sustainability

Article
Trade Liberalization, Distributional Coalitions and Economic
Growth: A Case of Vietnam
Woocheol Lee

Department of International Trade, Gyeongsang National University, Jinju 52828, Republic of Korea;
w.lee226@gnu.ac.kr

Abstract: This paper examines the economic growth of Vietnam by focusing on trade liberalization
and the strategies that the distributional coalitions have chosen in response to this reform. It analyses
the tariff schedules annexed to six key free trade agreements that Vietnam signed. This paper finds
that the distributional coalitions intentionally under-protect three groups of products to keep their
benefits. Group 1 consists of products with high amounts of revealed comparative advantages
(RCAs) and a strong presence in the state sector. Group 2 comprises products with low RCAs
and a tenuous presence of the state sector. Group 3 represents products where the presence of the
state sector is strong, but their production capacities cannot meet the massive domestic demand.
The strategically administered under-protection has also allowed the distributional coalitions to
preserve their privileges. While these strategies have been effective in achieving static efficiency, they
have been considerably less effective in bringing about structural changes necessary for sustainable
long-run economic growth.

Keywords: distributional coalitions; protection of vested interests; tariff schedules; trade

liberalization; sustainable economic growth of Vietnam

1. Introduction
It is widely accepted that institutional settings are key determinants that explain
different economic performances among economies in the long run [1–3]. There have
Citation: Lee, W. Trade
been many arguments contending institutional settings and their essential components,
Liberalization, Distributional
often summarized as ‘market versus state’ [4–9]. However, these debates waned suddenly
Coalitions and Economic Growth:
A Case of Vietnam. Sustainability
and were dominated by the neoliberal Washington Consensus when the collapse of the
2023, 15, 10883. https://doi.org/
Soviet Union and the Asian Financial Crisis occurred in the 1990s. Key components of
10.3390/su151410883 the Washington Consensus—the rule of law, democratic governance, free market, fiscal
budget balance, and the solid protection of private property rights—came to the fore as the
Academic Editor: Jungho Baek
prerequisites for sustainable economic growth. They were recommended for less-developed
Received: 23 May 2023 economies and those in transition by multinational donor organizations [10].
Revised: 28 June 2023 The economic performance of economies that implemented reforms showed a wide
Accepted: 6 July 2023 spectrum. For example, a striking contrast was observed in two transitional blocs. Those
Published: 11 July 2023 economies in the Eastern European bloc that adopted shock-therapy reforms barely achieved
the expected economic outcome. Most of them failed to restore their 1989 GDP levels [11].
In contrast, transition economies in Asia including China and Vietnam that adopted gradual
reforms outperformed their Eastern European counterparts. An extensive summary of the
Copyright: © 2023 by the author. debate on the rational of shock theory versus gradualist reform in transitional economies is
Licensee MDPI, Basel, Switzerland.
found in [12].
This article is an open access article
Explanations of this contrast include, for example, the considerable difference in the
distributed under the terms and
extent of political regime stability between the two blocs [13], and the presence of a pre-
conditions of the Creative Commons
reform period before major reform was launched [14]. These explanations are based on
Attribution (CC BY) license (https://
the widely accepted observation that reform almost always creates winners and losers,
creativecommons.org/licenses/by/
resulting in intense competition among entrants and incumbents vying to be included in
4.0/).

Sustainability 2023, 15, 10883. https://doi.org/10.3390/su151410883 https://www.mdpi.com/journal/sustainability

Sustainability 2023, 15, 10883 2 of 19

the winners group. It is argued that a stable and strong political regime is more likely to
resolve conflicts that arise between the winners and losers during the course of reform with
lower costs [2,15,16].
Nonetheless, specific institutional settings may not always function optimally. In-
stitutional settings that were previously effective in managing conflicts under certain
politico-economic conditions may no longer operate as efficiently as before. Olson [17]
explained the relationship between institutional settings and economic growth, suggesting
that a stable and strong political regime can transform into an exclusive entity by establish-
ing a distributional coalition to maintain their monopoly rent. Consequently, this behaviour
is likely to hamper both static and dynamic economic efficiency.
The logic that Olson demonstrated regarding the dynamics of distributional coalitions
can be applied to analyse the economic growth of Vietnam from two reasons. Firstly, many
studies indicate that Vietnam’s economic growth has heavily relied on market embracing
reforms. In particular, the exponential growth of exports following trade liberalization
is one of key growth engines of Vietnam’s growth. Vietnam’s compound annual growth
rate over the last two decades is 6.3 percent. During this period, both exports and imports
showed robust growth, averaging at 18.8 percent and 16.9 percent each. The GDP share
of merchandise trade jumped from 60.7 percent to 190.2 percent (the author’s calculation
using data from the World Development Indicators). Moreover, Vietnam has successfully
diversified its export structure, shifting from low demand-elastic products such as rice
and coffee to high demand-elastic goods such as machinery, computer chips and mobile
phones [18]. Secondly, the state sector of Vietnam is an entity that has dominated its politics
and economy, which has established a significantly stable and strong political regime.
Until recently, Vietnam has maintained robust economic growth without significant
macroeconomic turbulence for three decades since launching its reform, known as doi moi,
in December 1986. However, Vietnam’s economic growth rate has begun to slow down over
the last decade. This paper raises barely asked questions regarding Vietnam’s economic
growth: Has the political regime in Vietnam transformed into a distributional coalition? If
so, how has this coalition affected the structural changes in the export sector? Additionally,
will these structural changes, if any, likely enhance or hamper Vietnam’s economic growth?
This paper aims to address these inquiries by examining the methods of trade liberalization
as well as the protection measures implemented by the distributional coalitions to preserve
their incumbent benefits. These measures will be analysed through the examination of
tariff schedules annexed to free trade agreements (FTAs) that Vietnam signed.
This paper is structured as follows. Section 2 summarises existing studies that analyse
the impact of adopting freer international trade on Vietnam’s economy. Section 3 reviews
theories on the parochial behaviours of distributional coalitions in the context of trade
liberalization, serving as the analytical foundation of this paper. Section 4 defines the
distributional coalitions and explores their development in Vietnam. Section 5 explains
the data collection and collation process, and then presents and analyses the collated data.
Section 6 concludes that the distributional coalitions of Vietnam have strategically deployed
FTAs to preserve their privileges. It further argues that this situation is unlikely to change
in the near future due to the hysteresis present in Vietnam’s political economy.

2. Trade Liberalization and Its Impact on the Economic Growth of Vietnam: A

Literature Review
Many studies conducted on Vietnam’s economy have shown a positive correlation be-
tween trade liberalization and the country’s development, particularly in terms of poverty
reduction [19–21]. Multilateral international organizations such as the World Bank and the
International Monetary Fund (IMF) that are key proponents of laissez-faire international
trade regularly publish documents, such as the World Bank’s Taking Stock and the Interna-
tional Monetary Fund’s Staff Country Report, highlighting liberalized trade as a crucial factor
for the rapid growth of Vietnam. However, they also caution against the weakening of
continued reform, which remains a significant obstacle [22]. In contrast, Ngo [23] presents
Sustainability 2023, 15, 10883 3 of 19

a critical argument, suggesting that trade liberalization has exposed Vietnam to excessive
competition in the motorbike industry because of poor industrial policies from the analysis
of the Vietnam–China border trade.
Regarding the correlation between trade liberalization and wage rates, some argue
that there has been a negative relationship between these two from the analysis of firm
level data [24]. Others argue that there is a positive correlation largely due to the increasing
demand from the export sector [25]. Similarly, the wage-premium works only in the export
sector and in FIEs [26] and the Stolper-Samuelson theorem is observed in labour-intensive
industries [27].
Studies on the winners and losers of trade liberalization have often overlooked the
impact on the dominant politico-economic groups in Vietnam. Understanding how their
interests are affected by trade liberalization and their reaction to it is crucial to correctly
assess and predict Vietnam’s economic growth. However, few scholars have specifically
focused on this matter. For example, Ghosh and Whalley [28] conducted simulations
to assess the impact of trade liberalization on the efficiency of state-owned enterprises
(SOEs) using data from the 1996 Input-Output Table of Vietnam. Running three versions
of the specific factor model, they show that free trade results in the fall in shirking in
SOEs, the output increase in the import-competing sector, the output decrease in the export
sector, and welfare gains. Vu-Thanh [29], whose work inspired this paper, highlighted that
Vietnam’s accession to the World Trade Organization (WTO) has indeed made the state
sector reform regressed because of the perpetuating doctrine of keeping the dominance of
the state sector. Nonetheless, he did not provide detailed explanations of how this doctrine
was implemented.

