New generation free trade agreements as a driver of institutional change: A case of Vietnam

Abstract

Institutional change, which, according to new institutional economics, is a precondition to economic development, is caused by several forces. In addition to destiny defined as ‘path dependence’, strategic choice understood as overall policy direction of the country, there are external forces named as ‘switchmen’, which might have decisive impact on the direction of the institutional change. This political economy analysis investigates the role of ‘new-generation free trade agreements’ (NGFTAs) as ‘switchmen’ in the process of institutional change using the case of Vietnam. Vietnam was selected as it is the fastest integrating developing country in Asia and a participant in most regional economic integration projects. The paper focuses on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) as the most advanced trade agreements ever concluded between developed and developing economies. Findings are based on selected ‘new generation’ provisions of the CPTPP and EVFTA, confirming the ‘switchmen’ role of the agreement in institutional change and the new institutional arrangement of Vietnam. Thus, despite the political constellations and stakeholders’ interests, NGFTAs are the decisive impulse for profound institutional change in Vietnam, which would not be possible without NGFTA commitments.