Nov 24, 2012

Vietnam - Vietnam suffers “shortness of breath” in FTA race

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VietNamNet Bridge – By joining free trade agreements (FTAs), Vietnam strives for the market expansion and the full global trade integration. However, it has been facing a lot of challenges in the race.

Opportunities opened

With the Vietnam-Japan FTA, 95 percent of the export items to Japan would see the tariff gradually decrease to zero percent. In the trade with South Korea, more than 90 percent of Vietnamese goods now can enjoy tax preferences with the ASEAN-South Korea FTA. The similar preferences have also been given to Vietnam by other partners.

FTAs are hoped to help stabilize the prices of input materials which Vietnam needs to import in big quantities to make products domestically for export (Vietnam imports make up 80 percent of GDP).

FTAs would also help attract more foreign investment, because the trade liberalization is always considered a big advantage for foreign investors when setting up production bases in Vietnam and expanding their markets.

FTAs were believed to make a great contribution to the Vietnam’s high export growth rate of 34.2 percent in 2011 over 2010. In the first 10 months of the year, despite the global economic difficulties, Vietnam’s exports still increased by 18.4 percent.

Limited capability makes it unable to take full advantage of FTAs

There are always two sides of a coin.

Japan is not the major market for Vietnam’s garments. Japan imports fine arts and handicrafts from Vietnam, but it is really a picky client. Vietnam still cannot take full advantage of the FTA to boost seafood to the market because of the strict control set up by the Chinese agencies.

The same problem has been occurring with the exports to South Korea. Vietnamese exporters have been complaining about the technical barriers installed by the country. Seafood exports have to undergo harsh examination, while wooden furniture products must show the documents about the origin of the wood.

Vietnam still cannot take full advantage of the FTAs also because it mostly exports raw materials and imports finished products, while foreign partners import raw materials from Vietnam and then sell finished products to Vietnam.

They bought Vietnam’s crude oil and sell petrol to Vietnam. Indonesia buys high quality coal from Vietnam and exports lower quality coal to Vietnam. China has reportedly bought Vietnam’s coal to hoard up to prepare for the economic development.

Fine arts and handicrafts, garments and footware products are the advantageous export items of Vietnam. However, these are also the advantageous products of the partners.

Things will be decided by Vietnam itself

Analysts have agreed that Vietnam seems to get short of breath when implementing FTAs. While it cannot use its advantages to boost exports, it has to face bigger challenges because the partners have fully exploited their advantages.

Vietnam has a national competition council with the organ located at the Ministry of Industry and Trade. It has the national office for standard and quality inquiries. Meanwhile, the border gates have been kept watch by competent agencies. However, the agencies’ operation remains far below the expectations.

Vietnam is negotiating for the Trans-Pacific Partnership Agreement TPP, the FTA with the EU and South Korea.

Analysts have warned that these are all “headstrong” partners. The EU may not lower the barriers against Vietnam’s exports, while South Korea is the country with which Vietnam has the second biggest trade deficit, just after China.

Nguyen Duy Nghia

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