RCEP Helps Vietnam’s Businesses Reach Diverse Customers across Asia-Pacific

9:28:56 AM | 6/29/2022

Opportunities from the Regional Comprehensive Economic Partnership (RCEP) will be foundational and motivational for Vietnam to boost exports to 15 countries.

Many new points

RCEP, which officially came into force on January 1, 2022, is considered the largest trade agreement in the world.

This is Vietnam's 15th free trade agreement (FTA), a pact toward liberalization and abolition of trade barriers among signing countries. Compared to 14 previously signed FTAs, RCEP is the largest agreement by a scale that Vietnam has ever entered, because the 15 signatories have 2.2 billion consumers in total, accounting for about one-third of the world's population and US$26.2 trillion of GDP, or about 30% of the world's GDP.

Specially, RCEP partners have uneven levels of development (including developed, developing and underdeveloped countries) but have very strong export growth and they are the main export markets of Vietnam, accounting for 40% of its export share and 70% (even 75% in some years) of its import share.

According to experts, in an as-usual FTA, even with many partners, a country has a common tariff for all signatories and spares only 10-20% of different commitments applied to different countries. However, the RCEP does not have a common commitment for all members but divides into several layers of commitments. Each country will set a different tariff rate for each partner with different roadmaps and methods and the national reservations account for 30-40%. For example, Japan grants Vietnam a different tariff from others in the bloc for each item. This is a notable difference of RCEP, which requires Vietnamese enterprises to carefully study each commitment when carrying out commercial activities with RCEP partners.

Furthermore, investment commitment is a notable distinction in RCEP. To date except for new generation FTAs (e.g. CPTPP, EVFTA and UKVFTA), Vietnam has not made any commitment to open investment in the manufacturing sector. But with RCEP, the country has opened up almost all manufacturing sectors for investors. This is an assurance for investors that Vietnam will not change its open-door policy to the fields it has committed and this is one of the reasons to expect that Vietnam will become a magnet to attract foreign direct investment from RCEP countries.

A success of RCEP is that although the 15 member countries have different levels of development in e-commerce and have different e-commerce management mechanisms, they have reached a common framework of commitments to e-commerce.

When RCEP is enacted, the signatories apply minimum floor commitments on non-tariff procedures and non-tariff measures in some fields and simplify customs and e-customs procedures or will help the region with opening initiatives such as paperless trade and leverage to make trade faster, more timely and less expensive.

Leveraging export growth

According to the Ministry of Industry and Trade, RCEP is quite different from other new-generation FTAs that Vietnam has joined and its benefits are also not the same. While the CPTPP or EVFTA is aimed at opening the market, RCEP also aims for the centrality of ASEAN.

Ms. Nguyen Thi Thu Trang, Director of the WTO and Integration Center under the Vietnam Chamber of Commerce and Industry (VCCI), said RCEP is also a dynamic production, import and export region, accounting for 50-55% of total import and export value of Vietnam, enabling the country to seek input materials and give a strong boost for its participation in production and supply chains.

In a report by Standard Chartered Bank, RCEP will strengthen its trade position, help Vietnam boost exports and gain better access to major consumer markets such as China, Japan, South Korea, and Indonesia. At the same time, RCEP helps manufacturers in Vietnam reduce costs and access supply chains in the Asia-Pacific region.

According to the Ministry of Industry and Trade, RCEP benefits Vietnam's key export industries like textile and garment, seafood, rice, coffee, pepper, footwear, automobile and telecommunications.

Vietnam's seafood exports to China advanced strongly in the first four months of this year, driven by pangasius, and frozen shrimp, reaching more than US$530 million, up 100% over the same period last year. Vietnam has a borderline with China - a country with a large market size and diverse consumer needs. So, there is plenty of room and advantages for businesses to expand seafood export to this huge market. Australia is also a potential seafood export market. In 2021, Vietnam "overthrew" China to become its No. 1 seafood supplier with a total value of over US$184.4 million.

Data from the Ministry of Industry and Trade also showed that the 15 RCEP member countries are important importers of Vietnam's cashew, accounting for 17.25% of the share in 2021. Vietnam's cashew nuts currently account for 99% of cashew imports in Australia, 97.8% in China, 97.66% in New Zealand and 78.61% in South Korea.

In particular, RCEP will "resolve" input difficulties and challenges. According to the Vietnam Textile and Apparel Association (VITAS), RCEP terms are bound to open the market for goods, services, investment, rules of value origin in member countries and measures to facilitate trade.

For example, in Japan, garments entering this market were previously required to prove their origin in ASEAN and Japan. Now with RCEP, Vietnamese garments manufactured from Chinese materials and accessories also enjoy preferential tariffs when being exported to Japan.

According to a VITAS representative, RCEP's differences come from a framework to simplify customs procedures, establish rules of origin, facilitate trade and create a common space for production throughout ASEAN. RCEP will solve a number of major problems for companies when China starts to import Vietnamese textile and garment products and provide opportunities to access this huge market.

By Huong Giang, Vietnam Business Forum