Removing Barriers to Increase Exports to Australia

11:24:05 AM | 5/9/2019

As one of the 20 largest economies in the world and one of the 10 most attractive destinations for global FDI flows, Australia has become one of the very potential export and investment markets. Vietnam and Australia join many common free trade agreements (FTAs), but Vietnam's export value to Australia is still quite modest.

Much room for exports

Vietnam and Australia have just joined a new FTA, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), effective from early 2019 for Vietnam. This FTA has the highest degree of liberalization and largest commitments ever for Vietnam. In CPTPP, Australia has more commitments to open markets for goods, services, investment and labor for Vietnam compared to the ASEAN Australia New Zealand Free Trade Area (AANZFTA), and opens up new opportunities for Vietnam's exports to this market.

The average two-way trade value of Vietnam and Australia in the last 10 years only accounted for 1.8% of Vietnam’s total exports and 1.7% of Australia’s total imports.

In 10 years from 2005, the two-way trade value doubled, from US$3 billion to US$6 billion.

However, at the Workshop on “Australian market potential: From Comprehensive and Progressive Agreement for Trans-Pacific Partnership - CPTPP” held by the WTO Center, the Vietnam Chamber of Commerce and Industry (VCCI) in cooperation with Aus4Skills Program - Australia Global Alumni, Ms. Phung Thi Lan Phuong, Director of FTA Department at the WTO Center, said that, in the last 10 years, Vietnam's commodity exports to Australia have not made any major breakthroughs. Australia is the 12th largest importer of Vietnam and Vietnam is the 14th partner of Australia by both import and export. The average two-way trade value of Vietnam and Australia in the last 10 years only accounted for 1.8% of Vietnam’s total exports and 1.7% of Australia’s total imports.

Vietnam's export growth to Australia is lower than Vietnam's average export growth although Australia is an FTA partner of Vietnam. Let alone, Australia's import structure and Vietnam's export structure are not really complementary.

Australia's main imports include nuclear reactors; boilers; mechanical machinery and equipment; mineral fuels, mineral oils and products distilled from mineral oils; electric machines; recorders and sound/image reproducers; medicines; optical and cinematographic instruments; ships, boats and floating structures; natural or cultured pearls, precious stones; precious metals; and plastics and plastic products.

Meanwhile, Vietnam’s main exports are electric machines and electrical equipment, footwear, apparels, furniture, tools, topical and cinematographic equipment, fish and crustaceans, fruits, coffee, tea and spices.

However, the room is still vast for Vietnamese exports such as crude oil, screens and projectors, footwear, coconut, cashew nuts, automatic data transfer/processing machines, printers, photocopiers and facsimile devices.

Why are Vietnam's commodity exports to Australia limited? According to Ms. Phuong, Vietnam’s traditional exports are not of high demand in Australia.

Besides, Vietnam's products have not met Australia's strict requirements. According to a report by the Vietnam Trade Office in Australia, Australia is among the markets with strictest regulations on quarantine and hygiene products in the world. Meanwhile, Vietnam is among the top 10 countries with the highest number of rejected agricultural products in Australia in 2003 - 2010.

In addition, Australia’s adoption of non-tariff measures (NTM) was 61.8% in 2015, higher than the average of 43.04% of 75 countries surveyed (WITS, WB, 2015). AANZFTA benefits may not offset additional export costs to Australia. According to statistics, the utilization rate of AANZFTA tariff preferences by Vietnamese companies was 8.8% in 2010, 15.9% in 2011, 28.1% in 2015, 34% in 2016 and 33% in 2017.

Service and labor export fails to meet requirements

In the past 10 years, Vietnam's service export to Australia doubled but the value is still very limited. Currently, Vietnam ranks 4th in ASEAN in service export to Australia, mostly outbound tourism.

Ms. Phuong said the service sector of Vietnam is lowly competitive. Services account for only about 40% of total GDP, compared with the 50% in developing countries and 70% in developed countries. The service market has not really opened. According to many studies, if trade in service restrictions are high, low service exports result from limited market information and compliance with foreign regulations.

Australia is among the 10 largest importers of Vietnamese labor. Vietnam sent 606 workers to Australia in 2012 and this figure jumped to 1,021 workers in 2015 and 960 in 2016. The number of Vietnamese skilled workers entering Australia in 2017-2018 for temporary work reached 859.

Temporary jobs of Vietnamese workers in Australia in 2017 - 2018 are mainly cooking, accounting, restaurant and café management, baking, lecturing and lecturing assistance, meat processing, software and application programming, retail management and hotel management.

The limited mobility of Vietnamese workers to Australia is attributed to Australia’s tightening policies on foreign workers. From April 18, 2017, the new temporary labor visa was changed with more stringent requirements. Besides, there is fierce competition with workers from other countries with better English command, skills and experience.

