RCEP among most-promising trade agreements for Vietnam

It has been scheduled that the 40th and 41st ASEAN Summit and Related Summits held in Cambodia next month will discuss the full adoption of the RCEP following the deal already ratified by 14 of the total 16 member states including the 10 ASEAN nations and the bloc’s six partners China, Japan, India, South Korea, Australia, and New Zealand.

RCEP among most-promising trade agreements for Vietnam, Source: vnexpress.net

Currently, only the Philippines and Myanmar are likely to soon complete its adoption procedures and pass the deal at the year’s end.

The RCEP, inked in November 2020, took effect on January 1 and covers a market of 2.3 billion people and $26.2 trillion in global output, meaning about 30 per cent of the population worldwide and over a quarter of world exports.

Nguyen Thi Thu Trang, director of the Centre for WTO and International Trade under the Vietnam Chamber of Commerce and Industry, once told VIR that the RCEP may give Vietnam the most benefits from trade and investment flows, as compared to many free trade agreements that the country has and will ink bilaterally and multilaterally.

“Besides helping Vietnam increase trade with the RCEP’s member markets, the RCEP will especially help Vietnam woo more investment from markets that are its top 10 foreign investors, including South Korea, Singapore, Japan, China, Thailand, and Malaysia,” Trang explained.

As of September 20, registered investment capital into Vietnam from South Korea, Singapore, Japan, China, Thailand, and Malaysia stood at about $80.5, 70.2, 66, 22.5, 13, and 13 billion, respectively.

In an example, South Korea’s Samsung is estimated to have invested over $18 billion in Vietnam and is planning to invest an additional $3.3 billion in the country. It aims for $69 billion in export turnover this year.

Samsung is estimated to create over 90 per cent of Vietnam’s total export values of mobile phones and spare parts. In the first nine months of 2022, the country’s total export turnover of these products hit $45.4 billion, up 10.7 per cent on-year.

Local media cited Samsung Electronics Group as reporting in its financial statements for Q2 2022 that the total revenue of four factories Samsung Thai Nguyen, Samsung Bac Ninh, Samsung Display Vietnam, and Samsung HCMC CE Complex in was $17.9 billion, up 30 per cent on-year.

The respective revenue and profit was $7.9 billion and $770 million from Samsung Thai Nguyen; $4.7 billion and $400 million from Samsung Bac Ninh; $4.1 billion and $40 million for Samsung Display Vietnam; and $1.3 billion and $100 million for Samsung HCMC CE Complex.

“South Korean firms see Vietnam as a very good investment destination in Asia, and more billions of US dollars will be invested in Vietnam in the coming time in various sectors. I believe that South Korea will continue maintaining its position as a top investor in Vietnam,” Hong Sun, vice chairman of the Korea Chamber of Business in Vietnam, told VIR.

Early this year, South Korea’s Daewoo was licensed for new projects worth $2 billion in Vietnam, while Amkor Technology, Inc., also from South Korea, got licensed in the northern province of Bac Ninh to implement a $1.6 billion semiconductor manufacturing project.

“The Amkor project is very big, with the application of high technology,” Sun said. “It is signalling South Korea’s investment into Vietnam in the semiconductor industry, whose products are now in serious shortage worldwide. Thus, when this semiconductor project is carried out, Vietnam will be better known for this product,” Sun added.

Under the RCEP’s commitments, member states commit to eliminate 87.8-98.3 per cent of tariff lines for Vietnam, and ASEAN countries vow to do that with 85.9-100 per cent of tariff lines. The roadmap for tariff elimination is 15-20 years.

According to the World Bank’s report on RCEP impacts, Vietnam is expected to register the highest trade and income gains among RCEP member countries. To estimate the economic and distributional impacts of the RCEP in Vietnam, the bank formulated a baseline and four alternative scenarios – based on different circumstances. In the full scenario, the countries that experience a higher increase in exports are Vietnam (11.4 per cent), Japan (8.9 per cent) and Cambodia (6.5 per cent), while imports increase significantly in Vietnam (9.2 per cent), Philippines (7.2 per cent), and Japan (6.4 per cent).

“In terms of total exports, the sectors that expand the most for Vietnam are motor vehicles (18.6 per cent), textiles (16.2 per cent), and apparel (14.9 per cent),” read the report.

In the baseline scenario, between 2020 and 2035, the average trade weighted tariff imposed by Vietnam falls from 0.8 to 0.2 per cent, while the tariffs faced by Vietnam are reduced from 0.6 to 0.1 per cent.

However, Nguyen Anh Duong, head of the Central Institute for Economic Management’s General Research Department noted, “Due to Vietnam’s economic scale in 2020 ($368.68 billion) and export-import turnover ($668.55 billion in 2021) being relatively small, the percentage rises announced in the report have failed to be reflected in US dollars.”

Businesses begin to open eyes to wide benefits of RCEP Alhough the Regional Comprehensive Economic Partnership has only been valid for more than two months, it is already promising to provide Vietnam with major benefits, helping the country emerge as a more trusting investment arena and a larger exporter.

Decades of benefits becoming clear through expansive RCEP While offering favourable conditions for the rule of origin and expanding exports, the Regional Comprehensive Economic Partnership will enable Vietnam to attract more investment than other free trade agreements as many of the country’s largest foreign investors are from the deal’s member economies.