Great Opportunities from FTAs and Incoterms 2010

According to the Ministry of Industry and Trade, Vietnam is so far involved in eight FTAs, both bilateral and multilateral, and in the negotiation process for six others, of which the Trans-Pacific Partnership Agreements (TPP) is scheduled to be completed by the end of 2013 and the Regional Comprehensive Economic Partnership (RCEP) by 2015. If Vietnam fully implements these agreements, by 2018, the country's GDP will have increased at the rate of 3 percentage points/year, for a net benefit US$2.4 billion/year.

 

According to Mr Do Xuan Quang - Chairman of VLA and President of ASEAN Federation of Forwarders Associations, it’s clear that most of Vietnam’s enterprises now have gained a comprehensive vision of the supply chain to take full advantage of preferential tariffs, the raw materials’ origin, distribution market, etc, as well as to stay proactive in negotiating purchase method, transport and logistics. So making the best use of FTAs in the current situation also means seizing opportunities to develop export and logistic services. Vietnam’s enterprises have been increasingly proactive and aggressive in taking advantage of tariff preferences, especially in issuing certificates of origin (C/O), an important document for import - export, to ensure their preferential treatment in the FTA. The preferential rate of Vietnamese goods is higher than other regional partners and tends to increase over the years with high-value orders. Mr Quang drew a good example of trade with South Korea, of which more than 90 percent of Vietnam's exports enjoy preferential tariffs through the ASEAN - Korea FTA. In 2012, Vietnam’s export to some FTA partners enjoyed remarkable growth, of which exports to ASEAN gained about 27.2 percent, Japan 39 percent and South Korea 18 percent, raising the total export value to US$53.5 billion. It’s expected that after the negotiations of the TPP and the European Union FTA, the contribution from FTA exports will greatly expand, to about 86 percent of the country’s.

 

"To overcome the current difficult situation and achieve the target of US$126.1 billion export in 2013, enterprises should see the advantage of preferential tariffs through the FTA between Vietnam and other countries as a key factor to increase exports to various markets," said Mr Hiep. In addition to the expansion of export-import and investment, logistics services over the last few years have also been nurtured and had quite considerable growth averaging 20 percent/year (higher than the past years), withstanding the impact of the global crisis and economic downturn. Apparently, making the best use of FTAs’ preferential conditions is an opportunity not only for Vietnam’s export-import businesses but also for the logistics.

 

According to Lawyer Truong Trong Nghia, while the world has long been adopting the Incoterms 2010, foreign trade practices in Vietnam still maintain the outdated method "sell FOB and buy CIF". Right now Vietnam’s businesses are not fully updated on yearly tariff reduction commitments between Vietnam and FTA partners, and also do not have or fully understand information on Incoterms 2010. Therefore, applying Incoterms 2010 while taking advantage of the FTA preferential treatment would be the best practice for the current situation. "It's time for Vietnam’s export businesses to change their mind-set and seize opportunities in flexible ways, for this instance, efficiently employing bilateral and multilateral FTAs to promote the preferential treatments. Especially the combination of FTA and Incoterms 2010 in trade negotiation will help manage risk, reduce the cost of goods and services, and increase businesses’ competitive advantage of supply chain, in the end contributing greatly to economic development," emphasised Mr Nghia.

 

As for logistic enterprises, adopting Incoterms 2010 to proactively choose the most beneficial trade methods will provide them the ground and opportunity to access and provide transportation - logistics services suitable with the requirements and characteristics of export commodities with the right cost, and at the right time and right place. Different from the habit ‘buy CIF, sell FOB’, when giving the trade partner control of transportation - logistics sometimes causes damages, or increase the cost and risk to import-export business, "combining FTA and Incoterms 2010, to regain a proactive standing in transportation - logistics for Vietnam’s import - export and logistics enterprises is truly a wise practice," confirmed Mr Hiep.