3. Theories on the Behaviour of Distributional Coalitions

Adopting freer international trade almost always entails institutional changes. For
example, new rules are legislated, the existing ones are amended or abolished to foster the
free market, and competition is encouraged. These changes often challenge monopolized
power, and the incumbent power is likely to respond in various ways to these changes.
It is most likely they do not welcome the changes that would potentially threaten their
privileged status.
However, there are cases where distributional coalitions may not resist institutional
changes. If distributional coalitions are so solid that the odds of losing their power are
effectively low, they have no reason to resist institutional change as long as they can
strategically embrace or even initiate institutional changes [30]. In general, distributional
coalitions tend to resist reforms that pose a threat to their political power. This effect,
known as the “political replacement effect” [30] (p. 129), can have implications for economic
growth. Historical examples, such as the landed elites in Russia and Austria-Hungary
during the 19th century illustrate this phenomenon. These elites blocked development,
likely due to the higher political stakes they faced and the greater likelihood of losing their
political power.
The strategic behaviour of distributional coalitions and their response to institutional
changes have been explained by various versions of rent-seeking theory. The author reviews
the central ideas of several theories to set up an analytical framework for this paper.

3.1. New Political Economy Game Theory

The New Political Economy (NPE) explains and solves issues of political decision-
making by utilizing the framework of individual utility maximization from neoclassical
economic theory [31]. The NPE assumes that politicians are personal utility maximisers who
are primarily driven by their interest in winning elections or holding their positions. This
motivation compels them to listen to the voices of their constituency. This perspective is
extended to the analysis of trade policy [32,33]. The idea that trade policy can be influenced
by external factors exemplifies how politicians are not entirely free from the influence of
economically powerful constituencies [34–36].
Sustainability 2023, 15, 10883 4 of 19

Grossman and Helpman [37] provided an insightful game theory model that explains the
decision-making problem of governments during FTA negotiations, particularly in selecting
which products or industries should be included in the protection list. Politicians involved in
FTA negotiations are expected to assess the benefits of entering into the agreement compared
to not doing so, taking into account factors such as the gifts they receive from distributional
coalitions and the welfare of the public. The decision-making problem of the government can
be described by the following equation: ∑ CiF + aWF ≥ ∑ CiN + aWN (where W represents
i i
aggregate welfare under free trade (F) and no free trade (N), and C represents the gifts
associated with the realisation of an FTA (F) and without an FTA (N)). The government will
endorse an FTA if and only if the above condition is satisfied [37] (p. 671). The government
can “avoid the biggest political costs associated with an FTA, and the net political gain may be
positive once these particularly exposed sectors are sheltered from the agreement” [37] (p. 683).
It is apparent that distributional coalitions would engage in intense lobbying efforts to have
their industries included in the protection list.
The viewpoint of NPE may not fully capture the dynamics of Vietnam’s distributional
coalitions, as the relationship between the government and the distributional coalitions
is not simply a patron-client one. In the NPE models, special interest groups typically
lobby the government to include their industries in the protection list. However, in the case
of Vietnam, SOEs, which are the counterparts of special interest groups, do not need to
engage in such lobbying because it is the government itself that aims to prioritize SOEs
by including them in the exclusion list during FTA negotiations. Therefore, analysing the
workings of this state-sector priority doctrine requires a broader perspective beyond that of
an individual utility maximiser.

3.2. Political Settlement Approach

The political settlement is defined as “a description of the distribution of power
across organizations that are relevant for analysing a specific institutional or policy prob-
lem” [16] (p. 640). The power distribution among these organizations is primarily deter-
mined by their holding power, which allows them to outlast their competitors either by
inflicting pain on them or by enduring pain for a longer period. As a result, organizations
that are more powerful have a higher likelihood of winning contests [38].
A political settlement is not a static arrangement and can evolve over time. While
gradual changes are common, disruptive shifts can occur if powerful organizations become
dissatisfied with their current share within the settlement. North, Wallis, and Weingast
stated that “(i)f a group attempts to extract too much, then other groups who normally
are not active on an issue are likely to begin paying attention and become active, with
the potential to alter dramatically the political forces on this issue” [15] (p. 128). It is
not difficult to speculate why distributional coalitions try so hard to keep their interests.
Economists now can explain better the motivation behind this with the endowment effect
developed in behavioural economics. People put more value on what they already own and
price it higher than the bidder prices it. Incumbent vested interests are likely to evaluate
their stake at much higher value than contenders do [39], which also implies that providing
compensation to the contender is cumbersome because the contenders can walk away
any time if they feel the proposed compensation is unfair [40]. Hence, the holding power
of the incumbent hinges not only on the resources they hold, but also on the expected
evaluation. If the conflicts amongst distributional coalitions are managed in a way to
maintain political stability and circular and flow of resources, it is said that the political
settlement is growth-enhancing. If, however, the conflicts are heated, this would disrupt
political settlements, which could be growth-hampering. For example, it is argued that
enterprises owned by the party or military have led to productive economic outcomes in
Rwanda [41] in contrast to the general phobia of mainstream economists on the state in
business [42].
Sustainability 2023, 15, 10883 5 of 19

3.3. Theory of Collective Action and Distributional Coalitions

As explained in the next section, the distributional coalitions in Vietnam are not only
encompassing but also directed by the political doctrine. Their parochial behaviour is
not easy to explain using an individualistic approach. Olson [17] developed the theory
of distributional coalitions to explain the rise and fall of economies in terms of the scope
and strength of distributional coalitions. These coalitions are often so firmly cartelized
that they possess enough power to resist reforms that are expected to enhance the growth
of their nations but may endanger their own interests. Bischoff [43] also argued that
stable democratic political regimes are less capable of adjusting to shifts in their economic
environment compared to relatively short-lived democratic regimes.
Olson argued, after observing the experience of the British economy from the late
19th to the early 20th century, that accommodating mutually advantageous freer interna-
tional trade alone is not sufficient to foster economic growth. He proposed that certain
policies should be deployed to weaken the reaction of distributional coalitions. Moe [44]
expanded on this approach by introducing the concept of Schumpeterian growth, drawing
from nine historical cases in five industrialized economies. This is why Vu-Thanh [29]
argued that despite Vietnam’s adoption of trade liberalization and subsequent formal
institutional changes, there has been a retrogression of reform in Vietnam. For example,
Vietnam newly promulgated or modified approximately 500 laws and regulations to align
with the core values of the WTO, such as free trade and fair competition. As demonstrated
in this paper, the distributional coalitions in Vietnam have effectively maintained their
monopoly power by strategically implementing tariff protection.
However, it should be noted that distributional coalitions often pay more attention
to promoting the national growth if they are encompassing since their share in gains (or
losses) is positively correlated with the growth national economy. The downside of being
encompassing is that the market distortions resulting from the monopoly power of distribu-
tional coalitions can lead to general depression or macroeconomic malady [17]. The theory
of distributional coalitions suggests that regardless of whether they are encompassing or
not, distributional coalitions are likely to become entities that hamper economic growth or,
at best, maintain simple reproduction in the long run as societies develop [45]. This paper
applies the theory to the case of Vietnam.

4. The Distributional Coalitions in Vietnam

At first, it is necessary to specify the distributional coalitions in Vietnam. They are
encompassing entities that have evolved over the course of economic reform towards a
multi-sectoral economy in which the state sector plays a leading role. Three entities—the
Communist Party of Vietnam as a governing organ, the state apparatus as planning organs
and state-owned enterprises (SOEs) as executing agents—are interdependently involved in
preserving the doctrine of the state-sector priority as a means of achieving the ultimate goal
of the Socialist Republic of Vietnam. To accurately reflect the nature of the executing agents,
it is more suitable to use the term ‘distributional coalitions-related enterprises’ instead of
SOEs, as there are many first that informally belong to the state sector. As [46] quoted
Ðào Xuân Sâm, a leading reformist thinker of the 1980s, who stated that “one should
understand that in Vietnam the public is never entirely public and the private is never
entirely private” (p. 4). This has resulted from the development of obscure property rights
throughout the reform process. However, documenting this phenomenon is rare, and it
is extremely difficult to trace and substantiate its reality. For the purpose of this paper,
the term SOEs will be used, excluding the informal private firms that belong to the state
sector. This is the kernel of the evolution of the distributional coalitions in Vietnam. The
outcome is a symbiosis between socialism and a market economy, officially referred to as
the ‘socialist-oriented market economy (kinh tế thị trường d̄ịnh hướng xã hội chủ nghĩa)’ in the
Constitution of Vietnam.
Considering that economic reform or liberalization typically involves the retreat of the
state sector, one might wonder how this state-market symbiosis is viable. This question
Sustainability 2023, 15, 10883 6 of 19

