Exports Stabilized by FTAs

9:13:54 AM | 8/30/2021

Given complicated COVID-19 pandemic development and its adverse impacts on global trade, Vietnam's exports still grew positively, partly driven by free trade agreements (FTAs) which reportedly helped diversify export markets and circumvent risks of unexpected developments.

FTA-driven export growth

 According to the Ministry of Industry and Trade, in the first six months of 2021 alone, more than 29% of exports used EVFTA tax incentives. Many key agricultural exports of Vietnam staged strong growth over the same period in 2019. Specifically, rubber exports grew 56.91% to US$61 million. Rattan, bamboo, sedge and carpet products expanded 33.75% to US70.5 million. Vegetables and fruits climbed 12.5% to US$63.8 million.

Thus, Vietnam's strong exports such as footwear, apparels and agricultural products like rice, and rubber products are still maintaining good performance and making good use of this trade pact.

The ministry added that, in 2020, two-way trade between Vietnam and CPTPP member countries grossed US$79 billion, up 1.9% over 2019. Of the sum, Vietnamese shipments to CPTPP countries amounted to US$38.7 billion while its imports from CPTPP partners were worth US$40.3 billion. Vietnam's trade deficit with CPTPP countries was US$1.6 billion.

If only five countries that have enforced the CPTPP Agreement were counted - namely, Mexico, Canada, Japan, Singapore and Australia - Vietnam’s export value reached US$33.9 billion, generating a trade surplus of US$3.5 billion. Especially, its shipments to Mexico and Canada increased by 11.8% and 12.1%, respectively. Key exports to CPTPP countries included seafood, footwear, apparel, pepper, woodwork, machinery and equipment.

Besides positive signals from exports, Vietnam's entry to new-generation trade agreements such as the EVFTA and the CPTPP has strongly attracted FDI inflows.

In 2020, the FDI fund from CPTPP countries into Vietnam reached US$11.6 billion, up 23.4% over 2019. Meanwhile, the EU investment in Vietnam fell 6.7% year on year to US$1.4 billion.

For the UKVFTA Agreement, the growth potential for Vietnamese products is huge because all of Vietnam's export products currently account for no more than 1% of the UK’s import share of US$700 billion (2019). Merchandise exchanged by two countries are complementary, not competitive. According to preliminary statistics of the General Department of Vietnam Customs, by the end of the first quarter of 2021, Vietnam - UK trade value exceeded US$1.63 billion, with Vietnam’s trade surplus in excess of over US$1.3 billion.

Actively controlling risks

According to experts, since the effective date of FTAs, exports have increased very quickly, resulting in a broader economic openness (up to 200% of GDP). If foreign markets are unfavorable, Vietnam's macroeconomic stability will be greatly affected. So, special attention should be paid to controlling economic openness.

Controlling economic openness depends on two factors: Grasping opportunities and controlling FTA risks, and promoting domestic consumption.

To take advantage of FTA opportunities, businesses need to actively use domestically produced materials and foster connectivity and cooperation, said Mr. Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association (Vitas). In addition, technical, labor and environmental factors need to meet requirements in order to enjoy preferential export treatments. Furthermore, they should invest in improving the value and quality of products in order to strengthen product competitiveness in the market.

According to a representative from the Department of Multilateral Policy (Ministry of Industry and Trade), businesses need to take advantage of opportunities to apply technical technology and information technology to approach markets, deal with partners, and create higher surplus value.

Dr. Vu Tien Loc, President of VCCI, emphasized that the biggest obstacle to realizing FTA opportunities is low competitiveness. Up to 51.3% of companies are aware that their competitiveness is still inferior to that of their competitors. Therefore, improving corporate competitiveness is an important and decisive factor for success in the context of integration.

He stressed that institutional support of the government is very important and necessary. Business support programs and activities need to focus on substantive activities to improve product competitiveness. These activities also need to be tailored to specific target groups, with special priority given to small and micro enterprises.

By Huong Ly, Vietnam Business Forum