On April 27, 2021, the Faculty of Economics and International Business, VNU - UEB, hosted a seminar on "Methods to Assess the Impact of Free Trade Agreements." The seminar aimed at providing a forum for its lecturers to exchange professional experiences and develop research ideas so as to increase domestic and international publication.
Dr. Vu Thanh
Huong provided “An Overview of Methods to Assess the Impact of Free Trade
Agreements,” and Dr. Nguyen Tien Dung made a presentation on “Evaluating the
Impact of Regional Comprehensive Economic Partnership: Applying a
Solvable Balance Model.” The two speakers took the rat but out of the hat by
revealing what methods, models economic researchers and strategic planners can
use to assess with depth the impacts of free trade agreements. At the seminar,
various issues with a regard to Free Trade Agreement (FTA) opportunities and challenges,
as well as what should be done by the Vietnamese government and businesses to
reap the benefits of FTAs were discussed with excitement.
Vietnam's integration into FTAs
Besides its
ASEAN membership in 1995 and WTO membership in 2007, Vietnam has been involved
in 14 FTAs in force (i.e.: AFTA, ACFTA, AKFTA, AJCEP, VJEPA, AIFTA, AANZFTA,
VCFTA, VKFTA, VN - EAEU FTA, CPTPP (formerly named as TPP), AHKFTA, EVFTA,
UKVFTA); 01 FTA not yet ratified, to take effect soon (RCEP) and 02 more FTAs
being negotiated (i.e.: Vietnam - EFTA FTA and Vietnam - Israel FTA).
Integration outcomes and challenges
Vietnam has achieved many successes in
socio-economic development thanks to its highly active regional and global
economic integration, especially its recent involvement in three new-generation
FTAs including CPTPP, EVFTA, and UKVFTA. The signing of and involvement in FTAs
has provided Vietnam with a larger import and export market. Vietnam's
import-export turnover to the global market has continuously increased despite
of global economic fluctuations. In 2019, Vietnam's total import-export
turnover reached a record level surpassing the 500 billion USD mark. In 2020,
even in the Covid-19 pandemic, Vietnam's trade remained positive, with the
trade surplus reaching a high record of nearly 20 billion USD. Vietnam is one
of very few Asian countries that has maintained positive trade growth during
the pandemic. Vietnam's trade increased by more than 24 percent in the first
quarter of 2021 compared to the same period last year, with the export turnover
of goods increasing by 22 percent, the import turnover of goods increasing by
26.3 percent, and the trade balance trade surplus estimated at more than 2
billion USD. With the implementation of the EVFTA in August 2020, the growth
rate of exports to the EU gradually improved in the final months of 2020 and
increased by 18% in the first three months of 2021. Those are very encouraging
signs Vietnam has gained in the first quarters of the year which demonstrates
Vietnam’s strong recovery in production and trade in goods though the Covid-19
epidemic is occurring complicatedly in many countries around the world. Those
results have been achieved thanks to significant contributions of the FTAs in
recent years.
Vietnam not only
strengthens its traditional markets, but also opens up many potential markets
by promoting relations with important economic strategic partners while
improving the competitiveness of domestic businesses. The participation in and
implementation of new-generation FTAs set a prerequisite for Vietnam to promote
economic growth, to attract high-tech investment, and to improve the business
environment, thereby promoting economic growth in 2021 and beyond.
Specifically,
some recently signed agreements such as CPTPP, EVFTA, RCEP... can provide great
opportunities for Vietnam because Vietnam will be involved with its major trade
and investment partners which have a market size of approximately 500 million
people and account for more than 13% of the global GDP. Joining the CPTPP will
help increase Vietnam's GDP by 1.7 billion USD and exports by more than 4
billion USD by 2035, representing increases of 1.32 percent and 4.04 percent,
respectively. With a regard to EVFTA, Vietnam will be able to create
approximately 146,000 jobs on an annual basis; Vietnam’s GDP will increase at
an average rate of from 2.18 to 3.25 percent for the first five years of
implementation, at from 4.57 to 5.30 percent for the next five years, and from
7.07 to 7.72 percent for the following five years; and Vietnam will have around
0.8 million to be lifted out of poverty by 2030...
The RCEP was
recently signed by ten ASEAN member states and five of their FTA partners with
ASEAN including: Australia, China, Japan, Korea, and New Zealand. When the agreement
goes into effect, it will create a market of 2.2 billion consumers, accounting
for roughly 30% of the global GDP, and will become the world's largest free
trade zone.