has been explored in some studies on Vietnam. For example, Adam Fforde explained the
symbiosis referred to as ‘state business interest’, which began to arise in the early 1980s as a
result of the commercialization of the state sector under the planning economic system. The
state business interests have never been seized but have also grown stronger throughout
economic reform. SOEs, executing agents, operate business and generate revenue, and the
state apparatus (or supervising organs) and the CPV continue to claim on the ownership of
the revenue of SOEs [14,46].
The development of the present distributional coalitions in Vietnam is closely inter-
twined with access to limited resources whose distribution has historically been under
the discretion of the CPV and the state apparatus. The distributional coalitions emerged
from the so-called ‘limited access orders’ in which coalitions of groups with power were
organized and rents were secured for themselves. Limiting the ability to form contrac-
tual organizations only to members of the coalition ties the interests of powerful elites
directly to the survival of the coalition, thus ensuring their continued cooperation within
the coalition [15] (p. 17).
Hence, in the context of Vietnam, the decline of the state sector that would be caused
by reform would lead to the systemic dissolution of the distributional coalitions. All
participants in these coalitions have a strong common motivation to keep alive the state
sector, which has resulted in a symbiotic relationship between the state and the market.
The distributional coalitions in Vietnam consist of powerful political and economic groups
that share the common objective: keeping the dominance of the state sector and upholding
the values of socialism. It is highly unlikely for these coalitions to opt for subversion of
the regime, as it would be contrary to their interests. Instead, their preferred strategy is to
ostensibly support and participate in reforms, which allows them to conceal their parochial
behaviours while still preserving their own interests.
Olson [17] explained that distributional coalitions can hinder the welfare of a nation
they belong to by pursuing their own interests instead of focusing on the overall size of the
pie. They are primarily concerned with capturing a larger portion of the pie for themselves.
The behaviour of distributional coalitions exhibiting parochial tendencies becomes evident
during FTA negotiations. Vu-Thanh [29] who inspired this paper showed that the accession
to the WTO failed to reform the state economic sector in Vietnam because its leadership
kept requesting to keep the interest of state-owned enterprises. They are likely to exert
influence over negation delegates in order to preserve their interests, either by having the
products they produce included or excluded from the list of protected items [37]. It is
often assumed that a distributional coalition that fails to have its products included in the
protection list will lose its privileges. However, the analysis presented in this paper reveals
that it is not necessarily the case. Some SOEs that produce goods with a comparative
advantage have been able to protect their interests by having their products excluded from
the production list.
The agreed list of exclusions that reflect the self-interestedness of distributional coali-
tions has the potential to either enhance or hamper long-run economic growth path of a
nation, depending on the composition of products on the list. Over-protected products
included in the protection list are likely to burden Vietnam’s long-run economic growth.
Despite being provided with favourable access to scare resources such as capital and land,
many of these products are not competitive in the global market, let alone in the domestic
market. Furthermore, the protection granted to these products has resulted in foreign-
invested enterprises (FIEs) dominating industries that generate a significant amount of
value-added. Vietnam has primarily served as an assembly base within global production
networks, where it has taken a relatively small portion of value-added. The doctrine of
the state-sector priority has hindered the emergence and development of medium and
high-tech industries that not only create more value-added but also have strong backward
and forward linkages.
It is not odd to assume that Vietnam’s distributional coalitions have deployed the
tariff schedule as a means to preserve their interests. However, it is challenging to provide
Sustainability 2023, 15, 10883 7 of 19

detailed explanations on how exactly the distributional coalitions have protected their
interests in the face of trade liberalization, because these activities are typically not well-
documented. Recognizing this limitation, this paper addresses this question by collating
information on the products produced by the distributional coalitions in Vietnam and
cross-checking whether these products are protected under the tariff schedules annexed
to FTAs. To better comprehend the protection strategy employed by the distributional
coalitions, this paper conducts an industry-level analysis following the classification of
the Harmonized System (HS) 2002 codes at the two-digit or four-digit level. This analysis
reveals that the protection strategy has been selectively applied to specific sectors.

5. Trade Liberalisation and the Reaction of the Distributional Coalitions in Vietnam

As discussed above, government delegates who are more or less influenced by distri-
butional coalitions of each country include a carefully chosen protection list in mutually
agreed trade treaties. Infant industry protection is one of key themes that justify the trade
restriction that low-income countries often choose to achieve industrialization in the face
of growing requests for freer international trade by high-income countries. A significant
amount of literature both for and against infant industry protection has been produced.
However, this paper does not cover this extensive debate. An interesting debate between
two schools of thought on industrial/trade policy is presented in the discussion in [47].
This implies that a tariff schedule annexed to an FTA can be used as a proxy to demonstrate
the protection strategy of the distributional coalitions. This paper identifies protected
products by collating data from the tariff schedules annexed to six key FTAs that Vietnam
singed, and then compares them with main goods produced by SOEs. It should be noted
here that in this paper, the terms ‘SOEs’ refers to ‘distributional coalitions-related firms’
whose ownership may or may not be held by the state. Distinguishing purely private firms
from purely state-owned ones is a challenging task [14,48,49].

5.1. The Dominance of the State Sector

Examination of some economic indicators will reveal the dominance of the state sector.
The General Statics Office of Vietnam defines an SOE as a firm in which the share of
state capital is above 50%. The state includes state apparatus such as ministries, local
governments and the military.
As demonstrated in Table 1, the dominance of SOEs declined across various indicators,
including their contribution to GDP, the number of SOEs, the number of employees they
hire and the profits before tax they earn. The small number of SOEs further affirms the
dominance of the state sector. As of 2019, the reported number of SOEs was 2109 which
accounted for just 0.32 percent of the total number of enterprises with business outcome.
Despite their limited number, a handful of SOEs consumed around 23 percent of the total
working capital, hired 7.3 percent of the total workers, made 22 percent of the total physical
investment and earned 23 percent of the total profits. However, they are not particularly
efficient in utilizing working capital which is a scare resource in Vietnam. On the other
hand, FIEs spent 15 percent of the total working capital to earn 37 percent of the profits
before tax. In terms of job creation, FIEs that employed 30 percent of the total workers once
again outperformed SOEs. However, there is another aspect of SOEs to consider. While it
is often believed that SOEs tend to be large in size, there is a large number of small-sized
SOEs in Vietnam. As of 2019, according to the General Statistics Office of Vietnam, out of
the 2109 SOEs, 146 of them reported a capital size smaller than VND 10 billion (equivalent
to USD 454,000) and 113 had fewer than ten employees.
Sustainability 2023, 15, 10883 8 of 19

Table 1. Key indicators of the state sector of Vietnam (unit: percent).

SOEs a Non-SOEs a FIEs a

GDP share
2005 35.59 49.19 15.22
2010 33.55 49.12 17.33
2015 31.67 49.09 19.24
2019 28.55 49.36 22.08
CAGR b −1.46 0.02 2.51
Number of acting enterprises
2005 3.61 93.1 2.52
2010 1.18 96.23 2.14
2015 0.64 96.66 2.31
2019 0.32 96.88 2.41
Number of employees in acting enterprises
2005 32.67 47.76 16.49
2010 16.45 61.42 19.53
2015 10.67 59.99 26.99
2019 7.31 59.90 30.22
Annual average working capital
2005 54.08 26.15 11.48
2010 34.13 50.30 9.69
2015 31.36 49.77 15.28
2019 22.84 59.08 15.29
Value of fixed asset and long-term investment of acting enterprises
2005 51.10 20.60 14.84
2010 37.75 45.72 10.66
2015 43.95 36.90 14.89
2019 21.88 55.73 18.61
Profit before taxes of acting enterprises
2005 39.93 8.98 5.33 (51.09) c
2010 32.33 32.46 11.46 (35.21) c
2015 28.42 27.23 30.87 (44.35) c
2019 23.18 31.20 36.76 (45.62) c
Notes: a : SOEs: firms in which the share of state capital is above 50 percent; non-SOEs: private, collective,
limited liability and joint-stock companies in which either the share of state capital is less than 50 percent or
non-existent; FIEs: firms in which the share of foreign-invested capital is 100 percent, excluding joint ventures.
b : CAGR: Compound annual growth rate. c : Shares when joint ventures are included. Source: The Statistical

Yearbook of Vietnam. Downloadable at https://www.gso.gov.vn (accessed on 15 April 2023).

