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Last updated: Wednesday, February 22, 2017

 

FTAs: Plentiful Opportunities - Tremendous Challenges

Posted: Monday, February 13, 2017


In 2016, Vietnam concluded, signed, ratified and enforced many free trade agreements (FTAs) and international economic cooperation frameworks with major trading partners like the enforcement of the Vietnam - Eurasian Economic Union (EAEU) FTA, the enforcement of Vietnam - Korea FTA and the official operation of ASEAN Economic Community.
Besides, Vietnam continued its negotiations for other FTAs and economic cooperation frameworks such as ASEAN - Hong Kong, Vietnam - EFTA and Vietnam - Israel; ratified ASEAN - United States cooperation in transparency and good governance of international investment; established mechanisms for ASEAN - Canada Annual Policy Dialogue. The country also negotiated to upgrade and develop more contents and commitments in signed FTAs and international economic cooperation frameworks such as ASEAN+ FTAs, WTO, APEC, ASEM and ASEAN Japan Comprehensive Economic Partnership Agreement.
 
FTAs and international economic cooperation frameworks have widened Vietnam’s tariff liberalisation degree with FTA partners, specifically, approximately 93 per cent in ASEAN Trade in Goods Agreement (ATIGA), 84 per cent in ASEAN - China FTA, 78 per cent in ASEAN - Korea FTA, and 62 per cent in ASEAN - Japan FTA.
 
World-standard customs management systems have enabled trade facilitation and created positive impacts on importation and exportation of Vietnam. For example, according to the overall roadmap of the ASEAN Economic Community (AEC), Vietnam cooperated with ASEAN countries to ratify the deployment of two pilot projects: A project on self-certification of origin and establishment of non-tariff barrier (NTB) settlement and a project on non-tariff measures (NTM)-hindering impacts on trade. The Ministry of Industry and Trade actively collaborated with the General Department of Vietnam Customs and relevant bodies to connect five administrative procedures with the National Single Window (NSW) to facilitate exporters.
 
As a result of FTAs, Vietnam’s import markets have kept expanding and diversifying to reduce its reliance on traditional markets of raw materials, thus helping accelerate economic restructuring.
 
In recent years, Vietnam’s trade deficit with East Asian countries, especially China, is high. Therefore, Vietnam needs to have commercial relationships with various partners to offset trade deficit, reduce pressures on balance of payments and maintain the value of Vietnamese dong. With the official enforcement of Vietnam - EAEU FTA, Vietnam can access a vast market formed by five countries of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan with a combined GDP of US$2.2 trillion and 183 million people. Pressures of trade deficit with China will be eased as a result.
 
FTAs will help Vietnam draw more foreign direct investment (FDI) capital. Investors can access and enjoy tariff incentives from Vietnam’s trade partners such as ASEAN, China, South Korea and India. In 2016, South Korea’s FDI capital into Vietnam reached a record of US$5.5 billion invested in 828 projects as KVFTA went into effect.
 
The ASEAN Economic Community (AEC) officially went into operation. According to the Ministry of Industry and Trade, the current intra-bloc trade value accounted for only 24 per cent. As for Vietnam, its export and import values with ASEAN accounted for only 10 per cent and 20 per cent respectively. In addition, many AEC countries are also WTO members and AEC-boosted trade growth was insignificant. Thus, in the short term, AEC impacts on Vietnam will be trivial.
 
Integration commitments create opportunities on the one hand but poses considerable challenges to Vietnam on the other. In particular, countries are imposing more technical requirements on Vietnam’s exports and create trade barriers to Vietnam’s exports.
 
Worryingly, Vietnam is showing signs of lagging behind. Its economic level is lower than that of important trade partners in ASEAN bloc such as Singapore, Malaysia and Indonesia. Worse, the competitiveness of Vietnamese companies is also very low. According to the General Statistics Office (GSO), up to 73.86 per cent of private companies are rated small, with a registered capital of less than VND10 billion. Subsequently, they are unable to invest much in technological upgrading to sharpen competitive edges.
 
Growing competitive pressures on domestic enterprises are resulted from the increased presence of cheaper and better imports from other countries as well as the increased supply of foreign firms at the back of service market opening. In fact, FDI companies have taken up 17 per cent of retail market share at trade centres and supermarkets, 70 per cent of retail market share at convenience stores, 15 per cent of retail market share at mini-marts, and 50 per cent of online retail market share.
 
Joining many FTAs, Vietnam may face the risk of losing control of imports due to ineffective technical barriers. Vietnam will become a consumer market of poor-quality products.
 
Huong Giang





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