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Economic Sector

Last updated: Tuesday, March 26, 2019

 

65.8% of Tariff Lines Eliminated as CPTPP Takes Effect

Posted: Wednesday, December 26, 2018


Entering the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam will earn lower tax revenue as imports are subject to tariff cuts. However, the impact will not be sudden as seven out of 10 CPTPP signatories already have free trade agreements (FTAs) with Vietnam, but the roadmap for tariff reduction will be a long run, according to the Ministry of Finance.

As for import duties, Vietnam is committed to a common tariff for all CPTPP countries, with 65.8 per cent of tariff lines subject to zero as soon as the pact enters into force, 86.5 per cent subject to zero in the fourth year from the effective date of the deal, 97.8 per cent imposed zero tax in the 11th year from the effective date. Import duties on remaining merchandise will be abolished with a longer roadmap or imposed tariff quotas.
The CPTPP average tariff rate is 5.8 per cent in 2019, significantly higher than the rates applied according to 10 FTAs that Vietnam entered. However, given steep tax cuts, the average rate will be just 0.3 per cent in the final year of the tariff reduction roadmap (2029), much lower than other FTAs in the last year of the tax cut roadmap (ASEAN-China FTA, 3 per cent; ASEAN-South Korea FTA, 4.1 per cent; and ASEAN-Australia-New Zealand, 2 per cent).

According to forecasts by the Ministry of Finance, commodities will commercially shift to CPTPP partners, for example, Australia - New Zealand: alcohol, steel, pharmaceuticals and meat; Japan: seafood, steel, automobile spare parts, automobiles, machinery and equipment, wine; Chile: confectionery, alcohol, steel, transport means and spare parts; Peru: aquatic products, vegetables and fruits; Mexico: meat, seafood, animal and plant fats, garments and textiles, alcohol and plastic products; Canada: wheat, corn, milk, chemicals, car parts, alcohol, confectionery, machinery and equipment.

On export duties, Vietnam is committed to eliminating taxes on most exports to CPTPP partners with a 15-year roadmap dated from the effective date of the CPTPP. Remaining important exports will continue to be levied duties and apply ceiling rates will be imposed on coal, crude oil and minerals (70 items).

Tariff cuts on imports will reduce tax revenue. However, the impact will not be sudden as seven out of 10 CPTPP signatories (Australia, Brunei, Chile, Japan, Malaysia, New Zealand and Singapore) have already signed free trade agreements (FTAs) with Vietnam and only three (Canada, Mexico and Peru) have not, according to the Ministry of Finance. Meanwhile, Vietnam is entitled to export tax on some high-valued commodities such as crude oil and some minerals, so impacts are not large.

On the economic front, according to the Government of Vietnam, the market of CPTPP countries is large, their GDPs accounting for 13.5 per cent of global GDP, including Japan - the third largest economy in the world. Hence, the CPTPP entry is beneficial for Vietnam. The CPTPP can help Vietnam's GDP and exports increase by 1.32 per cent and 4.04 per cent till 2035, respectively. Total imports may also climb by 3.8 per cent, lower than exports, thus producing good impacts on the balance of trade. High CPTPP commitments also facilitate economic reforms, drive Vietnam to rebuild its economic institutions, and create a new business environment. Joining the CPTPP together with other relatively developed countries will also open opportunities for Vietnam to attract capital, utilise advanced science and technology from these countries to catch up with the Fourth Industrial Revolution.

Le Hien








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