The
implementation of the RCEP can help Vietnam increase GDP by 0.4 percent by 2030
if direct benefits are considered, and possibly up to 1% if indirect benefits
from institutional reforms are considered. The RCEP will be able to bring more
"breathable" rules of origin for many Vietnamese export industries compared
to other FTAs, most notably form textile and garment, agricultural and aquatic
products. For instance, for textile products, the previous FTAs between Vietnam
and Japan, and between ASEAN and Japan, all required two-stage rules of origin.
That means to be eligible for preferential tariff treatment, fabric must be
manufactured in the ASEAN region or Japan. With the RCEP, however, Vietnam can
import fabrics from anywhere; all it needs is to do cutting and sewing in
Vietnam (a change of product chapters) to qualify for tax breaks when exporting
to Japan. Similarly, for aquatic products, previous agreements always required
the pure origin in Vietnam; the RCEP anyway accepts the import of seed, farming
into Vietnam, while the export still can enjoy preferential treatment. With the
RCEP, Vietnamese businesses will be able to participate in regional production
and value chains while benefiting from lower transaction costs and a more
welcoming business environment thanks to the harmonization of existing
regulations and the adaptation of various FTAs of ASEAN. However, in addition
to the effects of integration, Vietnam is confronted with environmental
pollution, the noodle bowl effect, the wealth gap, and brain drain. The RCEP
agreement, in particular, entails some trade challenges, such as the
possibility of an increase in trade deficit. Vietnam has a trade deficit with
many RCEP members. Vietnam previously had trade deficits with ASEAN and China,
but it now has trade deficits with Australia, New Zealand, and Japan... This
may put Vietnam at a risk of facing defensive lawsuits as imported raw
materials for production and export to markets outside the region are not
properly controlled.
Policy recommendations for Vietnam as it involves in
FTAs
The year 2020
marks a watershed moment in Vietnam's international economic integration
process, with the implementation and signing of a slew of new-generation FTAs.
This will serve as a springboard for domestic enterprises on the way to the big
sea” and a driving force in Vietnam's economic recovery following the pandemic.
For the
Government:
In the context
of intertwined benefits and drawbacks, it should be determined that Vietnam's
core strategy for dealing with fluctuations in the global economic situation
and the Covid-19 pandemic is to promote macro stability, implement a dual
strategy, continue on the path of international economic integration,
strengthen the implementation of signed FTAs to increase exports, and maintain
growth. It is necessary for Vietnam to take advantage of FTA benefits in order
to participate more deeply and at a higher level in the global value chain,
while also taking advantage of the 4th Industrial Revolution to
promote the development of e-commerce and digital trade, as well as keeping up
with new trends in international trade and the digital economy. Furthermore, in
order to effectively implement FTAs, Vietnam should continue to review
mechanisms and policies in accordance with international commitments, widely
disseminate information so that incentives can be exploited thoroughly, improve
enterprise competitiveness, and assist enterprises in participating in global
production and value chains
Vietnam should
assess, analyze, and forecast the global and regional situation in order to
develop appropriate guidelines and countermeasures in the context of the
Covid-19 pandemic. It is necessary for Vietnam to closely monitor each move and
predict the scenarios of the global economy in the current volatile conditions,
in order to plan solutions for each of those scenarios and be ready to prepare
for all possibilities, including the worst-case scenario. In the face of the
wave of positioning, Vietnam also needs implement the process of international
economic integration, improve the investment environment to welcome foreign
businesses, and rebuild the global value chain effectively. The fact that the
Government makes efforts in reducing costs for exporters and manufacturers as
well by simplifying procedures and cutting time in granting permits and
actively assisting businesses in finding new markets demonstrates necessary
solutions taken by the Government. With regard to the WTO, Vietnam should
recognize and better assess the WTO's role for its trade development so as to
determine a reasonable approach to multilateral trade issues in the future.
For the Ministry
of Industry and Trade:
On its part, the
Ministry of Industry and Trade, which is the state management agency being
directly responsible for Vietnam's trade integration, should continue directing
trade affairs and related units to strengthen the implementation of various
solutions in promoting key product exports, expanding markets, and
concentrating on capitalizing on Vietnam's export advantages. The ministry
should also direct the agencies that are in charge of investment and trade
promotion to urgently assist businesses in developing and implementing product
promotion and introduction plans so they are able to participate in trade
fairs, cooperation activities with partner businesses under FTAs, to improve
the efficiency of trade promotion, and to innovate trade promotion methods, in
which a focus is placed on goods with export advantages, potential markets, and
niche markets so as to diversify export markets.