5.2. Data Collection and Collation

5.2.1. Collating the Protection List from Tariff Schedules
Vietnam signed 15 bilateral and multilateral FTAs and is negotiating four FTAs as
of May 2023. Signatory economies include ASEAN, Australia, New Zealand, China,
Hong Kong, India, Japan, Korea, Chile, the EU, the Eurasian Economic Union, the UK and
the US. For this paper, six FTAs have been selected based on their signatories’ average
contribution, accounting for 77 percent of Vietnam’s total trade from 2004 to 2019. The
selected FTA economies are China, Korea, Japan, the US, ASEAN and the EU. Table 2
provides a summary of key information regarding these FTAs.
The protection list is compiled from the tariff schedules annexed to the FTAs, and the relevant
documents are gathered from the official webpages of each FTA. For example, the documents of
the FTA with the EU can be accessed at https://policy.trade.ec.europa.eu/eu-trade-relationships-
country-and-region/countries-and-regions/vietnam/eu-vietnam-agreement/texts-agreements_
en (accessed on 1 May 2023). Alternatively, you can visit the WTO Centre and Vietnam Chamber
of Commerce and Industry (https://wtocenter.vn/fta; accessed on 1 May 2023) to obtain informa-
tion regarding all the FTAs that Vietnam has signed thus far. As indicated in Table 2, three different
versions of HS codes were used in the FTAs, and this paper converts them to the codes of the HS
2002 version. The conversion method used in this paper is explained in a document published
by [50]. Correlation tables can be accessed at https://unstats.un.org/unsd/trade/classifications/
correspondence-tables.asp (accessed on 1 May 2023). The product information is collected at the
four-digit level but is presented at the two-digit level in this paper due to space constraints. The
classification of HS codes at the two-digit level is presented in Table S1.
Sustainability 2023, 15, 10883 9 of 19

Table 2. Key facts of six FTAs that Vietnam signed with the US, China, ASEAN, Japan, Korea and the EU.

Average Share of Trade, Tariff Rates (%) or

Economy Year in Effect HS Code Used
2004–2019, % b Years of Reduction (Y) c
US 2001 HS 2002 11.5 2, 3, 4, 5, 6, 7 and 10 Y
China a 2005 HS 2002 17.8 3, 5, 8, 10, 12, 13 and 15%
ASEAN 2009 HS 2007 16.5 5, 8 and 20%
Japan 2009 HS 2007 10.1 4, 6, 8, 11 and 16 Y
Korea 2015 HS 2012 9.3 3, 5, 7, 8, 10 and 15 Y
EU 2019 HS 2012 12.0 4, 6, 8, 10, 11 and 16 Y
Notes: a : Vietnam has not signed a separate bilateral FTA with China. Instead, a multilateral FTA between ASEAN
and China was signed in 2005. b : The ratios are calculated by dividing the sum of exports and imports of each
economy by the sum of Vietnam’s exports and imports in each year. The average of these ratios is then calculated
over a period of 15 years. The trade data used for this calculation were collected from the World Integrated Trade
Solution (WITS) website accessible at https://wits.worldbank.org (Accessed on 2 May 2023). c : The numbers
in this column present all phases of tariff reduction declared in the tariff schedules annexed to the FTAs. The
FTAs with ASEAN and China declared that tariff rates would become reach zero percent among signatories by
2018, with exceptions for some sectors included in the ‘general exception list’. All the FTAs allow for immediate
removal of tariffs and exemption of tariffs.

Two criteria are used to create the protection list: the strength of protection, measured
by tariff rates, and the length of protection, measured by tariff-reduction periods. As
indicated in the last column of Table 2, each FTA specifies either the phases of tariff
reduction (ranging from six to eight phases) or different tariff rates (ranging from as low as
two percent to as high as twenty percent). A product is counted as ‘protected’ if it meets
either of the following conditions: its tariff rate falls within the two highest rates, or its
reduction period falls within the two longest periods.
For example, within the tariff schedule annexed to the EUVNFTA, one can come across
the entry “8703.10.10; Golf cars, including golf buggies; 78.0; B10”. This signifies the pre-
vailing base tariff rate for this product is 78 percent, and it is expected to be eliminated over
a span of 11 consecutive years through even reductions. Consequently, the product with HS
code 8703.10.10 should be included in the protection list under the category of 8703 at the
four-digit level and 87 at the two-digit level. This category belongs to ‘Section 17 Vehicles,
aircraft, vessels and associated transport equipment’ in the HS 2002 classification.
This paper iterates the same process for all six FTAs to create the protection list. It is
expected that certain products will be consistently protected across the six FTAs. This paper
measures the frequency of their appearance and presents the results in Figure 1. Out of all
the products analysed, a total of 3599 products are found to be protected in the six FTAs.
The sections with the highest frequency of protection are 86–89 (Vehicles), 15 (Processed
foods) and 84–85 (Machinery and Electronics). On the other hand, the sections with the
lowest frequency of protection are 97–99 (Art), 50–63 (Textiles) and 47–49 (Papers).

5.2.2. Collating SOEs Products

The task of collating information on the goods produced by SOEs begins with identi-
fying and delimiting SOEs. In Vietnam, large SOEs are commonly referred to as General
Corporations (GC, Tổng Công ty), specifically GC 91 and GC 90. The name GC 91 and
GC 90 originated from the serial number of government documents that stipulated the
establishment of these groups. GC 91s were formed based on the Prime Minister Decision
QD 91/TTg and GC 90s were formed according to the Prime Minister Decision QD 90/TTg.
Both documents were promulgated in April 1994. GCs are state conglomerates that consist
of multiple affiliate SOEs. GC 91s are generally larger and more significant in terms of
their size and contribution to the economy compared to GC 90s. Some of GC 91s are now
referred to as state economic groups (SEGs). There are twenty-two GC 91s of which ten
are SEGs as of May 2023. Whilst accessing the information on GC 91s was relatively easy,
finding information on GC 90s is challenging, as the most recent publicly available list was
produced by the Ministry of Finance of Vietnam in 2011. This list includes 78 GC 90s, and
73 of them were traceable as of May 2021. A complete list of GC 91s and GC 90s that this
paper uses to collate product information is presented in Tables S2 and S3.
 expected that certain products will be consistently protected across the six FTAs. This
paper measures the frequency of their appearance and presents the results in Figure 1.
Out of all the products analysed, a total of 3599 products are found to be protected in the
six FTAs. The sections with the highest frequency of protection are 86–89 (Vehicles), 15
Sustainability 2023, 15, 10883 (Processed foods) and 84–85 (Machinery and Electronics). On the other hand, the sec- 10 of 19
tions with the lowest frequency of protection are 97–99 (Art), 50–63 (Textiles) and 47–49
(Papers).

Figure 1.
Figure 1. Frequency
Frequency of of
tariff-protected products
tariff-protected of Vietnam
products (HS 2002
of Vietnam classification,
(HS two–digit,two–digit,
2002 classification, sec-
tional). Note: The number inside each bar represents the total count of protected products within
sectional). Note: The number inside each bar represents the total count of protected products within
each HS code section, as measured from the six FTAs. Detail classification is presented in Table S4
each
that HS code section,
provides as measured
a comprehensive from the
breakdown of six
theFTAs. Detail
protected classification
products is presented
based on in Table
their specific HS S4
that provides
codes a comprehensive
within each section. breakdown of the protected products based on their specific HS codes
within each section.
5.2.2. Collating SOEs Products
Having
The taskobtained theinformation
of collating list of GCs, onthis
the paper collates information
goods produced by SOEs begins on the
withgoods
iden- they
produce by visiting each GC’s official webpage. These webpages typically
tifying and delimiting SOEs. In Vietnam, large SOEs are commonly referred to as Gen- contain details
about the GC’s main business areas, main products and subsidiaries.
eral Corporations (GC, Tổng Công ty), specifically GC 91 and GC 90. The name GC 91 While conducting
surveys
and GC or 90 interviews would
originated from thebeserial
the ideal method
number for data collection,
of government documentsthe author
that acknowl-
stipulated
edges that arranging official meetings with SOEs can be extremely
the establishment of these groups. GC 91s were formed based on the Prime Minister De- challenging unless
working
cision QD 91/TTg and GC 90s were formed according to the Prime Minister Decision QD the
with significant international bodies or government entities. The author had
opportunity
90/TTg. Bothtodocuments
conduct interviews with SOEs
were promulgated in in a particular
April 1994. GCs city
areinstate
2005, which was made
conglomerates
possible through
that consist sponsorship
of multiple affiliatefrom
SOEs.UNDP
GC 91sVietnam and support
are generally frommore
larger and the Department
significant of
Planning and Investment of that city. The process of arranging these interviews was not
easy, highlighting the difficulties involved in accessing and engaging with SOEs for data
collection purposes.
It is important to note that not all GCs engage in the production of tradeable goods.
Therefore, this paper excludes GCs whose primary business areas involve trading, finance,
telecommunications, postal services, transportation and logistics. As a result, seven GC 91s
and 34 GC 90s are excluded from the analysis. The remaining 54 GCs are examined, and
their respective products are categorized based on the HS 2002 codes.
Each GC holds ownership in numerous affiliates, subsidiaries and joint ventures, with
some organization charts showing over 100 firms under their control. For the purpose of
this paper, the focus is primarily on the main products of the GCs. Therefore, joint ventures
and firms in which the GCs do not hold controlling shares are not included in the analysis.
After excluding these entities, the number of firms belonging to the GCs amounts to 1056.
A total of 741 firms are directly involved in the production of goods rather than providing
services. These 741 firms collectively produce a total of 707 different types of products.
Sustainability 2023, 15, 10883 11 of 19

