Cross-border deal to facilitate trade

November 15, 2019 | 12:00
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With the Regional Comprehensive Economic Partnership scheduled to be signed next year, more openings are there for Vietnam to attract more investment and swell its trade with international partners. Nguyen Thanh reports.
cross border deal to facilitate trade
The RCEP will widen value chains for the benefit of enterprises of all sizes, Photo: Shutterstock

At the third RCEP Summit within the 35th ASEAN Summit that wrapped up last week in Bangkok, leaders of the member nations within the Regional Comprehensive Economic Partnership (RCEP) stated that against the backdrop of a fast-changing global environment, “the completion of RCEP negotiations will demonstrate our collective commitment to an open trade and investment environment” across the region.

“We note that 15 participating RCEP countries have concluded text-based negotiations for all 20 chapters and essentially all their market access issues; and tasked legal scrubbing by them to commence for signing in 2020,” outlined a joint leaders’ statement on the agreement released at the end of the third RCEP Summit.

The deal is expected to be inked in Vietnam. The RCEP aims to “further expand and deepen regional value chains for the benefit of businesses, including small- and medium-sized enterprises, as well as workers, producers, and consumers. The RCEP will significantly boost the ­region’s future growth prospects and contribute positively to the global economy, while serving as a supporting pillar to a strong multilateral trading system and promoting development in economies across the region.”

The RCEP is regarded as the world’s largest regional free trade agreement, as it covers a market of 47.4 per cent (about 3.5 billion) of the world’s population, and accounts for 39 per cent (about $49 trillion) of global GDP, 29.1 per cent of the world’s trade, and 32.5 per cent of global investment flows.

NEW PROSPECTS

In 2012, leaders of the 10 ASEAN member states along with the bloc’s free trade partners including Australia, Japan, and South Korea issued a joint declaration on the launch of negotiations for the RCEP, and committed to achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership.

The following year, the first negotiation round took place, which led to further 27 rounds. The final round took place in the central city of Danang in September.

The RCEP will establish high quality rules for the supply of services between the parties, including obligations to provide access to foreign service suppliers, to treat local and foreign suppliers equally, and to treat foreign suppliers at least as well as suppliers of any other non-RCEP country.

Service suppliers from the 15 RCEP members will benefit from commitments to enhance the transparency and predictability of domestic regulation affecting trade in services, thus improving the business environment across the region.

At present, no specific levels of tariff reductions under the RCEP have been officially announced. However, experts believe that the deal will benefit all stakeholders, including Vietnam.

Tim Harcourt, former chief economist of the Australian Trade Commission and now professor of economics at University of New South Wales, told VIR that based on his calculations, the RCEP will offer massive major advantages to Vietnam in many sectors thanks to tariff reductions, while the demand for products from Vietnam have been growing strongly.

“The RCEP will give Vietnam great opportunities in many sectors such as telecoms, ICT, textiles and footwear, and agriculture,” Harcourt said.

“Vietnam has strengths in all these areas, as well as the advantage of human capital – a young population with increasing levels of education,” he continued.

Under the RCEP, import tariffs for these products will be slashed upon the deal’s entry into force, eventually reaching zero under roadmaps from between three and seven years.

For example, in the agricultural sector, Vietnam boasts great potential in production thanks to its favourable climate and soil conditions. The country is among the largest exporters of farm produce in the world, such as coffee, rice, pepper, fish, and shrimp. It is expected that agro-forestry-fishery export turnover this year will be more than $41 billion, up from $40 billion last year.

In another case, Vietnam’s total textile and garment export turnover hit $36 billion last year and $27.4 billion in the first 10 months of 2019, up 8.7 per cent on-year. The figure is expected to reach $40 billion for the whole year.

Meanwhile, Vietnam’s ICT market is expected to continue its growth towards next year due to the government’s desire to turn Vietnam into an ICT power. A recent Economist Intelligence Unit report shows that demand in the ICT sector in 2017 was estimated to reach $12.7 billion and $13.4 billion in 2018. The report also noted that spending on IT was estimated at $6.4 billion in 2017, and forecasted to grow to $6.5 billion in 2018.

Pham Tuan Anh, an official from the Ministry of Finance and a member of the RCEP negotiation team for Vietnam, said expectations for the partnership are huge, including import and export opportunities thanks to incentives on tariffs and regulations of origin, unified customs procedures and trade facilitation, and general rules to limit and control non-tariff barriers.

