The “Vietnam Business towards AEC 2015” Forum drew a broad attendance of businesses as the ASEAN Economic Community (AEC) is officially formed on January 1, 2016. Many companies have high demand for information and increasing awareness and understanding of positive aspects and impacts of the ASEAN Trade in Goods Agreement (ATIGA) and advantages and challenges before they integrate more deeply into the regional playground.
AEC is basically duty free
In his opening speech to the forum, Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said that there are four elements that form the AEC: free flow of goods, services, investment and capital. Basically, AEC structure is quite loose, he said. AEC is an integration process, not an agreement and is a desire, not an obligation of the ASEAN Economic Community. Thus, the AEC is a process and January, 2016 is a moment of time to declare the formation of AEC and is the beginning in the course of building the ASEAN Economic Community. It takes quite a long time to build an economic community like the EU.
Among free trade agreements (FTAs), AEC tariff reductions are currently the highest, higher than both the TPP and other FTAs. The commitment to the free flow of goods and the free flow of services is also the highest.
He said that opportunities for businesses following the formation of the AEC are opening up the market for businesses and creating a new impetus and motivation for them. However, the AEC will also bring about numerous challenges, for instance businesses will have to compete with foreign rivals from a lower level of development, lower service, labour mobility and capital flow management challenges.
Mr Le Trieu Dung, Deputy Director of the Multilateral Trade Policy Department under the Ministry of Industry and Trade, said there are four main reasons for countries to advance this integration, namely market expansion for exports, investment facilitation, employment and domestic reform. The AEC is constructed on the basis of existing commitments, including ASEAN Trade in Goods Agreement (ATIGA) 2009, ASEAN Framework Agreement on Services (AFAS) 1995, ASEAN Comprehensive Investment Agreement (ACIA) 2009, ASEAN Agreement on the Movement of Natural Persons (MNP) 2012, ASEAN - China Free Trade Agreement (FTA) 2004, ASEAN - South Korea FTA 2006, ASEAN - Japan FTA 2008, ASEAN - India FTA, ASEAN - Australia and New Zealand FTA 2009; and other cooperative efforts.
The overall objectives of the AEC are to build ASEAN into a cohesive community of political links, economic links, social responsibility and expansive external cooperation on the legal basis of the ASEAN Charter.
Mr Nguyen Hong Cuong, Director of ASEAN Department under the Ministry of Foreign Affairs said that the AEC is basically a tariff-free zone, a single market and a unified production base where there are the free flow of goods, services, investment, capital and skilled labour and there are high competition and equitable development.
He added that the AEC results from ASEAN cooperation to date based on the primary common denominator of interests of member states and has a higher degree of cohesion than agreements. It is not as close as the EU and is not a supranational organisation. Indeed, the AEC is a common community of unity in diversity because there are still considerable differences among member states, especially political regimes, development levels and complex strategic approaches in relations with powerful countries.
Opportunity to escape middle income trap
Mr Cuong said that the formation of AEC in 2015 and the implementation of the ASEAN Community Vision 2025 beget intertwined opportunities and challenges for Vietnam. In general, opportunities are basically benefits gained from ASEAN cooperation in the past 20 years but those benefits will be bigger and more specific while challenges will increase, and be more direct.
For businesses, their opportunities come from a broader and more favourable business environment and a bigger consumer market where they will have better conditions to enhance their competitiveness by means of scale, productivity and cost reduction and they will also be able to invest in other ASEAN countries more easily. However, they will have to compete fiercely, even right the domestic market and lowly competitive companies will be unlikely to engage in supply chains of high value and good profitability.
People will enjoy practical benefits such as more choices of goods and services at lower prices and higher quality; more opportunities to seek highly skilled jobs in ASEAN countries (so far, ASEAN has signed the Agreement on the Movement of Natural Persons and eight agreements on mutual recognition of eight occupations: accountant, engineer, architect, dentist, doctor, nurse, transport and tourism); more convenient travelling in ASEAN (visa exemption for 15-30 days' stay); and certain benefits from the improvement of social security networks. However, they will also face some challenges, especially fiercer competition for skilled jobs, even in Vietnam.
Dr Vo Tri Thanh, Deputy Director of Central Institute of Economic Management (CIEM), noted that ASEAN is an interesting playground because it is part of the global value chain. ASEAN is not only business but also cooperation. "On this playground, businesses will have a lot of advantage because many SME support programmes will be introduced. These programmes not only teach how to make money but also guide us how to make money in a greener, more sustainable and more accountable manner," he said.
Thanh said ASEAN beyond 2015 will be greener, more sustainable, more innovative, more intelligent and more resilient. Together with free trade agreements, this is an endless horizon for SMEs because in addition to the common trend of business grouping, ASEAN tends to focus on personalisation and individualisation, which is very fit to Vietnamese people.
He affirmed that "This is a 'windfall' opportunity for Vietnam to escape the middle income trap. If it fails to grasp this opportunity, Vietnam will not be able to escape the middle income trap 5-7 years. We have to think how to move the steps on the chess board. It is time for us to change our plays of game to be the winner on the playing field of integration."
Dr Pham Thi Thu Hang, VCCI General Secretary
The AEC, a market with 600 million people, is forecast to have a GDP of US$4.7 trillion in 2020 and potentially become the fourth largest economy in the world in 2030. This will open up so many new opportunities for businesses in Vietnam. Moreover, Vietnam is a connection point between the AEC with EU member countries and TPP member countries (as it signed FTAs with them). Very few ASEAN countries have this plus.
However, Vietnamese companies have shown some major limitations, including low labour productivity caused to difficultly developed private sector and shallow participation in global value chains. Worryingly, while they are aware of new economic and commercial commitments and they are very optimistic about FTA prospects, they hardly see the downside of FTAs.
Therefore, in this integration process, companies must inevitably have proactive measures to upgrade governance and build a strategic business vision. Never in Vietnam do the business community in general and the SME community in particular need to join hands together in value chains and supply chains as now to enhance the value and capacity to meet ASEAN market demands and the world market to a greater extent. Then, they need to change the organisation and operation of business associations and industry associations and take part in business associations and industry associations in the region. This will certainly be a high priority if Vietnam wants to compete face to face with ASEAN businesses and create synergised forces following the formation and operation of the AEC to bring in benefits to Vietnamese companies and the economy as a whole.
Mr Tran Thanh Hai, Deputy Director of Export Import Department under the Ministry of Industry and Trade
The Government plays a path-opening role for companies to follow. However, companies still take tentative steps on this path because they are too weak. The Government thus needs to lead and guide them on. For that reason, trade facilitation plays a vital role now.
Companies are now looking to see how the Government will support them. The Government has slashed tariffs as well as procedures, and apply modern information technology to activate the single-window mechanism. The self-certification of origin is praised for its helpfulness and practicality to businesses.
Mr Ngo Minh Hai, Deputy General Director of TH Truemilk Group
The AEC integration will facilitate Vietnamese companies to join global value chains as each member country has its own FTAs with other partners. Then, markets are open and competitive pressures also escalate. To stand firmly on this challenging environment, we should not focus too much on defining our comparative advantages over other markets in the region but we need to concentrate on our own internal resources. TH Truemilk Group is confident when it engages into these value chains with its internal forces and stature.
However, the Government is a guide for companies in the course of international integration by providing a healthy competitive environment and a clear and transparent legal framework. Only transparency can protect decent companies and only decent companies will be able to make inroads into global markets in a steady manner.
Quynh Chi
Vietnamese
