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Vietnam Today

Realizing the benefits of CPTPP

Released at: 10:40, 09/01/2019

Realizing the benefits of CPTPP

Photo: Viet Tuan

Vietnam's trade benefitting fully from the CPTPP requires the country and its enterprises put the agreement to their advantage and comply with all regulations.

by Nghi Do

The high-standard Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will benefit Vietnam a great deal and give local enterprises broader access to major markets under a low tariff regime, according to Mr. Hoang Minh Chien, Deputy Director of the Vietnam Trade Promotion Agency (VIETRADE) at Ministry of Industry and Trade (MoIT), but enterprises will also be forced to tackle non-tariff barriers. 

Most to gain

The CPTPP is forecast to expand the country’s export value by 4.04 per cent by 2035. It will also improve the country’s trade structure, diversifying export markets and approaching major markets more easily, according to Dr. Ngo Tuan Anh from the National Economics University in Hanoi. The Asia-Pacific now accounts for 70 per cent of all export value and 80 per cent of total import value. Nearly 70 per cent of Vietnam’s trade relations remain with East Asia but figures have been trending downwards in recent years. Signing on to FTAs, including the CPTPP, creates better trade relations with more partners in other regions and contributes to Vietnam balancing its trade deficit, MoIT has said. 

Total trade between Vietnam and the ten other members of the CPTPP stood at $67.33 billion in 2017, accounting for 15.84 per cent of the country’s total, according to MoIT’s Statistical Yearbook of Vietnam 2017. Trade between the country and each of the 200 countries and territories it does business with averaged more than $2 billion, while trade between the country and the ten other CPTPP members averaged more than $6.7 billion, or three and a half times higher. Vietnam recorded a trade surplus with most members in 2017 but a deficit with Singapore ($2.33 billion), Malaysia ($1.65 billion), and Brunei ($13 million). “The agreement will bring huge opportunities for export-import enterprises in Vietnam, both local and foreign-invested,” said Dr. Anh. 

The Ministry of Finance has forecast that under the agreement, average trade-weighted tariffs will drop from 1.7 per cent to 0.2 per cent for Vietnamese exports. Non-tariff measures are predicted to fall by 3.6 percentage points in terms of tariff equivalence. Tariffs on nearly 10,000 product lines will be cut once the agreement comes into effect. Of these, textiles and garments, leather, footwear, chemicals, plastics, means of transport, and equipment and machinery are expected to be the biggest beneficiaries, as the majority of import tax rates they currently face will be reduced to zero per cent. 

Export revenue from CPTPP members in 2017 was $3.1 billion, $2.2 billion, $1.3 billion, and $1.02 billion from textiles and garments, means of transport, equipment and machinery, and wooden products, respectively, according to Vietnam Customs. “Exports of textiles and garments and seafood previously relied significantly on the US but are now declining and Japan has begun to dominate, which is a positive sign,” said Dr. Anh. “This will not only help enterprises approach major markets with strict standards like Japan but also avoid the US’s trade barriers.”

Figures from Vietnam Customs show that textiles and garments, footwear, and seafood are the main export items to Australia, Canada, and Chile and will see much growth once the CPTPP takes effect. Meanwhile, telephones and computers will see growth in exports to Malaysia, Indonesia, Singapore, Mexico, and New Zealand. The largest growth in export value is expected in food and beverages and tobacco. Import growth is also predicted to increase in all sectors. The trade pact will create direct benefits for Vietnam’s labor-intensive sectors such as processing and manufacturing and agriculture. 

Among the ten other members of the CPTPP, Vietnam is yet to have official trade relations with Canada, Mexico, and Peru. “This is an opportunity for Vietnamese enterprises to expand exports to these markets,” Dr. Anh said. “The structure of goods and services in these markets is complementary to Vietnam’s, meaning there is little direct competitive impact.” Vietnam’s biggest competitor, China, not being in the agreement is an opportunity for Vietnamese goods to utilize preferential tax rates when entering intra-regional markets, he added.

Export value, 1995-2017 ($ billion)

Source: Statistical Yearbook of Vietnam 2017

Trade between vietnam & 10 CPtpp members, 11m 2018 ($ billion)

Source: Ministry of Industry and Trade

Needed improvements

From January 14, Vietnam’s export and import items will benefit from the preferential tax rates in the roadmap of commitments with six other ratifying countries. Each item will see tax rates cut over differing periods. Mr. Ngo Chung Khanh, Deputy Director of the Multilateral Trade Policy Department at MoIT, said enterprises need to research market demand and product standards and then meet rules of origin requirements. 

MoIT figures show that local enterprises utilize only 30 per cent of the opportunities available under Vietnam’s FTAs due simply to a lack of interest. Many are unwilling to study preferential tax rates and few actively discuss matters directly or indirectly with agencies such as MoIT, Mr. Khanh added. Acknowledging the weaknesses in the sector, Ms. Phan Thi Thanh Xuan, Deputy Chairwoman and Secretary General of the Vietnam Leather, Footwear and Handbag Association (Lefaso), told VET that the sector is mostly integrated assembly and enterprises are inexperienced in approaching markets. “They therefore lack a long-term vision in utilizing opportunities from agreements,” she said. The sector is expected to see export value grow by up to 20 per cent once the CPTPP comes into force. 

Commitments under the deal require Vietnamese enterprises comply with rules of origin, which has been an ongoing challenge for many sectors. According to the article on rules of origin, exports between members of products made from materials sourced from the eleven members benefit the most. Vietnam, meanwhile, mainly imports materials from countries outside the CPTPP, such as China and South Korea. While the country has made some effort at developing support industries, results have continued to be less expected. Leather and footwear have invested in raw material production, increasing localization rates to 55 per cent and cutting imports, according to Ms. Xuan.

Non-tariff measures are another issue in the agreement Vietnamese exporters must face. Agricultural products will face barriers relating to hygiene measures and technical regulations, such as in packaging, labelling and maximum residue limits, according to Mr. Chien. As the country has already joined many FTA, defining non-tariff barriers is very important, said Mr. Alain Chevaleir, Senior Consultant at VIETRADE. Small and medium-sized enterprises (SMEs) have paid little attention to and have only limited understanding of trade barriers, a problem unfortunately shared by many relevant agencies.

Figures from the Central Institute for Economic Management show that Vietnam has about 379 non-tariff barriers to face, mainly sanitary and phytosanitary measures and technical barriers. When participating in international trade the country simply must comply with general provisions and non-tariff measures. Ministries should list non-tariff barriers and then analyze the cost and benefit of compliance and provide more information to exporters and importers, according to Mr. Chevaleir.

Business associations, meanwhile, should actively study and analyze the opportunities, difficulties, and challenges for enterprises, while enterprises themselves must make their concerns known to MoIT through their association so they can be timely handled, Ms. Xuan said. MoIT is considering building a portal to disseminate the content of the agreement and respond to questions from the business community. According to economists, SMEs account for a majority of the economy and labor market, so the government should specifically support them in aligning themselves further with global supply chains.

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