Trading on a rock solid reputation

February 04, 2011 | 13:09
(0) user say
Vietnam has become more active in negotiating and participating in free trade agreements (FTAs) both at regional and global levels as part of its increasingly deep global integration.
Deputy Industry and Trade minister Nguyen Cam Tu

Deputy Industry and Trade minister Nguyen Cam Tu tells VIR about the both upsides and challenges that the signing of FTAs brings to Vietnam.

Vietnam has so far inked seven FTAs - with the Southeast Asian nations (ASEAN), China, South Korea, Japan, Australia, New Zealand and India.

Under those FTAs, nearly 100 per cent of Vietnam’s exports to ASEAN are enjoying zero-percent tariffs from 2010. 90 per cent of import tariff lines of China and South Korea were reduced to zero per cent from 2010.

Also from 2010, almost 95 per cent of tariff lines of Japan have been reduced to preferential rates of zero per cent. More than 96 per cent and 85 per cent of the tariff lines applied by  Australia and New Zealand respectively have been eliminated from 2010.

For India, 75 per cent of import tariff lines became zero per cent in 2010 and this number will increase to 90 per cent in 2016.

Thanks for those FTAs, Vietnam has great chances to accelerate export growth of products that it has export advantages such as agricultural products, garments and textiles, footwear and electrical and electronic products.

The Vietnamese enterprises have been more active in making good use of preferences brought about by the agreements. There is a significant proportion of Vietnamese goods qualified to enjoy those preferences by meeting the requirements to get certificates of origins (C/O). In 2009, about 25 per cent of Vietnam’s exports enjoyed tariff preferences by using C/O under FTAs. Specifically, nearly 12 per cent of Vietnam’s exports to ASEAN enjoyed preferential tariff under the ASEAN Free Trade Area, doubling from six per cent in 2005.

More than 21 per cent of our exports to China also enjoyed preferential tariff, rising from 6.3 per cent in 2007. Regarding the Japanese market, 28 per cent of Vietnam’s exports have so far taken advantages of preferential tariff levels. Especially, nearly 79 per cent of Vietnam’s exports enjoyed preferential tariff under ASEAN-Korea FTA. This encouraging number of FTA utilisation will continue to increase in line with the tariff reduction schedule in respective FTAs to which Vietnam is a party.

Vietnam’s free trade agreement (FTA) with its fellow ASEAN nations is just one of seven the country has signed but enterprises need to learn to get the most out of FTAs

This is a very positive result in making use of FTAs for export promotion of Vietnamese enterprises. However, there are also enterprises which have not enjoyed those preferential treatments because of their inadequate understanding about the FTAs or the benefits from using the FTAs. The rate of FTA’s preference utilisation could be more considerable if enterprises were well equipped with sufficient knowledge about the implementation of relevant FTAs.

The more domestic market is opened, the more competition local and foreign enterprises have to face in the domestic market. In the recent years, the competition pressure from imported goods has grown and posed certain difficulties for several local industries. In the future, when Vietnam participates more deeply into the FTAs, there will be more challenges, even bankruptcy of many local enterprises. Nevertheless, there is also positive direction.

Many industries which were unable to compete with imported goods in the past have grown strongly, holding big local market share and even expanding to other foreign markets such as electronics, garment, foodstuff, wood-based and agricultural sectors. Vietnamese enterprises gradually become more capable to face with challenges by improving their product quality, firmly building their position in both the domestic and international markets.

Being a “newer ASEAN member”, Vietnam is always granted the right to make more flexible commitments in accordance with the country’s condition and readiness for economic integration. Most of our tariff reduction schedules have longer timeframe than those of other ASEAN countries and ASEAN’s partners.

While most of ASEAN countries and dialogue partners will gradually reduce and eliminate their tariff within 10 years, Vietnam will only complete our tariff reduction in 15 years and even longer. This flexibility will provide more time for indigenous industries to restructure to improve their productivity, competitiveness and product quality so that they can compete effectively in both domestic and international markets.

When implementing tariff reduction and elimination, some of Vietnam’s biggest concerns are trade deficit and severe surge of imported goods. Although these are legitimate concerns, it is not FTA engagement which is the origin of our country’s current trade deficit at all.

In any FTA that Vietnam engaged in, there is concrete mechanism to deal with the surge of imports as a result of tariff reduction schedules. Parties have the right to take remedy measure as necessary. Moreover, it is also important to take into account the positive impact from import. Tariff cut is also a good opportunity for Vietnamese enterprises to ensure the sources of imported raw materials for local production, particularly for export-oriented processing and manufacturing industries and local consumption.

In recent years, Vietnam’s foreign trade has been equivalent to 140-150 per cent of the whole country’s gross domestic product (GDP), of which import has been equivalent to 80-90 per cent of GDP. The assurance of import sources is therefore as important as export market expansion. Those FTAs that Vietnam participated in have provided local enterprises with raw materials, machinery and equipments with competitive prices from China, ASEAN, South Korea, Australia and Japan (which usually make up 80 per cent of Vietnam’s imports).

FTA is  not only policy solution for the comprehensive objective of country’s economic growth and prosperity. FTA is the crucial element to help maintain  good momentum for restructuring the economy towards a more efficient and competitive one in the regional and global markets.

To realise this objective, we also need to promote production and investment for both domestic and foreign investors in Vietnam. This is the question for both local authorities and business community. The authorities must build a favorable and transparent business and investment environment and improve good infrastructure and human resources.

Those elements have so far been big obstacles for businesses to invest in Vietnam. The Vietnamese enterprises must also be more active in understanding and utilising the FTAs. More importantly, we need to improve our product and service quality, standard and prestige. It is obvious that the utilisation of FTAs’ benefits depends on not only  the government’s guiding role but also the Vietnamese business community.

vir.com.vn

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional