Vietnam achieved commercial agreements with major trading partners in 2015

Implementing Directive No. 15/CT-TTg dated 07 July 2015 of the Prime Minister on the continued implementation of Resolution No. 22/NQ-BCT dated 10 April 2013 of the Political bureau on international integration, Vietnam has actively negotiated and signed new free trade agreements (FTAs) with partners. By the end of 2015, Vietnam has signed 10 bilateral and multilateral FTAs ​​(including the ASEAN Free Trade Area, ASEAN Free Trade Area - China, ASEAN - Korea, ASEAN - Japan, Vietnam - Japan, ASEAN - Australia - New Zealand, ASEAN - India, Vietnam - Chile, Vietnam - Korea and Vietnam - Eurasian Economic Union), finished the negotiation of 2 important agreements with EU and USA, announced the completion of the EU-Vietnam free trade agreement (EVFTA, dated 02 December 2015) and negotiated successfully Trans-Pacific Partnership (TPP, dated 05 October 2015). Besides, 2015 marks the year Vietnam officially joined the ASEAN Economic Community (AEC). Therefore, 2015 is considered as pivotal year in the process of international economic integration of Vietnam with important advances.

Reached agreements with major trading partners

EU-Vietnam free trade agreement

Launched from June 2012, EVFTA went through 14 round of negotiation, lasting from October 2012 to August 2015. After finishing basically negotiation of the contents of the agreement dated 04 August 2015 and dealing with technical issues and finalizing the text of agreements dated 02 December 2015, the two sides announced the completion of the negotiation. Vietnam pledged to eliminate tariffs once the Agreement enters into force with elimination of 48.5% of tariff lines, equivalent to 64.5% of imports from EU, and after 10 years with elimination of 99% of tariff lines, equivalent to 99.8% of imports from EU. For the remaining tariff lines, Vietnam will have a roadmap for over 10 years or provide preferential to the EU on the basis of WTO tariff quotas.

Trans-Pacific Partnership

After 5 years of intense negotiations, TPP agreement between 12 member states officially finished negotiation on 05 October 2015 (expected to be signed in the first quarter of 2016). Vietnam has committed to eliminate tariffs on 66% of tariff lines as soon as TPP takes effect and elimination of 86.5% of tariff lines after 3 years the Agreement came into force. The remaining items will have the schedule on tariff reduction from 4 to 10 years. Some goods are particularly sensitive, Vietnam committed to the roadmap for over 10 years or tariff quota.

ASEAN economic integration

Joining the AEC, Vietnam not only has to implement trade agreements but also commits to open in many other areas. Officially established in late 2015, AEC includes the three main pillars: the Political-Security Community (ASEAN – ASC), the Economic Community (AEC) and the Socio-Cultural Community (ASEAN - ASCC) and is built on four interrelated and mutually-reinforcing pillars: (i) a single market and production base through free flow of goods, free flow of services, free flow of investment, free flow ò capital, free flow of skilled labor, (ii) a highly competitive economic region shaped from competition policy, consumer protection, intellectual property rights, infrastructure development, taxation, e-commerce (iii) a region of equitable economic development implemented through SME development, initiative for ASEAN Integration, and (iv) a region fully integrated into the global economy through coherent approach towards external economic relations, enhanced participation in global supply networks (WTO).

ASEAN Trade in Goods (ASEAN – ATIGA) is also being According to the roadmap commitments of ATIGA, till 2015, the ASEAN countries basically completed the elimination of import tax in the list of common goods. CLMV countries (Cambodia, including Cambodia, Laos, Myanmar and Vietnam) are allowed to remain tariff rate for 7% of tariff lines till 2018. From 2018, Vietnam can only maintain import tax with a maximum tax rate of 5% for around 3% of tariff lines, including mostly the sensitive agricultural commodities (live poultry, meat, eggs, citrus fruits, paddy, brown rice, processed meat, sugar). Two groups of commodities with long roadmap of commitment and no roadmap are gasoline by 2024 and tobacco (which should be provided with a roadmap for tariff reduction in the near future).

Besides EVFTA, TPP, AEC in 2015, Vietnam has signed two agreements with South Korea and the Vietnam - Eurasian Economic Union. Thus, it can be said that 2015 has marked the international integration of Vietnam with most major trading partners.