It is notable that the total number of SOEs in Vietnam as of 2019 was 2109 as stated ear-
lier in this section. Thus, the sample size of 1056 firms included in this paper is considered
substantial enough to identify general trends within Vietnam’s distributional coalitions.
A firm-level survey data for Vietnam, known as the World Bank Enterprise Survey 2015, was
published by the World Bank. This survey included a total of 996 firms and was conducted
between 2014 and 2016. The author iterates the same process to collate information from
this survey data. Within the surveyed firms, it was identified that the state had ownership
in 37 firms, with its ownership exceeding 50 percent in 15 firms. As the main business area
of five firms is either service or construction, the rest ten firms fell into the following sections
in HS 2002, which is not quite informative. The sections and the number of firms belonging
to each section are as follows: (03) 1, (10) 1, (22) 2, (61) 2, (68) 2, (69) 1, (82) 1 and (89) 1. The
survey data can be accessed at https://microdata.worldbank.org/index.php/catalog/2664
(Accessed on 3 May 2023).
The HS code classification of the products produced by GCs is provided in Figure 2.
Among
Sustainability 2023, 15, x FORthese products, the largest number of GCs are engaged in the production of
PEER REVIEW 12 of
goods belonging to the 50–63 category, which corresponds to textiles and garments. Other
prominent sectors include 39–40 (Plastics and Rubber) and 28–38 (Chemicals—Fertilizers,
detergents and organic It is chemicals).
notable that aOn the other
higher hand,ofthe
proportion GCssmallest
operatenumber of SOEs are
in labour-intensive sectors suc
involved in theas production of goods categorized under 15 (Animal and vegetable
textiles, garments, mining, furniture and primary products. The next step oils),in the ana
90–92 (Optical and medical
ysis is instruments)
to examine how many andof 68–70 (Ceramic
the goods products,
produced by GCsglassware and
are also included in th
articles of stone). production list.

Figure 2. Number Figure 2. Number

of GCs of to
according GCs according
their to their main
main business area business
(HS 2002area (HS 2002 classification,
classification, two-digit, two-dig
sectional). Note: The numbers inside the bar represent the total number of products belonging
sectional). Note: The numbers inside the bar represent the total number of products belonging to
each section. Table S5 presents detailed classification.
each section. Table S5 presents detailed classification.
5.3. Are Products Produced by the Distributional Coalitions Protected?
It is notable that a higher proportion of GCs operate in labour-intensive sectors such
as textiles, garments,Tomining,
identifyfurniture
which products are over
and primary or under-protected,
products. The next stepthis
inpaper calculates th
the anal-
strength of protection for each product and examines the presence of SOEs in relation
those products. For instance, the strength of protection for products under HS code 15
determined by dividing the frequency of protection by the total number of tariff prote
tions, resulting in a ratio of (186/3599). Similarly, the presence of SOEs in HS code 15
calculated by dividing the number of SOEs producing the product by the total numb
Sustainability 2023, 15, 10883 12 of 19

ysis is to examine how many of the goods produced by GCs are also included in the
production list.

5.3. Are Products Produced by the Distributional Coalitions Protected?

To identify which products are over or under-protected, this paper calculates the
strength of protection for each product and examines the presence of SOEs in relation to
those products. For instance, the strength of protection for products under HS code 15 is
determined by dividing the frequency of protection by the total number of tariff protections,
resulting in a ratio of (186/3599). Similarly, the presence of SOEs in HS code 15 is calculated
by dividing the number of SOEs producing the product by the total number of products
produced by SOEs, which results in a ratio of (1/707). If a product’s strength ratio is higher
Sustainability 2023, 15, x FOR PEERthan its presence ratio, it is categorized as over-protected, and vice versa. The comparison
REVIEW 13 of 20
of these calculated ratios is illustrated in Figure 3.

10
9
8
7
Ratios (%)

6
5
4
3
2
1
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 76 78 80 82 84 86 88 90 92 94 96

HS code, two-digit

Strength of protection Presence of SOEs RCA frequency of greater than one

Figure 3. Comparison of products that are protected, SOEs produce and have RCA greater than
Figure 3. Comparison of products that are protected, SOEs produce and have RCA greater than one,
one, HS 2002 (two-digit). Notes: To provide a clearer representation of other sectors, two outliers
HS are2002 (two-digit).
excluded from the graph.To
Notes: Theprovide a clearer
first outlier is therepresentation
wood sector (HS of other sectors,
code 40). two of
The ratio outliers
prod- are
excluded from the
ucts produced by graph.
SOEs inThethis first
sectoroutlier is the
is 12.87. Thewood
secondsector (HS
outlier is code 40). The
the vehicles ratio(HS
sector of products
code
87). The RCA
produced frequency
by SOEs in thisofsector
valuesis greater
12.87. Thethansecond
one in this sector
outlier is 21.89.
is the It is sector
vehicles notable(HSthatcode
there87).
are The
RCAseveral codes that
frequency exhibitgreater
of values a valuethanof zero.
one This
in thishappens
sector when either
is 21.89. It isno protection
notable measures
that there are
are several
imposed, no products are produced by SOEs or no RCA frequencies greater than one are observed
codes that exhibit a value of zero. This happens when either no protection measures are imposed,
for those specific codes. The products that have RCAs—revealed comparative advantage—are cal-
noculated
products are produced
through by SOEs
several steps. First,orRCA
no RCAdata frequencies
are collectedgreater
at the than one are
HS 2002, the observed
four-digit for those
level
specific codes.
from WITS The products
database, coveringthat
the have
periodRCAs—revealed
from 2004 to 2017. comparative
The data areadvantage—are calculated
then sorted to identify
products
through with RCAs
several steps.greater than data
First, RCA one forareeach year. at
collected Subsequently,
the HS 2002,the theproducts
four-digitare level
organized
from atWITS
the two-digit
database, level.the
covering Finally,
periodeach
fromsection
2004 tois 2017.
divided
Thebydata
the are
total
thennumber
sortedoftoproducts
identifywith RCAswith
products
greater than one, which amounts to 3887. Processing details are reported in Tables S4 and S5.
RCAs greater than one for each year. Subsequently, the products are organized at the two-digit level.
Finally, each section is divided by the total number of products with RCAs greater than one, which
At the two-digit level, it is found that 48 codes are classified as over-protected while
amounts to 3887. Processing details are reported in Tables S4 and S5.
33 codes are considered under-protected. For 15 codes, neither tariff protection nor the
presence of SOEs is recorded. Around 58.7% of the product codes exhibit over-
At the two-digit level, it is found that 48 codes are classified as over-protected while
protection, while 41.3% are categorized as under-protected. These findings suggest that
33 codes are considered under-protected. For 15 codes, neither tariff protection nor the
the distributional coalitions may have utilized tariff schedules to protect their own inter-
presence of SOEs is recorded. Around 58.7% of the product codes exhibit over-protection,
ests. However, it should be noted that the value of 58.7% does not provide definitive ev-
while 41.3% are categorized as under-protected. These findings suggest that the distribu-
idence, and further analysis is required for a conclusive interpretation.
tional coalitions may have utilized tariff schedules to protect their own interests. However,
The author posits that the distributional coalitions deliberately have their products
it under-protected
should be noted by that the value of 58.7% does not provide definitive evidence, and further
deploying the tariff schedules to preserve their interests under cer-
analysis is required for
tain conditions. To investigatea conclusive this interpretation.
speculation, this paper employs the concept of re-
vealed comparative advantages (RCAs). RCAscoalitions
The author posits that the distributional for the perioddeliberately
from 2004 have theirare
to 2019 products
cal-
under-protected by deploying
culated using Vietnam’s exportthe tariff
data schedules
obtained fromto thepreserve
UN Comtradetheir interests
Database. under
Then, certain
it
conditions.
counts the To investigate
number this speculation,
of products with RCAs greater this paperthan employs
one each the year.concept of revealed
The results are
recorded at the HS 2002 two-digit level. Throughout the period, a total of 3887 products
were found to have RCAs greater than one. The frequency of products recording an
RCA larger than one is then counted. As an illustration, if products belonging to code 61
exhibit RCAs greater than one 243 occasions throughout the analysed period, then the
Sustainability 2023, 15, 10883 13 of 19

comparative advantages (RCAs). RCAs for the period from 2004 to 2019 are calculated
using Vietnam’s export data obtained from the UN Comtrade Database. Then, it counts the
number of products with RCAs greater than one each year. The results are recorded at the
HS 2002 two-digit level. Throughout the period, a total of 3887 products were found to have
RCAs greater than one. The frequency of products recording an RCA larger than one is
then counted. As an illustration, if products belonging to code 61 exhibit RCAs greater than
one 243 occasions throughout the analysed period, then the calculated ratio is 0.063, which
is obtained by diving 243 by the total number of products with RCAs greater than one,
3887. The results are depicted in Figure 3. By considering these three indicators collectively,
this paper identifies three distinct groups within the set of 33 under-protected products.