Market opportunities from CPTPP

Vietnam's export opportunities will increase when 93% of tariff lines are eliminated immediately after the CPTPP takes effect. The remainder will be removed in 3-4 years (plastics, rubber, apparels, footwear, iron and steel, automotive components, machines and furniture). Only used cars will be abolished 5% tax on value but subjected 12,000 AUD on each product.

Specifically, the roadmap for Australia to reduce tariffs for Vietnam: From January 14, 2019, tariff reductions will be applied to the Roadmap - Year 2; from January 1, 2020, tariff reductions will be applied to the Roadmap - Year 3, and from January 1, 2021, tariff reductions will be applied to the Roadmap - Year 4. The following years will be subject to the next sequential order. Australia will also eliminate all tariffs for Vietnam (except used cars) from 2021.

Australia's commitments on tariff reduction on some key export products of Vietnam in CPTPP: Fruits and vegetables (abolishing all tariff lines immediately upon the enforcement of CPTPP, except for one product (bamboo shoots - coded HS 2005.91.01) will be imposed the current MFN tax rate of 5% until being eradicated in the fourth year of CPTPP enforcement (i.e. 2021). Tea, coffee, cashew nuts, pepper, sugar, milk, honey, seafood will have tariffs removed immediately after the CPTPP takes effect. Apparels and footwear will have most tariff lines removed after the effectiveness of the pact. Remaining tariff lines will be eliminated within four years. Timber and wooden products will have most tariff lines eradicated immediately after the CPTPP takes effect and a few will be freed in the third or fourth year.

However, according to many experts, what inhibits Vietnamese exporters, investors and workers from taking advantage of CPTPP is insufficient information and guidance on FTA commitments in general and CPTPP in particular.

Moreover, Vietnam lacks resources to embrace opportunities. The adoption of new technologies of Vietnamese industrial manufacturing and processing companies ranked 122nd out of 144 countries; and Vietnam’s readiness for new technology ranked 123rd out of 144 (UNIDO, 2016). 86.2% of businesses have computers and 85.1% have internet connection, but only 36% use computers and the internet for operational administration. Vietnam's labor productivity is lower than other countries in the region.

Currently, suppliers and producers can hardly meet rules of origin. In some export-driven industries, domestic supplies only meet 10 - 20% of demand. Supporting industries are weak. Although there are up to 1,800 parts and component manufacturers, only 300 can join supply networks run by multinational corporations.

In order to increase accessibility and expand the Australian market, resolving above fundamental issues will be a prerequisite for Vietnamese businesses to grasp the opportunity for improving the export value to Australia, a large and potential market for Vietnam.

Dr. Dinh Thi My Loan, President of the Association of Vietnam Retailers, Arbitrator of the Vietnam International Arbitration Center

What should Vietnamese businesses do to export to Australia? The answer must be building a long-term business strategy, selecting product strategies and market penetration strategies based on market needs, consumer tastes and competencies of each enterprise. This is not a quick process, starting from product introduction, trust building and network building to business transactions. At the same time, businesses must research and upgrade their product quality to better meet consumer needs; diversify and raise export quality to increase competitiveness in the Australian market and avoid existing technical barriers.

Vietnam’s export quality to Australia is still low relative to other competitors such as China, Thailand, Malaysia and Indonesia. To stand firm on the Australian market, Vietnamese businesses must aim at cleaner production where product quality is always the first priority.

In addition, attention should be paid to branding exports, registering and protecting export brands, especially when export products have a foothold in the market, to avoid brand loss or dispute. They also need to know about regulations on product quality, food hygiene and biosafety; set up the inspection systems; regularly innovate technology; and improve product quality.

Mr. Nguyen Anh Duong, Central Institute for Economic Management

To increase exports to the Australian market, Vietnamese companies should find out information from Australia's online portal, AusCham Vietnam, Vietnam Chamber of Commerce and Industry (VCCI), the Ministry of Industry and Trade, Sanitary and Phytosaniary Notification Authority and Enquiry Point (SPS Office) and Technical Barriers to Trade (TBT) Office.

Australia and Vietnam have signed not only CPTPP but also other FTAs together. Therefore, it is necessary to improve business capacity (cooperation and capacity building in CPTPP in agriculture, industry and services, adapting to Australia's regulations and culture, promoting education, culture and gender equality).

All are just “likely” or just “potential” or just “opportunity” if we lack institutional capacity and business capacity to take advantage of opportunities from economic integration in general and CPTPP specifically. In particular, it is important to recognize the important role of business associations/industries. Business associations need to promote their role as information providers, business connectors and business advisors; review and recommend policy adjustments.

Relevant bodies should launch communication events to guide businesses on policies and business support programs, put forth recommendations from the business community, and engage governmental agencies to market Vietnamese products to Australia.

Quynh Anh

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