Big opportunities for the economy

In terms of trade relations, EU, TPP and ASEAN are the leading partners of Vietnam. According to statistics of 2015, Vietnam's exports to TPP countries accounted for the largest proportion. EU is in the second place and the third is the ASEAN countries.

In terms of expanding the market EU, TPP and ASEAN are all potential markets for Vietnam’s exports. Once completed, TTP would create the world’s largest free-trade zone with 800 million consumers, making up 40% of global GDP and represent 30% of global trade. Meanwhile with more than 500 million consumers and GDP of more than USD 17,000 billion, EU is a potential market for Vietnam's exports. Currently, Vietnam's exports to EU accounted for about 0.75% of the total import turnover of EU, of which only 40% enjoy the tax rate of 0%, 60% are subjected to different tax rates. Similarly, AEC is also a large market with GDP of over 2.3 billion dollars and growth rate of 5%/year, the population of over 625 million people, young population. This shows that the achievement of the agreements with these partners will open up opportunities for Vietnam’s commodities to access the large-scale market.

In terms of benefits of domestic production, the deep tax cuts between the major trading partners will create favorable conditions for enterprises to reduce costs, thereby enhancing the competitiveness of domestic goods, affecting positively on production and domestic consumption.

Besides, the implementation of international commitments under the FTA will have an impact on the size of the economy, transfer of technology; foreign investment attraction, reform, policy reform and competitiveness and economic growth in the long term. 2015 also marked the beginning of the roadmap of tariff cuts at the deepest level towards the final commitments on tariff elimination of import tariffs within the FTAs, which Vietnam has signed with key partners such as China Korea and South Korea ... The higher the degree of international economic integration, the higher the benefits of economic integration, however, integration is only a necessary condition, without the preparation and strong domestic reforms, the benefits will pass to the trading partner.

Many obstacles to overcome

The preparation of Vietnamese enterprises in the context of integration is not sufficient. AEC officially formed at the end of 2015, however according to the survey “AEC in the new context of the world and the participation of Vietnam” implemented by University of Economics, Hanoi National University in nearly 700 small and medium enterprises in 5 provinces: Hanoi, Hai Phong, Ho Chi Minh city, Da Nang, Can Tho; 76% of Vietnamese enterprises 76% of Vietnamese enterprises do not have full awareness of AEC;

94% of enterprises do not have full awareness of the context of negotiation in AEC; 63% of enterprises do not understand opportunities and challenges when Vietnam joins AEC. While the large-scale enterprises or FDI enterprises have certain investigations and studies on the impact of agreements, understand the impact of the integration on the business operations, on imports and exports of enterprises entry of export enterprises, small and medium enterprises Svetlana (major proportion, more than 90% of all enterprises) do not have full awareness, a full assessment of the impact of integration therefore have no preparation and are passive in the integration process.

Vietnamese enterprises are not only lack of integration process but also have weak competitiveness. The state-owned enterprises (SOEs) still fails to promote the leading role in shifting the economic structure, innovation and technological development. The private sector is generally small-scale and limited respect to financial capacity, technology; the domestic manufacturing sector has to face competition in price and quality of imported goods. Besides, the structure of exports from Vietnam to the market has not yet changed so strong, still focused mainly on agricultural products, industrial goods using labor intensive and material and energy commodities ...

Technical barriers and strict origin requirements will be the factors that would impede the expansion of the export market of Vietnam. Under the terms of the origin of goods proposed in the TPP, export products in the member countries must have intra TPP origin to be eligible to preferential. This is the disadvantage because Vietnam mainly imported from the countries outside the TPP such as China, South Korea for processing exported goods, without conversion material region, Vietnam's exports will not be eligible to tax incentives.

Regarding the EU, Vietnam exported to the EU mainly primary products; food products such as vegetables, seafood ... so enterprises will have to adhere to the requirements of hygiene and epidemiology, product quality. EU requires high standards regarding technical, hygiene and product quality that not every business can meet. This result in the significant increase of production costs for Vietnam’s goods exported into the EU and decrease in competitiveness. If Vietnam enterprises exported to the EU do not have full awareness, they therefore cannot take advantage of the tariff preferential, they can even be banned from import, or be subject to high anti-dumping duty in the EU as countries are tend to utilize the barriers ... All analyzes indicate that reaching an agreement with major partners could also be significant challenge for the business community and economy as a whole./.