5.3.1. Group 1: Competitive in the World Market

Thirteen products that have RCA ratios higher than the average RAC, 1.18, are included
in this group. They include coffee and tea (09—numbers are HS codes), cement (25), organic
chemicals (28), rubber (40), wood (44), paperboard (48), silk (50), man-made fibres (55),
knitted and unknitted garments (61 and 62), concrete (68), articles of iron or steel (73) and
furniture (94). Notably, six of these products rank among the top ten in terms of RCA
recordings. The six products are coffee and tea (09), cement (25), rubber (40), wood (44),
knitted and unknitted garments (61 and 62).
This observation suggests that certain under-protected products possess competitive-
ness in the global market. Indeed, the most competitive products within this group, namely
garments (61 and 62), receive zero tariff protection. Additionally, four out of these 13 prod-
ucts belong to the textile section. It can be inferred that these under-protected competitive
products are intentionally kept that way to preserve the interests of SOEs engaged in the
production of these products. Trade liberalization is unlikely to be a threat to these highly
competitive sections.
In addition to the previously mentioned products, there are a few more that can be
considered part of Group 1, despite not exhibiting RCAs greater than the average. These
products include rice (10), starches (11), copra (12) and photographic cameras (90). Al-
though they may not surpass the average RCA ratio, they are among the top export items
of Vietnam during the same period. Furthermore, even though tin (80) is not classified
as a top export commodity, Vietnam holds the position of the eighth-largest global sup-
plier. Therefore, the speculation regarding the intentional under-protection of competitive
products remains valid. In total, Group 1 consists of 18 products.

5.3.2. Group 2: Weak Presence of SOEs

In contrast to the products in Group 1, there are 11 products in Group 2 with RCAs
lower than the average. Additionally, the production of these 11 products involves fewer
SOEs compared to the average presence of 1.72. Hence, this group is characterized as
having a weak presence of SOEs. The products included in this group are live animals (01),
sugars (17), animal fodder (23), organic chemicals (29), dyeing extracts and paints (32),
dextrin (35), Printed books (49), man-made filaments (54), copper (74), aluminium (76)
and railway locomotives (86). These products are often utilized as leverage during the
negotiation of FTAs. Given their low RCAs and weak presence of SOEs, giving way this
group does not significantly harm the interests of the distributional coalitions. Conversely,
the distributional coalitions may use this group as a bargaining chip to persuade trading
partners to maintain favourable conditions for other key sectors. Thus, Group 2 serves the
purpose of preserving the interests of the distributional coalitions.

5.3.3. Group 3: High Political Burden Due to Low Production Capacities of SOEs
Four products remain to be explained: mineral fuels (27), pharmaceutical products (30),
fertilizers (31) and ships (89). These products are considered essential goods, excluding
ships. It appears that the significant presence of SOEs in these products might be a valid
reason to protect Group 3. However, imports of these products far outweigh exports be-
Sustainability 2023, 15, 10883 14 of 19

cause the present domestic production capability is limited. Imposing protection on these
essential products would heavily worsen national welfare. This option is not politically
feasible for the distributional coalitions to consider.
Mineral fuels include national key industries such as coal, crude oil and petroleum.
One might assume this sector would be protected, but it is not. Vietnam has a significantly
increasing demand for coal to operate its thermoelectric power plants, which has not been
met by domestic coal production. Vietnam exports crude oil, and the revenue generated
from its sales contributed to the national budget. For example, the contribution from
the sales of crude oil to the national budget varies depending on the global crude oil
price, ranging from 6.5% in 2015 to 2.3% in 2020 [51] (p. 210). However, Vietnam imports
petroleum because its oil refineries have limited capacity to meet the demand. According
to UN Comtrade data, the imports of these products, on average, are nine times greater
than the exports between 2004 and 2019. Pharmaceutical products recorded a negligible
RCA, and the imports of these products are, on average, 25 times greater than the exports
during the same period. Similarly, the fertilizer industry indicates that the import value was
29 times greater than the export value in 2004, although the ratio reduced to 4.4 times in
2019. Protecting these products and their producers would clearly have a negative impact
on the welfare of Vietnamese.
Lastly, the Vietnamese shipbuilding industry, which used to be competitive, faced
significant challenges due to a series of corruption and lex management cases involving two
leading SOEs—Vinashin and Vinalines—in the early 2010s. This led to a major restructuring
of the shipbuilding sector. The RCAs began to decline, falling from 5.2 in 2004 to below one
since 2011. It is prudent to acknowledge that continuing to protect the shipbuilding SOEs
poses a significant political burden for the distributional coalitions, especially considering
that the corruption cases sparked widespread calls for reforming SOEs. As previously
explained, when the distributional coalitions are encompassing, the losses they would
collectively bear in the event of national economic failure would be significant. Therefore,
the distributional coalitions are not inclined to unreasonably protect an industry that is
facing challenges, as doing so could jeopardize their entire interests. Thus, the distributional
coalitions are cautious about providing unwarranted protection to this sector.

5.3.4. Over-Protected Products

The average ratio of the presence of SOEs in the over-protected products is just 0.76,
whereas the average ratio of all SOEs is 1.72. Similarly, the average ratio of protection
for the over-protected products is 1.73, while the average ratio of all SOEs is 1.30. These
figures support the argument presented in this paper that SOEs receive protection through
the FTAs.
Several products deserve attention. Tobacco (24), machinery (84), electronics (85)
and vehicles (87) have the highest levels of protection. Machinery and electronics are the
main export items. The RCA of machinery is 1.60, while that of electronics is 3.86.
However, in Vietnam, the main players in these sectors are FIEs rather than SOEs
or domestic private firms. The dominance of FIEs in the motorcycle market in Vietnam,
characterized by crony capitalism, has been well analysed by [52]. The protection of these
products likely aims to raise tariff revenue because Vietnam operates as an assembly hub,
requiring a substantial number of imported inputs for these FIEs.
The RCA of tobacco is 0.39, indicating that it is not a competitive product. Given
that tobacco products are typically monopolized by the state in many countries, it is not
surprising that Vietnam imposes strong protection measures on these products.
On the other hand, the RCA for vehicles is 0.98, suggesting limited competitiveness
in this sector. However, the level of protection for vehicles is extremely high, with a
ratio of protection reaching 21.39. This indicates that around 21 out of every 100 tariffs
are imposed on vehicles. Further examination reveals that the RCAs of four-wheeled
vehicles, mainly 8703 and 8704, are negligible, while those of two-wheeled vehicles, such
as motorcycles (8711) and their parts (8714) and wheelchairs (8713), are relatively higher.
Sustainability 2023, 15, 10883 15 of 19

Detailed classification is presented in Table S6. The protection of four-wheeled vehicles

(8703 and 8704) is 6.7 times greater than that of two-wheeled vehicles (8711). One possible
explanation for this disparity is that the automotive industry in Vietnam is dominated by
FIEs, whereas some SOEs produce four-wheeled vehicles like trucks and lorries, but there
are no SOEs involved in the production of two-wheeled vehicles. It is worth noting that
some SOEs produce passenger cars and buses, this aspect is not included in the analysis
conducted in this paper. The reason for exclusion is that these vehicles are manufactured
through joint ventures in which SOEs do not hold controlling shares. For example, compa-
nies like Toyota Vietnam and Honda Vietnam have Vietnamese partners, such as VEAM
(Vietnam Engine and Agricultural Machinery Corporation), which is one of the GC 90s.

5.4. Implications for the Long-Run Economic Growth of Vietnam

This paper has examined how distributional coalitions in Vietnam have effectively
deployed tariff schedules to protect their interests in the context of trade liberalization. The
implication of this behaviour for the long-run growth path of Vietnam are significant. As
reported in Table 3, the contribution of SOEs to GDP has decreased between 2005 and 2020.
The compound annual growth rate of SOEs stands at −1.46%, indicating that the protection
of SOEs has not resulted in the growth of the state sector. This suggests that SOEs have not
emerged as leading sectors or demonstrated competitiveness in the global market.

