Vietnam makes short-term gains in regional trade deals and braces for the other shoe to fall
A farmer collects latex at a rubber plantation in Vietnam’s central highlands. Rubber is among key export products that have potential gains from trade liberation.
Vietnam’s economy has benefited greatly from the free trade agreements it has signed over the past 24 years, according to a report issued last week.
The nation has successfully pursued a policy of market price liberation, better exchange rate management, and private competition with state-owned enterprises, said a report authored by the Europe-Vietnam Mutrap III, a multinational trade assistance project. The authors also lauded Vietnam’s modernization of its financial system and implementation of tax reforms.
The report said that Vietnam has witnessed rapid economic growth, trade and investment expansion, and substantial poverty alleviation.
Manufacturers of footwear, leather, seafood, textiles, produce, rubber and coffee were optimistic about their potential gains from trade liberation, the authors reported after interviewing representatives from these various industries.
The report added that representatives from other domestic firms (i.e. auto, paper and pulp) were wary of the changes but resigned to facing increased competition from abroad.
Vietnam completed free trade agreements with its ASEAN partners in 2003 and with Japan in 2008. The country also signed ASEAN agreements with China, India, Japan, South Korea, Australia and New Zealand.
ASEAN, as the Association of Southeast Asian Nations is often known, comprises ten countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
A shot in the arm
Le Quang Lan, deputy director general of the Ministry of Industry and Trade’s Multilateral Trade Policy Department, said local businesses have enjoyed immediate gains from the regional trade deals.
The South Korean and Japanese governments cut import tariffs for products imported from ASEAN right away. Since then, Lan said, Vietnamese businesses have paid tariffs of less than 5 percent on goods sold in those developed markets.
More than 70 percent of Vietnam’s export products have benefited from the low tariffs since 2007, boosting the country’s export to Korea. On average, about 50 percent of businesses in ASEAN countries enjoy the low tax in Korea, said Lan.
In the agreements between China and ASEAN, 25 percent of Vietnamese businesses benefited, he said.
Vo Tri Thanh, deputy director of the Central Institute for Economic Management, said the agreements have improved the competitiveness of local firms and attracted foreign investors.
He added that the agreements have also improved skills and salaries among the domestic workforce, especially in the management and engineering sectors.
According to Thanh, the average salary for a Vietnamese CEO working for a multinational firm is VND400 million per month while the salary for state-owned company heads topped out at VND50 million.
Last year, Vietnam’s total exports were valued at US$56.73 billion, a drop of 9.5 percent year-on-year due to the global economic downturn.
Its partners in the agreements contributed a majority to the country’s export value last year. For example, the ASEAN market imported $8.5 billion worth of Vietnamese products, compared to $6.2 billion in Japan, $4.8 billion in China, and $2.5 billion in Korea.
The partners were also suppliers of Vietnamese businesses, with China topping the list followed by ASEAN members, Japan and Korea.
You scratch my back...
Lan, from the Trade Policy Department, said that Vietnam will fulfill its commitments to cutting import tariffs on products from its Asian trade partners over the next decade.
Vietnam aims to shave 3 to 4 percent off the current 12 percent tariffs on consumer products, garments, wooden furniture and steel, said Lan.
The country continues to protect agricultural products like sugar, eggs and tobacco, and industries like petrol, rubber, automotive products, he said.
Businesses should prepare for the cuts, Lan said, adding they should also be aware of governments that cut back tariffs only to raise technical barriers and quality requirements on imports to their markets.
He claimed that Vietnamese trade negotiators did not pay enough attention to those barriers.
James Cassing, a professor at the University of Pittsburgh, said the effectiveness of the free trade agreements did not only depend on import tariff cuts.
If tough technical barriers are raised to protect domestic industries then the agreements mean nothing to partner businesses, he said.
The professor warned that the barriers will become increasingly common in export markets. Vietnam is in the process of negotiating agreements with the European Union and Chile.
