/Event/ in the Trade War?’, Washington, DC: Center for Strategic and opportunities-for-renewable-energy-in-vietnam-and-myanmar-3- International Studies, 20 August, https://www.csis.org/analysis/rare- mar-2020-virtual-event-accessible-from-your-workstation-australia#/ earths-next-element-trade-war event

Indo-Pacific Insight Series, Volume 14, October 2020 PAGE 29 Australia and Vietnam: An agenda for economic cooperation in an era of geostrategic change

ABOUT THE AUTHOR Kyle Springer is Senior Analyst at the Perth USAsia Centre. He provides high-level program assistance and develops research products for the Centre. In addition to planning and coordinating a range of program and research initiatives, Kyle leads the Centre’s work on Indonesia and Southeast Asia. Kyle is one of the founding staff members of the Perth USAsia Centre and started as the Centre’s first Program Associate in 2014. Prior to the Perth USAsia Centre, Kyle worked researcher with the defence and foreign policy think tank, the Center for Strategic and International Studies (CSIS) in Washington, DC and was a program assistant with Austrade at the Australian Embassy in Washington. In 2018 he co-authored a chapter with Dr Jeffrey Wilson on Australia- Indonesia economic ties in Expanding Horizons: Indonesia’s Regional Engagement in the Indo-Pacific Era. Kyle also authored “Vietnam as a G20 country: towards an Australia-Vietnam economic partnership,” part of Perth USAsia Centre’s Indo-Pacific Insights Series. He has a Masters in International Relations from the University of Western Australia (2012) and a Bachelor of Science from the California State University (2008).

[email protected]

twitter.com/@kvspringer

ABOUT PERTH USASIA CENTRE The Perth USAsia Centre located at The University of Western Australia is a non-partisan, not-for-profit institution strengthening relationships and strategic thinking between Australia, the Indo-Pacific and the USA. The Centre is a leading think tank focusing on geo-political issues, policy development and building a strategic affairs community across government, business and academia. Since the Centre’s inception we have collaborated with over 150 different partners, to host 580 events across 19 cities in 8 countries engaging a world-class community of over 16,500 attendees.

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