Table 1 Comparing trade and investment liberalization in Vietnam and the Philippines

Foreign direct investment (FDI) can be facilitated through three different policy measures: (1) multilateral liberalization commitments under mode 3 (commercial presence) in the WTO General Agreement on Trade in Services (GATS); (2) bilateral or regional liberalization commitments; and (3) unilateral liberalization commitments made by governments outside of binding trade and investment treaty commitments. Four economic sectors are relevant to investments in the SSCB market: wholesale and retail distribution; services incidental to manufacturing; advertising services; and market research services. The term liberalization used throughout the paper refers collectively to these sectors.

The following provides a brief overview of the trade and investment liberalization strategies of Vietnam and the Philippines, including a review of the identified service sector commitments at the bilateral (with the US), multilateral (WTO), and unilateral (domestic) levels.

Vietnam

Bilateral relations with the United States: In 1975, as a result of the victory of the communist party of North Vietnam over the US-backed anti-communist party of South Vietnam, the US severed economic relations with the country until 1994, when the 19 year long trade embargo was lifted. On 10 December 2001, Vietnam and the US entered into a bilateral trade agreement which would permit 100 % US invested capital into wholesale and retail services and unlimited capital contributions on US joint ventures in advertising and market research services seven years after entry [58]. Effectively, by 10 December 2008 services relevant to US beverage companies had been fully liberalized, with the exception that services incidental to manufacturing were not liberalized through this agreement. In 2007 the two nations signed a Trade and Investment Framework Agreement to establish a formal dialogue to discuss new initiatives to deepen the trade and investment relationship. Currently, the US and Vietnam are both negotiating members of the Trans-Pacific Partnership Agreement.

Multilateral liberalization: After twelve years of preparation, Vietnam formally acceded to the WTO on 11 January 2007. Membership in the WTO required numerous changes to its legal and regulatory framework regarding taxation, intellectual property, price and foreign exchange controls, as well as enactment of the Law on Investment and the Law on Enterprises, both of which made domestic and foreign investors subject to the same laws and put them on more equal terms [59]. Accession to the WTO liberalized 105 service sectors in Vietnam, although progressive liberalization was built into some sectors [60]. Vietnam’s commitments in the General Agreement on Trade in Services (GATS) paralleled many of those in the US bilateral agreement, such that 100 % foreign invested capital into wholesale and retail services and unlimited foreign capital in joint ventures in advertising and market research services would be permitted by 1 January 2009, just weeks after the US-bilateral commitments took effect. Additionally, their WTO commitments included services incidental to manufacturing, though not taking effect until 1 January 2010, and limited to joint ventures with foreign capital contribution not exceeding 50 %.

Unilateral liberalization: Countries can unilaterally liberalize foreign investment in their economies outside of trade treaty commitments. Since Vietnam has ‘locked in’ their foreign investment polices at the multilateral and bilateral levels, however, a deeper exploration of its unilateral domestic policies on foreign investment liberalization is unnecessary for our purposes.

The Philippines

Bilateral relations with the United States: On 4 July 1946 the US granted the Philippines its independence, 48 years after it had been ceded the archipelago by the Spanish for the amount of $US 20 million. The US and the Philippines have had uninterrupted economic relations for more than a hundred years and, although they signed a Trade and Investment Framework Agreement (TIFA) in November 1989, no bilateral trade agreements or investment treaties have been produced. The Philippines is not currently a negotiating member of the TPP, although they have expressed strong interest in joining [61] out of fear of losing their share of the US market to participating neighboring countries and have been involved in technical consultations with the United States Trade Representative (USTR) [62].

Multilateral liberalization: The Philippines acceded to the WTO upon its inception on 1 January 1995. The Philippines liberalized 51 service sectors through the GATS [60]. Notably, their GATS commitments do not include any guaranteed market access for manufacturing, wholesale or retail, advertising, or market research services.

Unilateral liberalization: The Philippines went through an accelerated stage of FDI liberalization domestically in 1991 with their Foreign Investment Act [63], which permitted foreign equity up to 100 % in any sector not specified in the Foreign Investment Negative List (FINL). The FINL originally included a section that restricted investment in adequately served sectors, where no further investments were thought necessary, but this was abolished in 1996. As of 2012 the FINL does not specify any limitations on the manufacture or wholesale distribution of food and beverages, or market research services, though foreign equity in advertising is limited to 30 %. Retail trade services, previously limited to Filipino nationals, was liberalized in March 2000 through the Retail Trade Liberalization Act [64], which allows foreign investors 100 % ownership of retail business pending a minimum of US$7.5 million in equity.

Contrasting approaches

Vietnam and the Philippines have had considerably different approaches to trade and investment liberalization. The Philippines engaged with the global market much earlier on having long-term economic relations with the US and joining the WTO upon its creation, but has been quite stagnant since then. Vietnam, as a former closed economy with strained US relations, was previously relatively inactive in the global economy. However, as of late it has taken an aggressive approach to opening its borders to trade and investment, such that Vietnam has opened twice as many service sectors as the Philippines through GATS, providing protected market access for these sectors into the future. Additionally, Vietnam’s liberalization has occurred at the multilateral level where there are international channels for settling disputes, unlike the Philippines unilateral liberalization which only provides domestic dispute procedures for investors.