“Some service markets would be more open, especially logistics and telecommunications services, along with a better e-commerce platform. Enterprises are looking forward to the RCEP to avoid the trend of trade protectionism and the impacts of the US-China trade war,” Anh said.

According to Minister of Industry and Trade Tran Tuan Anh, the RCEP is expected to create the world’s largest free trade area with the development of regional and global value chains that will contribute to spurring the economic growth of all RCEP members, including Vietnam.

The agreement’s signatories have promised to open their doors to goods, services, and investment, simplify customs procedures, set up rules of origin, and remove trade barriers in order to enhance trade facilitation.

CHALLENGES

According to Harcourt from University of New South Wales, in order to benefit significantly from the RCEP, Vietnam would need to boost the improvement of its economic institutions – including corporate governance, rule of law, and overall transparency.

“The country’s main task will be at home, undertaking structural reform so its institutions are transparent and effective, to boost productivity and international competitiveness to take advantage of all the trade deals on offer,” Harcourt told VIR.

“Vietnam needs to ­improve its skills and infrastructure and its overall institutions. A good sign is that resolutions 19 and 35 have been enacted to create a good economic growth model for Vietnam. The country’s trade penetration and openness to foreign direct investment augurs well for a successful RCEP,” he said.

However, Vietnam may have greater benefits from the RCEP if India joined the deal. On November 4 India pulled out of the deal altogether, citing that the country did not get enough credible assurances on market access and non-tariff barriers, while becoming wary that India would be flooded with Chinese goods. It is seen as a major loss, as India was set to be the second-biggest economy within the agreement.

Under the RCEP, market access negotiations will be finalised and the text of the agreement and associated documents finalised as part of the negotiations will be subject to technical legal review. After the review is completed, the agreement will be signed, and the text of the agreement will be published soon thereafter.

IBNU HADI - Indonesian Ambassador to Vietnam

cross border deal to facilitate trade

Positive impacts of the RCEP will help Vietnam deepen the country’s business environment in regional and global value chains, allowing it to boost exports.

However, benefits depend on institutional reforms and preparations by state authorities and businesses. The RCEP creates import and export opportunities, and offers incentives on tariffs and regulations of origin, unified customs procedures and trade facilitation, and general rules to limit and control non-tariff barriers.

The service markets will be more open, especially logistics and telecommunications services, and a better e-commerce platform. Enterprises are also looking forward to the RCEP to avoid the trend of trade protectionism and the impacts of the US-China trade war.

Hong Sun - Vice chairman, Korea Chamber of Business in Vietnam

cross border deal to facilitate trade

The trade megadeal can be expected to provide South Korean exporters with new opportunities to enter fast-growing and promising markets in Southeast Asia. Currently South Korea has no bilateral free trade agreement with China or Japan. So we also hope that the RCEP will help South Korea boost trade ties with these nations.

The RCEP will also help further cement the Vietnamese and South Korean economies, much to the liking of South Korean businesses that are happy when doing business in Vietnam.

With the RCEP, South Korean investors will also find better opportunities in manufacturing high-tech products. Within the RCEP, South Korea will benefit in the sectors of electronics, automobiles, semiconductors, and smartphones. Groups such as Samsung and LG will benefit the most as they are among the world’s leaders in these products, while Vietnam is being considered as their global manufacturing base.

In the RCEP, South Korea will not benefit from agricultural products. However, this is a very big advantage for Vietnam and I think the RCEP will benefit Vietnam’s agricultural sector.

Marko Walde - Chief representative German Industry and Commerce Vietnam

cross border deal to facilitate trade

The RCEP, with a market of 3.5 billion consumers and a total GDP of $49 trillion that accounts for 39 per cent of global GDP, forms the largest free trade bloc the world has ever seen.

This agreement will create more opportunities for Vietnamese enterprises to boost exports, participate in new value chains, and further increase the attraction of foreign investment.

Once the free trade agreement between the European Union and Vietnam comes into effect and the RCEP is implemented, we strongly believe that it will create new market access and export prospects across a range of sectors for German companies and investors.

As one of world’s largest exporting countries, Germany will enjoy these benefits to export their goods and services from Vietnam to a mega market of countries, including the ASEAN member states as well as China, Japan, South Korea, Australia, and New Zealand.

On the other hand, Vietnam should also open up the domestic market for all other member countries.

It also means for local companies more competitors, and they should improve their effectiveness and upgrade their competitive advantages over time.

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