Countries with which Vietnam has signed a free trade agreement (FTA) are considered major markets of potential for exports as the world recovers from Covid-19. It won’t be easy to establish and maintain market share in these countries, however, and will require that exporters adopt a long-term strategy.

Markets of potential

According to the Vietnam Trade Promotion Agency at the Ministry of Industry and Trade (MoIT), the ministry has reviewed, analyzed, and assessed the possible market volumes for the export of key Vietnamese products in order to implement an export promotion plan in the post-Covid-19 period.

Fourteen export markets and regions are considered key, especially those that are partners of Vietnam in FTAs, which will be the primary driving force for businesses to strengthen the restoration of import and export activities in 2022. New-generation FTAs coming into force will continue to open up many new opportunities for Vietnam’s trade, investment, and tourism. Exports are forecasted to reach $372-380 billion this year, up 13-15 per cent against 2021, and imports $366-372 billion, up 11-13 per cent. Vietnam will therefore again post a trade surplus, of $4-8 billion.

The EU-Vietnam Free Trade Agreement (EUVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP) will all help businesses in Vietnam access markets and promote exports. Vietnam’s export market will continue to grow in 2022, pushing up export turnover for the year by some 16-20 per cent.

Notably, in 2021, with the EUVFTA, Vietnam’s trade surplus with the bloc stood at a record $21 billion. The EU will continue to be viewed as an export market of major potential into the future. With 27 member countries, a population of around 516 million, and GDP per capita of over $35,000 annually, goods such as coffee, cashew nuts, rubber, vegetables, pepper, rice, and tea will be major contributors to export turnover in the market, according to the MoIT. Germany, Italy, Spain, and Belgium will continue to be Vietnam’s primary export markets, with substantial potential for growth.

The CPTPP is the third-largest economic integration bloc in the world, following the Japan-EU Free Trade Agreement (JEFTA) and the EU itself. With a market size of more than 502 million people, total GDP in excess of $10 trillion, or about 13.5 per cent of global GDP and about 14 per cent of total world trade, and with major markets including Japan, Canada, and Australia, the agreement promises to open up many opportunities once new supply chains are formed.

Meanwhile, the RCEP will form a market of 2.2 billion consumers, accounting for about 30 per cent of the world’s population, and a GDP of about $26.2 trillion, or about 30 per cent of global GDP, making it the largest free trade area in the world in terms of population. The partnership is expected to help create a stable and long-term export market for Vietnam.

The US is also seen as a market of increasing potential given that the impact of the CPTPP on the development of export markets for Vietnamese goods in member countries in the Americas will be substantial. According to the General Department of Vietnam Customs, January trade value between Vietnam and the Americas reached $13.18 billion, a 15.6 per cent increase year-on-year. Exports were $11.29 billion, up 18.4 per cent and accounting for 36.6 per cent of total trade value.

Elsewhere, the UK-Vietnam FTA (UKVFTA) officially entered into force last May. British Ambassador to Vietnam, H.E. Gareth Ward, told VET that the implementation of the agreement is another hugely significant milestone driving bilateral trade. Sixty-five per cent of all tariffs on UK-Vietnam trade have been eliminated and this will increase to 99 per cent upon full implementation in 2029. “There is still plenty of room for trade growth between the two countries, especially in Vietnam’s strengths, such as agricultural products, where the UKVFTA has contributed significantly with commitments to tariffs and Tariff-Rate Quota as well as removing market access barriers,” he added. “In addition to the advantages the UKVFTA brings, capturing the consumer tastes of imported products in the UK, enhancing product quality, and transforming to environmentally-sustainable production will be central in boosting the value of Vietnam’s exports to the market.”

Mr. Takeo Nakajima, Chief Representative of the Hanoi Office of the Japan External Trade Organization (JETRO Hanoi), told VET that FTAs allow companies to import cheaper raw materials and export them at low or zero tariffs. “Domestic companies can import low-cost raw materials and finished products,” he added. “Vietnam already has several FTAs with Japan, which is one reason why trade has grown steadily. Both the EUVFTA and the RCEP bring the possibility of expanding exports to larger markets.”

Minister of Industry and Trade Nguyen Hong Dien said that since the outbreak of the pandemic in early 2020, total export turnover has maintained high growth despite Vietnam and its trade partners being severely affected and experiencing lockdowns and social distancing. “This shows that in addition to developing traditional markets, businesses have taken advantage of the opportunities to approach new markets and grow exports, especially in markets that have signed FTAs with Vietnam, and also shows that the policy of deep and broad international economic integration is correct,” he added.

