Last updated: Thursday, March 23, 2017
Export 2017: Not Many Opportunities from RCEPPosted: Thursday, February 16, 2017
Positive impacts of the Regional Comprehensive Economic Partnership (RCEP) on Vietnam's exports will not be as strong as expected with the Trans-Pacific Partnership (TPP).
However, if Vietnam effectively taps free trade agreements signed with other partners such as ASEAN, South Korea and the European Union, its exports are still posed for substantial growth in 2017.
2016: Export and import growth slowed
By structure, exports made by foreign direct investment (FDI) companies still increased significantly from the previous year, for example, telephones and components (up 14.4 per cent), garment and textile (3.3 per cent), electronics, computers and components (18.4 per cent.). The export of agricultural products and raw materials decreased in both price and volume. Specifically, crude oil prices fell 36.7 per cent while the volume shrank 24.2 per cent. Rice export slumped 21.7 per cent in value and 25.7 per cent in volume. Cassava export sank 24.3 per cent in value and 10.9 per cent in volume.
Despite a slightly higher growth than 2015, the export growth in 2016 remained relatively low in the past six years, caused by global economic performances. In addition, Vietnam's export and economic performances largely depend on the FDI sector, which makes up for 70 per cent of export value. This makes Vietnam passive and vulnerable to external changes. For example, the recall and termination of Samsung Galaxy Note 7 partly caused an export slowdown in the fourth quarter of 2016 since telephone and parts export value grew only 14.4 per cent in 2016, compared with a 30 per cent growth in 2015.
Meanwhile, the import value was estimated at US$173.3 billion in 2016, up 4.6 per cent against 2015 (significantly lower than the growth of 12 per cent in 2015). If price factors were excluded, the import value would reach US$183 billion in 2016, up 10.5 per cent year on year (still lower than the growth of 18.9 per cent in 2015). Import slowdown was caused by input materials and consumer goods, which respectively grew only 4.4 per cent and 6.8 per cent in 2016, compared with 12.3 per cent and 10.4 per cent in 2015. The slowing import growth was reflected by decelerated domestic production and consumption in 2016.
Given above export and import performances, Vietnam ran a trade surplus of US$2.68 billion in 2016. However, the surplus was taken by lowering imports rather than export performances. Vietnam still incurred the biggest deficit in trade with China with US$28 billion in 2016 although it reduced 15 per cent from a year earlier. Meanwhile, trade deficit with South Korea and ASEAN rose 8 per cent and 12.5 per cent, respectively. The biggest trade surplus to Vietnam remained the United States with US$29.4 billion, up 14.8 per cent on year, and the European Union (EU) with US$22.9 billion, up 12.3 per cent.
2017: Opportunities from signed trade agreements
As an ASEAN member, Vietnam also joined RCEP Agreement negotiations. However, despite the early completion of negotiations and signing in 2017, RCEP is unlikely to replace the TPP with respect to boosting exports because of similar exports among signatories.
Basically, TPP and RCEP signatories are quite similar. The only difference is that, apart from ASEAN, Japan, Australia and New Zealand, TPP includes the US, Canada, Chile, Peru and Mexico while RCEP adds China, India and South Korea.
If TPP is not enforced, Vietnam will lose the opportunity to make deeper inroads into North American markets, mainly the US. In 2016, Vietnam exported US$38.1 billion of commodities to the US, accounting for 21.6 per cent of the country’s export value. Meanwhile, RCEP gives more opportunities to Vietnam to access China, India and South Korea. In 2016, the country’s exports to these three markets valued US$36 billion, or 20.4 per cent of its export value. However, it should be noted that RCEP is inclined to synchronisation and harmonisation of FTAs signed by ASEAN and its partners. Tariff reductions are indeed executed in effective FTAs in existence.
As for South Korea, Vietnam also has a bilateral FTA under which many tariff lines have been cut. In addition, as for partners in RCEP, Vietnam largely suffers trade deficit, especially with China (as opposed to its ongoing trade surplus with the US in TPP). Therefore, Vietnam is likely to run more trade deficit if RCEP comes into force.
For the reasons above, RCEP’s positive impacts on Vietnam's exports will not be as strong as expected with TPP. However, if Vietnam effectively taps free trade agreements signed with other partners such as ASEAN, South Korea and the European Union, its exports are still posed to substantial growth in the coming time.