Vietnam Promoting Agricultural Exports amid New-Generation FTAs

9:20:49 AM | 7/23/2021

Vietnam is enforcing 15 free trade agreements (FTAs) with nearly 60 partners, including three new-generation FTAs. According to research results, agricultural products, aquatic products and wood products are among the biggest beneficiaries of new-generation FTAs.

Opportunities and challenges from new-generation FTAs

According to the EVFTA, the European Union (EU) is committed to protecting 39 geographical indications of Vietnam, of which agricultural and aquatic products account for 62% (specifically, vegetables and fruits: 49%, aquatic and seafood products: 13%) and industrial crops and processed products account for 38%. Agricultural and aquatic products are Vietnam’s strengths. Thus, businesses should continue to focus on production, improve product quality, branding and marketing to take advantage of EVFTA incentives to boost exports to the EU.

According to European experts, Vietnamese agricultural products have high potential in Europe. Vietnam is currently a supplier of important agricultural products to the EU market (Vietnam is the 25th largest fruit and vegetable supplier, the 13th largest in rubber supplier and the 2nd largest coffee supplier in the EU). Many Vietnamese companies have proved their product quality meets EU requirements and matches EU consumer tastes. A lot of Vietnamese products are popular in Europe such as cashew nuts, coffee, vegetables, dragon fruit and litchi. Especially, Vietnam's organic products have initially approached this meticulous market as they satisfy specific standards for high-quality agricultural products such as Organic, Rainforest, Fairtrade and other certifications. By 2030, the consumption of organic food in EU countries is forecast to rise by 2-3 times.

In addition, for seafood, Vietnam is the largest ASEAN country, the second largest Asian nation (after China), and the sixth-largest global supplier of seafood for the EU. Export shipments to the EU accounted for 15.11% of Vietnam's total seafood exports (according to statistics released by the General Department of Vietnam Customs in 2019). Besides the above advantages, the EVFTA offers import tax preferences for Vietnam's seafood products (specifically, the duty on raw shrimp is reduced to 0% from 12-20%), meaning that Vietnam will significantly increase advantages for its exported seafood relative to competitors such as Thailand and Ecuador (12%), India and Indonesia (4.2%). EVFTA’s benefits for Vietnamese seafood are numerous but they also pose enormous challenges for businesses. Particularly, it is important to meet high EU standards and requirements when technical barriers are added, consumers demand strict requirements on pure origin, food safety and hygiene, pesticide residue control, genetic modification and product labeling to ensure enforcement of environmental policies and emphasis on value-added design for products.

Within the framework of the CPTPP, member countries commit to eliminating 97 - 100% of import tax lines for Vietnamese-originated goods according to a 10-year roadmap. Notably, most of Vietnam's key export agricultural products are given zero duty right after the pact comes into effect or after 3-5 years. Agricultural products such as rice, coffee, tea, pepper and cashew nuts are entitled to 0% tax as soon as the pact comes into effect. Duty on processed and canned products will be removed in a 3-5-year roadmap. As for sugar-soaked pineapples, Japan will eliminate its duty according to a 10-year tax schedule.

Vietnam has the opportunity to increase seafood exports to 10 markets, which currently account for 25% of the country’s total seafood exports because most of them will have zero tax upon the effective date of the CPTPP Agreement like Canada, Japan and Peru. Many seafood products that have not been eliminated tariffs in Vietnam - Japan FTA and ASEAN - Japan FTA will be given 0% tax, including cod, surimi and shrimp. Pangasius catfish, the only major aquatic product exported to Mexico, will have zero tax in the third year from the date of entry into force of the Agreement. Wooden furniture shipments to Canada and Peru will be imposed 0% as soon as the Agreement is effective. Japan will immediately remove tariffs on 97% of export value and 100% of the value after 15 years.