Obstacles to overcome 

FTAs present an opportunity to remove tariff barriers and create a favorable environment for production and exports. “However, along with opportunities are challenges from the risk of being sued for trade remedies abroad,” Minister Dien said.

The rising prevalence of non-tariff trade barriers in many major markets, the volatility of global commodity prices, the risk of inflation, and increasing financial and currency risks also affect exports.

Ambassador Ward pointed out that exporting to the UK demands high product quality as well as robust hygiene and safety standards. Improving production technology and ensuring that product quality follows UK standards will be vital for Vietnamese businesses to succeed in the market. He affirmed that Vietnam would benefit more from the UKVFTA if it made commitments to enhance product quality in line with market demand and UK standards. UK investors looking at Vietnam, meanwhile, seek a transparent and consistent regulatory framework. “The UKVFTA aims to boost trade and sustainable development, including by improving labor quality, environmental protection, climate change, and low carbon and green standards,” he added. “This poses a major challenge for Vietnam in ensuring a comprehensive transition towards sustainability.”

Mr. Nakajima said that as the number of FTAs increase, the rules become more complex, and the government’s ability to process them may be slow. “In the CPTPP, the government delayed announcing notification about the rules of origin,” he said. “Enterprises could not use the agreement after it came into effect.” A JETRO survey revealed that 50 per cent of companies cited an “underdeveloped legal system and uncertain operations” as significant management issues in Vietnam, while 46 per cent pointed to “the complexity of taxation and tax procedures”.

According to JETRO, international companies have concerns about the personal information protection laws the Vietnamese Government has drafted for public comment in light of the rules in the CPTPP. If enacted, the regulations will hinder the free flow of data within the digital economy. In addition, awareness and training are necessary to take advantage of FTAs. The JETRO survey revealed that 16 per cent of companies can technically use FTAs but don’t in practice. Reasons include “I don’t know if it is an applicable item” and “I don’t know the system or procedure”.

Boosting exports

FTAs are a good macro stepping stone for Vietnam’s exports. But in addition to the efforts of businesses, the government needs to smoothen administrative procedures for imports and exports. Regulations need to be clear, transparent, and convenient to create motivation among enterprises to develop export items. Mr. Andrew Jeffries, Country Director of the Asian Development Bank (ADB) in Vietnam, said global trade is recovering strongly and relatively quickly compared to the aftermath of the Great Recession. “Pre-pandemic trends are expected to catch on by the end of 2022,” he added. “The recovery in market demand and prosperity in global and regional value chains bring many opportunities for Vietnam’s exports. However, Vietnam also needs to overcome challenges to reduce trade costs and help SMEs [small and medium-sized enterprises] integrate into supply chains and gain resilience.”

When participating in new-generation FTAs, standards in import markets can be quite high, with commitments higher and deeper than in traditional agreements. In terms of the US market, Mr. Dustin Daugherty, North American Business Development Manager at Dezan Shira & Associates, said that it won’t be easy for Vietnamese enterprises to send goods to the country and take advantage of the incentives on offer.

Elsewhere, the UKVFTA will bring real benefits in improving and standardizing trading rules, including by enhancing transparency and boosting sustainable development. “In the longer term, I would advocate for a gradual approach to reopening, with commensurate steps to ensure interested UK investors are able to travel and access the market,” Ambassador Ward said. “We encourage Vietnam to establish a stable legal framework, implement policies with a clear long-term vision, and create motivation to meet development demands according to international commitments and national economic growth strategies.”

Mr. Nakajima said that the number of FTAs has increased but the development and operation of domestic laws have not kept pace. Strengthening customs clearance and various licensing operations is vital to improving smoothness and speed. “E-commerce is changing the conventional logistics system, so Vietnam must improve its roads, ports, highways, airports, and warehousing infrastructure,” he noted. “If the domestic logistics sector remains under-developed, FTAs will not bring their full benefit. We would also like to see the branding of ‘Made in Vietnam’.”

To support exporters, the MoIT has developed an early warning system to monitor and provide timely information to relevant parties, especially manufacturers, exporters, and industry associations, according to Minister Dien. It has also developed information bulletins on trade remedies, origin fraud, and tax evasion, and has coordinated with press agencies to report on measures to combat fraud and forgery in origin and provide information on cases that have been detected and handled by competent authorities. The MoIT will continue to organize training programs on trade remedies for associations and businesses, to improve their capacity to avoid being sued in export markets. In addition, it will continue to implement solutions it has focused on in the past to support businesses and promote exports, such as continuing to organize effective exploitation of FTAs, expand and diversify export markets, and help businesses take advantage of commitments in new-generation FTAs.