Trade within ASEAN adding fresh layers

Vietnam is benefiting significantly from ASEAN’s economic integration, Photo: Le Toan

This year, ministers from around ASEAN have been taking part in negotiations to upgrade the ASEAN Trade in Goods Agreement (ATIGA), which was established in 2009 at the height of the worst global economic crisis since the Great Depression.

According to Satvinder Singh, deputy secretary-general of ASEAN for the ASEAN Economic Community, the upgrade of the ATIGA is timely. “More recent circumstances present an opportunity for ASEAN to strengthen its integration amid new global challenges. But the global economy is not just reeling from another crisis – it is evolving structurally,” said Singh.

An upgraded deal will further simplify the rules of origin for goods, expand the adoption of trade technologies and paperless documents, and harmonise technical regulations and standards. It will also facilitate trade for micro, small, and medium-sized enterprises, address sustainability and circularity concerns, and promote digital trade.

“An upgraded and forward-looking ATIGA will have significant impacts on businesses and other stakeholders. It will elevate ASEAN’s position in global supply chains, lower trade costs, reduce regulatory barriers, unlock logistics bottlenecks, and place ASEAN on a more sustainable and inclusive economic growth path,” said Brasukra G. Sudjana, assistant director and head of External Economic Relations at the ASEAN Secretariat.

“Consequently, businesses could leverage ASEAN’s position as a single market and regional production base to enhance the region’s overall competitiveness,” Sudjana added.

Tran Quoc Khanh, Deputy Minister of Industry and Trade, proposed that the revision of the ATIGA “should aim at providing better support for enterprises in utilising the deal, especially through lowering compliance costs and enhancing trade facilitation measures.

“It is expected that Vietnam will benefit from the deal’s upgrade, especially in the context of the country’s increased regional integration and Vietnam’s boosting of exports to member states,” he said.

Under the deal’s, ASEAN members committed to removing tariffs from 98.6 per cent of all goods and products in 2021. Brunei, Indonesia, Malaysia, Philippines, Singapore, and Malaysia have eliminated 99.3 per cent of the tariffs, and the remaining four (Cambodia, Laos, Myanmar, and Vietnam), 97.7 per cent.

More importantly, the ATIGA instituted a host of measures to help businesses navigate trade rules. The ASEAN Single Window, for example, enables a seamless electronic exchange of trade documents, such as certificates of origin and customs declarations, for all 10 ASEAN member states’ customs. Another example is the ASEAN Trade Repository which serves as a single information source on tariffs, regulations, and administrative procedures.

According to the ASEAN Secretariat, these measures contributed to ASEAN trade growth. For example, intra-ASEAN trade increased from $502.9 billion in 2010 to $712 billion in 2021, making up about 21.3 per cent of its total trade.

ASEAN’s share of world trade steadily grew from around 6.5 per cent in 2010 to 7.5 per cent in 2021, faster than other regions and illustrating the outward-looking nature of ASEAN integration.

Expanding trade

Implementation of regional economic commitments, including the ATIGA, has benefited many businesses in Vietnam as the import tariffs of foodstuff products in regional markets have almost all been removed.

Since early this year, Vietnam’s TH Group has been busy promoting its export of products including fresh milk, safe foodstuffs, and organic agricultural products to Singapore.

TH and Singapore’s HAO Mart in February established strategic cooperation on consuming and promoting these products in Singapore, which the Vietnamese group considers a market of high potential in Southeast Asia.

“All world-class e-commerce brands have set foot in Singapore, so our presence in this market, which will then be expanded to Malaysia, will feature the strength of our brand in Asia,” said Hoang Thi Thanh Thuy, director of International Marketing at TH Group.

One of many reasons behind TH Group’s plan to penetrate the Southeast Asian market is the removal of tariffs under the regional commitments including the ATIGA, and the region’s big purchasing power.

“TH Group has officially marketed more than 30 product lines in Singapore. We have a vision that in 2022-2023, our products will be sold at more than 1,000 retail stores and supermarkets in this market,” said Thuy. “This will enable our group to further cooperate with partners not only in Singapore, but also in other regional nations.”

Piyapong Jriyasetapong, chairman of the Thai Chamber of Commerce and Industry in Vietnam, in April told VIR that the implementation of regional commitments under deals like the ATIGA offers Thai firms opportunities to export goods to Vietnam and invest here.

“The Vietnamese market has been a hotspot for Thai investors for over a decade. All the top Thai conglomerates have already set up operations in Vietnam with more and more investment in the years to come,” Jriyasetapong said.

“This is thanks to growing local consumption from the growing wealth of a young population, while the close proximity to Thailand has made it faster and easier to travel with competitive production costs, owing to abundant agricultural raw materials and Vietnam’s free trade agreements supporting exports.”

According to Vietnam’s Ministry of Industry and Trade, the Vietnam-Thailand trade turnover hit nearly $19 billion last year, up 17.9 per cent on-year. The figure in the first five months of 2022 reached $8.57 billion – with Vietnam’s exports of $2.95 billion, up 15.6 per cent on-year and imports of $5.26 billion, up 3.5 per cent on-year.

Southeast Asia is now Vietnam’s fourth-largest export market, with the country’s export turnover to the region increasing from $25.3 billion in 2020 to $29.1 billion in 2021. Meanwhile, Southeast Asia is also Vietnam’s fourth-largest import market, with the nation’s import turnover from other member states rising from $32.1 billion in 2020 to $41.1 billion last year.

Capitalising on RCEP

According to Standard Chartered Bank in its latest Global Research Report titled “Vietnam – RCEP: Opportunities and Challenges” released in May, Vietnam is a key beneficiary of the Regional Comprehensive Economic Partnership (RCEP), which took effect on January 1 and creates the world’s largest free trade area. The deal is expected to eliminate about 90 per cent of tariffs on trade between the signatories within 20 years.

The RCEP was inked in November by the 10 ASEAN member states and the bloc’s partners of China, Japan, South Korea, Australia, and New Zealand.

The membership in the pact further strengthens Vietnam’s trade position and should contribute to the post-pandemic recovery this year. Major export categories that are expected to benefit from the RCEP include IT, textiles, footwear, agriculture, automobile, and telecommunications. Over the longer term, the deal could form the basis for a new supply chain in the region, with Vietnam playing a key role. The country targets average export growth at 6-7 per cent a year from 2021-30.

“The RCEP should boost Vietnam’s exports and improve its access to large consumer markets including China, Japan, South Korea, and Indonesia. The pact should lower costs for producers in Vietnam and give them access to supply chains that extend across the Asia-Pacific region. Most of the input materials for Vietnam’s exports are sourced from RCEP countries,” said Tim Leelahaphan, economist for Thailand and Vietnam of Standard Chartered.

“Small- and medium-sized enterprises – which account for 98 per cent of all enterprises in Vietnam and contribute 40 per cent of GDP – are poised to benefit as the pact provides opportunities for them to move up the value chain,” he added.

Nguyen Thi Thu Trang, director of the Centre for WTO and International Trade under the Vietnam Chamber of Commerce and Industry, told VIR that Vietnam will be afforded many benefits from the RCEP.

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