Table 3. Top export products of Vietnam and SOEs’ involvement (HS 2002, four-digit, 2004–2019).

HS Code Description Points SOEs Produce?

6403 Footwear, with outer soles of rubber and uppers of textile 259
2709 Crude oil 248 Yes
9403 Furniture, other than seats and beds 238 Yes
6404 Footwear, with outer soles of rubber and uppers of leather 220
1006 Rice 202 Yes
0901 Coffee 194 Yes
8525 Mobile phones 193
6204 Female clothes (not knitted) 172 Yes
8471 Automatic data processing machines 158
8544 Insulated electrical conductors 141
0304 Fish fillet 133 Yes
8517 Electrical apparatus of line phones 133
6203 Male clothes (not knitted) 130 Yes
0306 Crustaceans 125 Yes
4001 Rubber 122 Yes
6110 Sweaters 106 Yes
8542 CPU 101
Note: The points in the third column are calculated as follows: The UN Comtrade data are sorted according to
the value of exports, measured per thousand US dollars. Then, this paper selects the top 20 products each year
between 2004 and 2019 and assigns 20 points to the first-ranked product and one point to the twentieth-ranked
product. These points are then summed up. The maximum possible point is 320 if a product consecutively ranks
first for 16 years. The table reports 17 products with a point value greater than 100. The table does not include the
remaining 20 products that have a point value lower than 100.

Looking at the industry level leads to a dismal prediction regarding the role of the
state sector. As explained above, some products that SOEs produce are competitive in the
global market. These products include seafood (03), coffee (09), rice (10), crude oil (27),
rubber (40), garments (61 and 62) and furniture (94). Table 3 illustrates that many of these
products were among Vietnam’s top exports from 2004 to 2019. However, they do have
a downside. They are low-value-added products. On the other hand, high value-added
export items such as machinery (84) and mobile phones and electronics (85) are dominated
by FIEs, not SOEs.
For example, in 2019, the export value recorded by mobile phones (8525), which
ranked first, was USD 40.7 billion, while that of female garments (6204), which ranked
eleventh, was USD 3.4 billion. Coffee and rice have shown a similar trend. They were
Sustainability 2023, 15, 10883 16 of 19

not included in the top 20 export products in 2019. Furthermore, the foreign share of
value added in Vietnam has continued to increase over the last 20 years [18]. Ironically,
the products that FIEs produce are the ones that are over-protected. SOEs have not taken
advantage of this over-protection, but FIEs and their associated firms that have moved to
Vietnam have exploited the benefits of over-protection. It should be noted that FIEs may
have acted as special interest groups that exert influence on the negotiation of FTAs. As
global value chains extend their scope, the power of transnational corporations (TNCs)
has become stronger. Hosting countries that rely on the investment of these TNCs may be
vulnerable to their requests for the inclusion of their products in the protection list, which
may raise sovereignty concerns. One advantage expected from this offshoring is technology
transfer occurring through forward and backward linkages, which potentially enhances
economic growth. However, studies argue that this has not happened in Vietnam [52,53].

6. Conclusions
This paper examines the tariff schedules annexed to six key FTAs that Vietnam signed,
aiming to demonstrate how Vietnam’s distributional coalitions have strategically deployed
these FTAs to protect their interests in face of increasing global trade liberalization. The
findings of this paper reveal that approximately 58.7 percent of products produced by SOEs
are over-protected. Moreover, under-protection has intentionally been applied if SOEs
products possess competitiveness in the global market or if the presence of SOEs is weak
regardless of the competitiveness of products. This strategic under-protection has been
employed to shield goods in which SOEs have a strong presence but lack competitiveness.
This approach effectively addressed both the external demand from trading partners for
market access and the internal demand from distributional coalitions to preserve the doc-
trine of the state-sector priority. Consequently, distributional coalitions have successfully
protected their interest amidst the ongoing trend of trade liberalization.
The implications of this strategic protection on the long-run economic growth of Viet-
nam have been less than promising. One strategy for SOEs has been to make them large
and competitive [29]. However, a close examination of trade data and tariff schedules
reveals that this strategy has been largely ineffective. Competitive SOEs primarily operate
in low-tech products such as garments, which contribute only a limited amount of value-
added. In contrast, there are no SOEs operating in high-tech products such as electronics,
machinery, automobiles and vehicles that have the potential for significant value-added.
FIEs, on the other hand, have firmly established themselves in these high-tech products by
positioning Vietnam as their assembly base, benefiting from a stable supply of cheap labour.
It is notable that the classification of industries has changed following the leading technolo-
gies used in each industry and the nature of the combination between labour and capital
input. Hence, the typical classification of low-tech and high-tech industries can change.
Lall, et al. [54] suggested a new classification reflecting newly emerged combinations of
labour and capital along with increasingly fragmented production processes due to global
value chains. The development of technological capabilities requires tremendous effort and
a well-designed long-term plan, and the present strategic protection measures are unlikely
to facilitate technological transfer or foster the learning process in high-tech industries.
Certain changes are necessary in the structure of the existing distributional coalitions
and the doctrine of the state-sector priority. However, implementing such changes is not
an easy task. Drawing an analogy from biology, “once one team has started to dominate
the gene pool of a species, . . . (i)t is difficult for a minority team to break in, even a
minority team which would . . . have done the job more efficiently” [55] (pp. 171–172). In
Vietnam, the doctrine of the state-sector priority holds significant influence. The entire
socio-economic-political system has evolved to serve this objective, with the distributional
coalitions forming its core. It is highly unlikely that anyone who has the potential to
undermine this doctrine will be qualified to join the distributional coalitions. Incumbents
have no incentive to disrupt the status quo as long as it reproduces distributional benefits.
This suggests the divide between SOEs in low value-added goods and FIEs in high value-
Sustainability 2023, 15, 10883 17 of 19

added goods is likely to persist. Similarly, Vietnam’s economic growth will continue to rely
on the exports of these products produced by FIEs. The growth of FIEs would determine
the economic growth of Vietnam unless SOEs and other domestic firms actively engage
in the production of high-tech products. To make this happen, the monopoly power held
by the present distributional coalitions should be weakened and be shared with other
members of society.

Supplementary Materials: The following supporting information can be downloaded at: https:
//www.mdpi.com/article/10.3390/su151410883/s1, Table S1: HS 2002 codes details at the two–digit
level; Table S2: List of GC 91 and product code in HS 2002 (two–digit); Table S3: List of GC 90
and product code in HS 2002 (two–digit); Table S4: Number of protected products in FTAs, HS
2002, two–digit; Table S5: Strength of protection, number of protected products and RCAs; Table S6:
Vehicles Details.
Funding: This research received no external funding.
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: No new data were created in conducting this research.
Acknowledgments: The author is grateful to the peer reviewers for their valuable and constructive
suggestions, which have significantly improved the quality of this paper. However, any remaining
errors or omissions in the final version of this paper are the sole responsibility of the author.
Conflicts of Interest: The author declared no potential conflict of interest with respect to the research,
authorship, and/or publication of this article.

References
1. North, D.C. Institutions, Institutional Change and Economic Performance; Cambridge University Press: Cambridge, UK, 1990.
2. Acemoglu, D.; Robinson, J.A. Why Nations Fail: The Origins of Power, Prosperity and Poverty; Crown Business: New York, NY,
USA, 2012.
3. Rodrik, D. One Economics, Many Recipes: Globalization, Institutions, and Economic Growth; Princeton University Press: Princeton, NJ,
USA; Oxford, UK, 2009.
4. Evans, P.B. Embedded Autonomy: States and Industrial Transformation; Princeton University Press: Princeton, NJ, USA, 1995.
5. Chang, H.-J. The Political Economy of Industrial Policy; St. Martin’s Press: New York, NY, USA, 1994.
6. Amsden, A. Asia’s Next Giant: South Korea and Late Industrialization.; Oxford University Press: Oxford, UK, 1989.
7. Wade, R. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization; Princeton University
Press: Princeton, NJ, USA, 1990.
8. Johnson, C. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975; Stanford University Press: Stanford, CA,
USA, 1982.
9. World Bank. The East Asian Miracle: Economic Growth and Public Policy; A World Bank Policy Research Report; Oxford University
Press: New York, NY, USA, 1993.
10. Fine, B. Politics of Neoliberal Development: Washington Consensus and post-Washington Consensus. In The Politics of Development:
A Survey; Weber, H., Ed.; Routledge: London, UK, 2014; pp. 154–166.
11. Popov, V. Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms. Comp.
Econ. Stud. 2007, 49, 1–31. [CrossRef]
12. Kolodko, G.W. From Shock to Therapy: Poltical Economy of Postsocialist Transformation; Oxford University Press: Oxford, UK; New
York, NY, USA, 2000.
13. Chan, A.; Kerkvliet, B.J.; Unger, J. (Eds.) Transforming Asian Socialism: China and Vietnam Compared; Allen and Unwin: Sydney,
Australia, 1999.
14. Fforde, A. Vietnamese State Industry and the Political Economy of Commercial Renaissance: Dragon’s Tooth or Curate’s Egg? Chandos
Publishing: Oxford, UK, 2007.
15. North, D.C.; Wallis, J.J.; Weingast, B.R. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History;
Cambridge University Press: Cambridge, UK, 2012.
16. Khan, M.H. Political settlements and the analysis of institutions. Afr. Aff. 2018, 117, 636–655. [CrossRef]
17. Olson, M. The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities; Yale University Press: New Haven, CT,
USA; London, UK, 1982.
18. Lee, W. Structural Change, Balance of Payments Constraint, and Economic Growth: Evidence from Vietnam. Rev. Radic. Political
Econ. 2021, 53, 631–653. [CrossRef]
Sustainability 2023, 15, 10883 18 of 19

