Features

Membership to the World Trade Organisation (WTO) raises a number of issues for Vietnam’s labour market. The way in which these issues are resolved will have a large impact on any firm doing business in Vietnam, as well as on the country’s performance in international markets. As a consultant on the WTO and labour issues, Maj Aslett-Rydbjerg of the International Labour Organisation (ILO), reflects on some of the challenges and opportunities facing Vietnam.

One of the driving forces behind Vietnam’s economic reform has been integration into the world economy. Vietnam’s imminent WTO accession will take the reform agenda one step further, due to the encompassing nature of the commitments it implies. WTO membership will not only reshape production patterns and economic structures, it will also have broad implications for the terms and conditions under which Vietnamese labour currently works.
Although the WTO framework does not include technical commitments on labour and social issues, WTO membership is likely to boost Vietnam’s transition to a market economy. One implication is increased expectations from trading partners that the supply, demand and “price” of labour will be governed by market principles within a legal framework, ensuring that labour does not become a commodity. This raises a whole range of issues in relation to labour market institutions, such as labour law, wage-setting practices and systems for industrial relations, social protection, and training and re-training.

Labour laws and working conditions
With WTO accession, the expectations that the Government of Vietnam actively promotes international labour standards and sound management practices are likely to become more stringent. Generally, international labour standards aim to make labour markets function more smoothly, more predictably and more in line with productivity, while ensuring that everybody gets a fair share of the wealth they are helping to generate.
Poor working conditions can hamper trade as governments use labour standards as non-tariff barriers to protect their own interests. Similarly, a growing number of buyers in developing countries raise questions about labour standards to protect their image or the reputation of their brands in domestic markets.
Furthermore, poor working conditions, for example related to housing facilities for migrant workers or wage payments, can lead to anti-dumping complaints from other WTO members. In contrast, the adoption and enforcement of labour laws can boost competitiveness, attract foreign investment and facilitate trade through, for example, the Generalised System of Preference used by the US and the EU to give qualified developing countries additional tariff reductions. Labour standards are one of the key factors evaluated in deciding whether or not to extend the favourable treatment.

Changes to wages
WTO accession may affect wages and wage policy in three important ways. Firstly, further economic integration can increase wage disparities between skilled and unskilled workers, between the formal and informal economy, and between rural and urban areas. When international investment and trade grows, the demand for skilled labour normally increases rapidly, while the supply of such labour remains low relative to demand as it will take time to catch up, causing wages to rise. WTO accession will enhance the opportunities of the formal economy and the urban areas to access global markets while the informal economy and rural areas are confined largely to the domestic markets with lower purchasing power and added value.
Secondly, Vietnam may face questions raised concerning wages in the context of anti-dumping complaints due to current wage-setting practices. WTO rules do not allow governments to intervene in the micro-management of wages at an enterprise level. Wages, as well as other terms and conditions of work, must be determined according to market principles. This means, they must be negotiated in good faith between employers and workers collectively, if workers so wish.
Collective bargaining practices are underdeveloped in Vietnam and, as a result, collective agreements are often a replication of the legal minimum conditions determined by the state, rather than reflecting the terms and conditions of employment specific to enterprises or sectors. Lastly, Vietnam’s current dual minimum wage system will have to be abolished as it contradicts WTO rules, which implies that Vietnam cannot discriminate between domestic and foreign enterprises.
Industrial relations and actors
WTO accession may increase the push for change to the present industrial relations system, in particular what existing WTO members regard as the close ties between trade unions and the state. Together with the intensification of international economic integration, this will oblige social partners to redefine their role in the market system.
A key issue of concern is related to the ability of trade unions to engage in collective bargaining based on the mandate they receive from their members. Furthermore, the structural changes following WTO accession highlight the importance of sound industrial relations, as stakeholder involvement is likely to smooth the process of change.
Involving social partners in the policy process and strengthening their capacity is likely to promote better labour relations in the workplace and a more stable labour market, which is important for continued economic growth and a crucial factor in foreign investors’ decisions to engage or expand their businesses in Vietnam.
At the same time, labour dispute settlement machinery needs to be modernised, as conflicts are more likely to arise due to accelerated structural changes.
WTO accession will increase the international dimension of the issues dealt with by social partners. The evolving international norms and the potential actions of foreign competitors in the international business environment, and the constraints imposed on enterprises by consumers and other stakeholders, are important elements of the global environment that tripartite actors must take into account.

Social security and social safety net
WTO accession will increase the need for social protection mechanisms that accompany the shift in employment and keep inequalities in check. Structural changes invoked by WTO accession may initially cause a rise in unemployment as downsizing or closing of inefficient firms will add to the number of jobless citizens. In addition, economic integration is expected to facilitate a shift in production towards capital- and technology-intensive goods, which will require fewer workers in manufacturing sectors. From a broader poverty perspective, it seems likely that the central issue of concern will be the impact on the rural economy. Poverty is most prevalent in rural areas, and rural workers currently face barriers moving into sectors that are more likely to expand as a result of increased trade. In particular, ethnic minority groups will be vulnerable to the affects of WTO accession. The poverty level among ethnic minorities is disproportionately high and they may also face constraints in terms of discrimination and less access to both soft and hard infrastructure.
The urban labour market is relatively flexible, which reduces the social cost of job churning as retrenched workers have good chances of finding work with a different employer. The problem is that jobs are not all equal, for instance in terms of access to social insurance. Churning may imply that some workers lose “good” formal sector jobs and end up in the informal sector.
In order to maintain social, political and economic stability, Vietnam must ensure that WTO accession and further economic integration does not substantially affect the livelihoods and opportunities of redundant workers and workers in poor rural areas. This raises concerns about the coverage of the existing social security system, as well as its ability to cope with adverse impacts concentrated over a short time period or particular regions, and with workers who are increasingly mobile occupationally and geographically.

Training and retraining
Labour is key to the competitiveness of the Vietnamese economy and it is the main asset in the country’s drive for economic development. Low wages also makes it one of the main sources of international competitiveness but this advantage will fade as development progresses, and competitiveness will increasingly depend on management capacity and the quality of human resources. While the literacy level is high in Vietnam, the proportion of trained workers remains low by regional standards.
The three major challenges in terms of WTO accession are likely to be, firstly, the preparedness of the Vietnamese labour force to seize the opportunities afforded by WTO accession. Upgrading skills and extending them into new areas is one part of the equation. The other part is ensuring that the labour force has the right skills mix. Management capacity in terms of capacity to plan and manage complex organisations, languages and cultural skills relevant to negotiation are areas where the existing labour force is weak. In addition, it is important to develop core skills for workers in areas where there is potential for expansion.
The second challenge is re-training of redundant workers to enhance their chances of finding new employment. The last challenge is the development of labour market forecasting and information systems. Education and training programmes should be better linked to the development on the labour market to enhance workers’ employability and maximise the effectiveness of public resources invested in training.
I believe the way in which these issues develop and are resolved will have a large impact on any firm looking to expand or get involved in Vietnam, and in Vietnam’s ability to perform in the international markets. The skill and capacity of the Vietnamese government and the social partners to fully appreciate the broader implications of WTO accession, and their ability to respond with appropriate policies that complement trade policy reform is therefore essential to Vietnam’s successful integration into the WTO.


No. 747/February 6-12, 2006