The Ministry of
Industry and Trade should also accelerate the development and implementation of
a national standard system for exported goods that is in accordance with
international and regional standards. Simultaneously, it should develop a
specific plan for developing and guiding the application of standards for goods
exported to the markets of partner countries, because the standards for
imported goods that the governments of partner countries especially the
governments of developed countries established, regulated are likely to erect
trade barriers for Vietnam's exported goods and services. Furthermore, the
Ministry of Industry and Trade and industry associations should develop a plan
to disseminate, advise, and train exporters on the application of goods quality
standards adopted by partner countries in order to avoid risks as exported
goods that do not meet prescribed standards will not be imported into the
markets of partner countries.
For businesses:
At present, it is observed that mainly
large enterprises make good use of FTAs because they have well understood how
important it is to build international brands. However, many small and
medium-sized businesses yet to make good use of FTAs. Therefore, it is highly
necessary to set up a strong connection within the business community in
sharing information and strengths so they can reap benefits of signed FTAs. The
Covid-19 pandemic has also revealed a slew of new issues, for instance
increased logistics costs..., which raises questions for import and export in
the coming time. As long as Vietnam integrates more deeply into the global
economy, domestic businesses must prepare themselves for changes associated
with the global economy, develop solutions for themselves in responding
proactively to unusual factors. Especially, businesses should rely on
production conditions, strategic market information when making choice of the
agreements most appropriate for them, and taking advantage of preferential
advantages. Moreover, businesses are required to improve the quality of
products and services so as to meet the requirements of picky markets, as well
as to keep themselves update of regulations and non-tariff measures issued in
the markets where they hope to be able to take full advantage of FTA's benefits
Export
businesses must actively learn and develop plans for adjusting the supply chain
and input materials to ensure that they can meet rules of the origin in order
to benefit from preferential tax rates when the UKVFTA and RCEP come into
effect. At the same time, in the time to come, it is necessary for businesses
to redirect raw material imports in a number of industries, including textiles,
garments, and footwear, in order to capitalize on opportunities generated by
commitments under the agreements.
Vietnamese
enterprises must improve the homogeneity of each shipment, post-harvest storage
capacity, and product quality in order to conquer the markets of developed
countries as partners. Most of the countries involving in the EVFTA, UKVFTA,
and RCEP have an open economy, support global free trade, but goods to be
exported must undergo a stringent control in terms of technical standards, food
safety... Furthermore, in fact, as developed countries adopt highly stringent
mandatory requirements on food hygiene and safety, labeling, the environment,
it is not easy to meet those requirements at all. As a result, even if it
benefits from tariffs, Vietnamese goods must be improved significantly in terms
of quality in order to overcome those barriers. Simultaneously, new-generation
FTAs not only liberalize trade in goods and services, but also incorporate many
other critical factors, such as green growth and sustainable development. In
short, Vietnamese businesses seeking to enter the markets of partner countries
must address at least three issues: standardization,
health, and the environment.
Enterprises should carefully control food
hygiene and safety issues for exported goods in the agricultural - food sector
to avoid risks because the standards of food safety in developing countries,
particularly the maximum threshold of pesticides, are very strictly regulated.
Furthermore, despite the fact that Vietnam signed FTAs with the EU and the UK,
it allows Vietnamese vegetables and fruits to maintain a tariff advantage over
competitors. Vietnam's tariff advantage in vegetables and fruits, however, will
not last for long as Vietnam's competitors are also negotiating similar
agreements with the EU and the UK. As a result, businesses that already have
strengths in raw material areas and a full quality management system should
quickly seize opportunities and dominate markets in the early stage when the
EVFTA and UKVFTA come in force.
It is necessary
for seafood exporters to voluntarily and strictly comply with traceability
regulations; strengthen inspection and supervision of the use of antibiotics in
their production and processing stages for export. At the same time, it is
important for them ensure food safety and hygiene throughout the entire chain
of preservation and processing to have high-quality aquatic products that meet
requirements of import countries. In addition, it is necessary to build active
cooperation and links in order to increase strengths, create supply chains by
promoting production linkages between enterprises, cooperatives, farmers,
fishermen, and production households, which then helps strengthen the “value
chain,” corporate social responsibility, and the long-term development of
new-generation FTAs.
| Dr. Nguyen Tien
Dzung gained his PhD and Master's degree in development economics in Nagoya
University in Japan. He is working as a lecturer for the Faculty of Economics
and International Business at the VNU University of Economics and Business. |
| Dr. Vu Thanh
Huong earned her Master of Science in Natural Resource Economics from the
University of Queensland in Australia and her PhD in International Economics
from the VNU University of Economics and Business. Dr. Vu Thanh Huong is
currently Vice Dean of the Faculty of International Economics at the VNU
University of Economics and Business. Dr. Huong’s research interests include in
International Trade, Trade Impact Assessment, Trade Facilitation, and
International Economic Integration. |