19. Niimi, Y.; Dutta, P.V.; Winters, L.A. Trade Liberalisation and Poverty Dynamics in Vietnam. J. Econ. Integr. 2007, 22, 819–851.
[CrossRef]
20. Le, M.S.; Su, J.-J.; Nguyen, J. Trade liberalisation, poverty, and inequality in Vietnam: A quantile regression approach. Appl. Econ.
2019, 51, 3971–3981. [CrossRef]
21. Heo, Y.; Doanh, N.K. Trade Liberalisation and Poverty Reduction in Vietnam. World Econ. 2009, 32, 934–964. [CrossRef]
22. Dollar, D. Reform, Growth, and Poverty in Vietnam. In Policy Research Working Papers; No. 2837, World Bank: Washington, DC,
USA, 2002. [CrossRef]
23. Ngo, C.N. Industrial Development, Liberalisation and Impacts of Vietnam–China Border Trade: The Case of the Vietnamese
Textile and Garment Sector. Eur. J. East Asian Stud. 2017, 16, 154–184. [CrossRef]
24. Long, P.D.; Ngoc, P.T.B.; Görg, H. Trade Liberalization and Labor Market Adjustments: Does Rent Sharing Matter? Emerg. Mark.
Financ. Trade 2021, 57, 1828–1841. [CrossRef]
25. Kien, T.N.; Heo, Y. Impacts of Trade Liberalization on Emplolyment in Vietnam: A System Generalized Method of Moments
Estimation. Dev. Econ. 2009, 47, 81–103. [CrossRef]
26. Bhattacharya, M.; Nguyen, K.T. Trade liberalization and the wage–skill premium: Evidence from Vietnamese manufacturing.
Econ. Transit. Institutional Chang. 2019, 27, 519–540. [CrossRef]
27. Fukase, E. Export Liberalization, Job Creation, and the Skill Premium: Evidence from the US–Vietnam Bilateral Trade Agreement
(BTA). World Dev. 2013, 41, 317–337. [CrossRef]
28. Ghosh, M.; Whalley, J. State owned enterprises, shirking and trade liberalization. Econ. Model. 2008, 25, 1206–1215. [CrossRef]
29. Vu-Thanh, T.-A. Does WTO Accession Help Domestic Reform? The Political Economy of SOE Reform Backsliding in Vietnam.
World Trade Rev. 2016, 16, 85–109. [CrossRef]
30. Acemoglu, D.; Robinson, J.A. Economic Backwardness in Political Perspective. Am. Political Sci. Rev. 2006, 100, 115–131.
[CrossRef]
31. Buchanan, J.M.; Tollison, R.D.; Tullock, G. (Eds.) Toward a Theory of the Rent-Seeking Society; Texas A&M University Press: College
Station, TX, USA, 1980.
32. Krueger, A.O. Free Trade Agreements as Protectionist Devices: Rules of Origin; Working Paper No. 4352; National Bureau of Economic
Research: Cambridge, MA, USA, 1993.
33. Bhagwati, J.N. Directly Unproductive, Profit-Seeking (DUP) Activities. J. Political Econ. 1982, 90, 988–1002. [CrossRef]
34. Baldwin, R.E.; Magee, C.S. Is Trade Policy for Sale? Congressional Voting on Recent Trade Bills; NBER Working Paper Series 6376;
National Bureau of Economic Research: Cambridge, MA, USA, 1998. [CrossRef]
35. Grossman, G.M.; Helpman, E. Protection for Sale. Am. Econ. Rev. 1994, 84, 833–850.
36. Zeng, K.; Sebold, K.; Lu, Y. Global value chains and corporate lobbying for trade liberalization. Rev. Int. Organ. 2020, 15, 409–443.
[CrossRef]
37. Grossman, G.M.; Helpman, E. The Politics of Free-Trade Agreements. Am. Econ. Rev. 1995, 85, 667–690.
38. Behuria, P.; Buur, L.; Gray, H. Studying political settlements in Africa. Afr. Aff. 2017, 116, 508–525. [CrossRef]
39. Kahneman, D.; Knetsch, J.L.; Thaler, R.H. Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. J. Econ.
Perspect. 1991, 5, 193–206. [CrossRef]
40. Thaler, R.H. Misbehaving: The Making of Behavioural Economics; Penguin Books: London, UK, 2015.
41. Booth, D.; Golooba-Mutebi, F. Developmental patrimonialism? The case of Rwanda. Afr. Aff. 2012, 111, 379–403. [CrossRef]
42. World Bank. Bureaucrats in Business: The Economics and Politics of Government Ownership; A World Bank policy research report;
World Bank Group: Washington, DC, USA, 1995.
43. Bischoff, I. Model uncertainty, political learning, and institutions: A broader view on Mancur Olson’s theory of institutional
sclerosis. South. Econ. J. 2007, 74, 34–49. [CrossRef]
44. Moe, E. Mancur Olson and structural economic change: Vested interests and the industrial rise and fall of the great powers. Rev.
Int. Political Econ. 2009, 16, 202–230. [CrossRef]
45. Tang, E.W.Y.; Alan Hedley, R. Distributional coalitions, state strength, and economic growth: Toward a comprehensive theory of
economic development. Public Choice 1998, 96, 295–323. [CrossRef]
46. Fforde, A. A Public Affair? Vietnam’s State Enterprise Sector: The ‘State Business Interest’ and Policy History. Eur.-Asia Stud.
2020, 73, 559–581. [CrossRef]
47. Lin, J.; Chang, H.-J. Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate
Between Justin Lin and Ha-Joon Chang. Dev. Policy Rev. 2009, 27, 483–502. [CrossRef]
48. Gainsborough, M. Changing Political Economy in Vietnam: The Case of Ho Chi Minh City; Routledge: London, UK, 2003.
49. Cheshier, S. The New Class in Vietnam. Ph.D. Dissertation, Queen Mary, University of London, London, UK, 2010.
50. United Nations. Correlaton and Conversion Tables Used in UN Comtrade. 2017. Available online: https://unstats.un.
org/unsd/trade/classifications/corr-notes/HS2017%20conversion%20to%20earlier%20HS%20versions%20and%20other%20
classifications.pdf (accessed on 15 April 2023).
51. General Statistics Office of Vietnam. Statistical Yearbook of Vietnam 2020; Statistical Publishing House: Hanoi, Vietnam, 2021.
52. Ngo, C.; Tarko, V. Economic development in a rent-seeking society: Socialism, state capitalism and crony capitalism in Vietnam.
Can. J. Dev. Stud. Rev. Can. D’études Du Développement 2018, 39, 481–499. [CrossRef]
Sustainability 2023, 15, 10883 19 of 19

53. United Nations Conference on Trade and Development (UNCTAD). World Investment Report 2013—Global Value Chains: Investment
and Trade for Development; United Nations: New York, NY, USA; Geneva, Switzerland, 2013; Available online: https://unctad.org/
en/PublicationsLibrary/wir2013_en.pdf (accessed on 28 March 2023).
54. Lall, S.; Weiss, J.; Zhang, J. The “sophistication” of exports: A new trade measure. World Dev. 2006, 34, 222–237. [CrossRef]
55. Dawkins, R. The Blind Watchmaker: Why the Evidence of Evolution Reveals a Universe Without Design; W. W. Norton & Company:
New York, NY, USA, 1996.

Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual
author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to
people or property resulting from any ideas, methods, instructions or products referred to in the content.