However, when tariff barriers are removed, technical barriers will be stricter, including non-traditional factors such as labor and environment, because the CPTPP is considered the highest, most comprehensive and balanced agreement in the agricultural sector. The conditions of technical barriers, quality standards, and rules of origin are tighter, with many new and more complicated regulations, while our products are less competitive in price than FTA partner countries. To take advantage of export opportunities, Vietnamese goods will have to meet technical, food safety and hygiene standards as well as "strict" standards on rules of origin in the CPTPP, especially for the textile-garment and fishery sectors. Competitive pressures are certainly considerable in the domestic market as well as in export markets because CPTPP-signing countries such as Australia, New Zealand and Peru are major producers of high-quality agricultural products.

For the UK market, according to the Trade Counselor of the Vietnamese Embassy in the UK, the UKVFTA, set to officially take effect on May 1, 2021, will deliver quick and direct trade benefits to Vietnam. Specifically, the UK market capacity is huge, with an average import value of US$700 billion a year. According to UKVFTA's commitments, import tariffs on most products of Vietnamese origin are exempted immediately or according to a fairly rapid reduction schedule (1 year, 3 years, 5 years, 7 years and 8 years). The UKVFTA can create competitive advantages for many Vietnamese products such as agricultural products, seafood, footwear, rubber products and wooden furniture before similar products from very strong trading competitors such as China, Thailand, Malaysia, Indonesia, the Philippines, India and Brazil, because these countries do not have an FTA with the UK. Agricultural products are exempt from import duty immediately without any quota imposed, including coffee, rambutan, mango, longan, dragon fruit and coconut. Shrimp, tuna, minced fish, fragrant rice, tapioca starch, and other agricultural products are exempt from quota-based import duties. Rice, seafood and wood products are potential amid UKVFTA advantages.

However, like many other FTAs that Vietnam joined, the UKVFTA brings many opportunities, but it also comes with many challenges. For agricultural products, technical standards and quality requirements for goods imported from the UK are very high (for example, the UK strictly controls the use of pesticides, fertilizers and other chemicals used in agriculture. Imported agricultural products are only allowed to clear customs if chemical residues are below the maximum allowable threshold for each type of product).

Although the UKVFTA inherits incentives with flexible SPS regulations in the EVFTA, most of Vietnam's agricultural products still face limitations as lack of uniformity in each shipment, poor harvesting and storage results in limited quality. Therefore, to utilize the great effects of the UKVFTA, Vietnamese companies need to immediately invest in improving the value and quality of products to strengthen competitiveness in the market. At the same time, they need to focus on food hygiene and traceability to meet management standards and processes, attach importance to social responsibility, and transparent information, labor and production environment to have the best preparation for competitive pressures.

Utilizing new-generation FTAs

To exploit potential and advantages from new-generation free trade agreements, the Ministry of Industry and Trade launched a Trade Promotion Action Plan for the period of 2020-2025, contributing to sustainable export development when EVFTA, CPTPP and FTAs are enforced. Accordingly, the common goal is maintaining the export growth of 5-10% for key product categories by directly improving the quality of trade promotion, coordinating with other sectors to guide, indirectly enhance the quality of promoted products, thus increasing the value of export products, export value and market share, gradually affirming Vietnam's position in the global value chain. Agricultural and food products that are recommended to focus on export promotion in the 2021-2025 period include seafood, fruits, tea and coffee, cashew nuts, pepper, spices, rubber and rice.

To improve the effect of trade promotion into demanding markets, companies need to meet the following criteria: Companies must be prestigious, certified; take part in quality management programs and national brands; potentially become industry leaders; capably invest, actively participate in sharing and contributing activities to the industry. For the fields of agriculture, forestry and fishery, they need to have certified inputs, production systems and quality management processes.

In addition, some solutions need to be carried out in a consistent and timely manner to promote sustainable exports like promoting information technology application and digital transformation into trade promotion; carrying out trade promotion, investment promotion, brand development and export market development; further adding efforts to boost Vietnam's trade in potential markets; and building the trade promotion ecosystem consisting of related partners: product development consultants, market development strategists, manufacturers, investors, exporters and importers; and building a network with international trade promotion organizations.

By Le Hoang Tai, Deputy Director of Vietnam Trade Promotion Agency, Ministry of Industry and Trade