January 19, 2020 20:15

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New opportunity from new generation FTAs

19:28 | 01/02/2019

VCN- Ending 2018 with the exciting prospect of vibrant international economic integration, Vietnam’s economic enters 2019 with hopes and concern. Because, 2019 is the year when the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) officially takes effect, and the EU-Vietnam Free Trade Agreement (EVFTA) may be approved.

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new opportunity from new generation ftas
Illustrative photo

Exports significantly increased

In October 2018, the European Commission agreed to submit EVFTA to the European Council, and it is likely that in 2019 this agreement will be officially approved. With CPTPP, on the afternoon of 12th November, at the 6th session of the XIV National Assembly, 100% of the National Assembly delegates present agreed with resolution for approval of agreement. These are the most remarkable achievements of Vietnam's international economic integration in 2018.

According to the preliminary report on quantitative assessment of benefits and opportunities of CPTPP for Vietnam by the Ministry of Planning and Investment, due to the impact of tariff reductions, CPTPP can help GDP increase by 1.32%, equivalent to US $1.7 billion. Vietnam will also benefit from exports with an increase in total export turnover of over 4% (equivalent to US$ 4.09 billion). Total import turnover will also increase by 3.8-4.6% (equivalent to US$ 4.93 billion).

Due to a higher export growth rate than imports, the risk of trade deficit can be curbed. The increase in exports will be mainly to countries in CPTPP. The growth rate of export to other countries in CPTPP will increase by 14.3% (progressive assumption by 2035), equivalent to US$ 2.61 billion, while exports to countries outside of the CPTPP will increase by 1.7 % (equivalent to US$ 1.4 billion). This shows that the agreement has a significant effect on trade diversion, and participation in CPTPP can help Vietnam diversify export markets.

With EVFTA, increase in exports is quite feasible. A study conducted by international experts shows that EVFTA will help Vietnam's exports increase by an average of 4%-6% per year within 10 years from the effective date of the agreement. Supposedly, when EVFTA comes into effect in 2019, exports to the EU will increase by US$ 16 billion in the first 1-2 years compared to the time when there was no trade agreement. By 2028, the figure will increase to US$ 75-76 billion.

Dr. Nguyen Duc Do - Deputy Director of the Institute of Financial Economics (Academy of Finance) assessed that FTAs offer a two-way impact of both opportunities and challenges. However, Vietnam and the EU have many differences in production structure, so the addition will be more than the competition. "The EU market is very large, opening up great opportunities for Vietnam's export growth. In addition, increased export also attracts increased FDI, thereby boosting economic growth," said Dr. Nguyen Duc Do said.

According to the Ministry of Industry and Trade, with the implementation of CPTPP and waiting for approval of EVFTA, Vietnam is considered to be able to significantly improve export market access, thereby creating more jobs and boosting economic growth. Analyzing a typical example in the wood processing and exporting industry, the Deputy Minister of Industry and Trade Tran Quoc Khanh stated that CPTPP will be take effect for Vietnam from January 14, 2019, and officially opens new markets for Vietnam in Mexico, Canada and Peru. In Canada, CPTPP will give opportunities for products such as flooring; barwood, because of a 3.5%-tax rate will be abolished right from the effective date of agreement.

Products such as plywood, picture frames, door frames and especially furniture, will also have great opportunities, because the import tariffs ranging from 6% -9.5% will also be removed when the agreement is effective... Regarding the EVFTA, the EU market has a turnover of about US$ 80-90 billion/year, but Vietnam's furniture accounts for less than 1% of this market, so the potential for development is huge. When EVFTA comes into effect, many items such as wood bars with the current tax rate of 3-4%, and kitchen furniture with the current tax rate of 2.7 %, will immediately reduce to 0%.

Strongly promote reform

Providing a thorough analysis of new generation FTAs, specifically for the CPTPP, economic expert Tran Hoang Ngan said that, “This is a comprehensive and progressive FTA. In general, it is not the same as the previous FTAs that only discussed tax issues and tariff reductions, CPTPP discusses investment, services, intellectual property, state enterprises, laborers, Government procurement, small and medium-sized enterprises, and progress is not differentiated between rich and poor.”

Expert Tran Hoang Ngan assessed that CPTPP will support the reform and improvement of the market economy regime, ensure fair competition among economic sectors, as well as encourage development of private economic sectors. In 11 countries, Vietnam's GDP is lower than that of the 10 other countries, but Vietnam is seen as a great potential market with a population of 95 million, and countries are very interested. Therefore, Vietnamese enterprises will face certain challenges, requiring businesses to improve their competitiveness and deploy the application of science and technology to create products that can be competitive in the domestic and international market.

“With CPTPP, a great opportunity for Vietnam is that tariffs will support the garment, footwear and processed food industries, but challenges will have to be faced in livestock, farming and finance. For fields that are considered to be weaker, such as agriculture, production needs to be reorganized because farmers must gradually become familiar with large production capacity, cooperative groups... Thus, we can create agricultural products that are highly competitive in the market. If this is not done, livestock, agricultural and food products will surely face obstacles from 11 countries,” economic expert Tran Hoang Ngan said.

According to Assoc. Prof. Dr. Vu Minh Khuong of Ly Quang Dieu University, Singapore, member of the Economic Advisory Group of the Prime Minister, in 2019, Vietnam's export turnover to CPTPP member countries may be slightly better. Recently, members’ awareness of Vietnam's reform improvements have been widely approved. However, in order to meet the requirements of CPTPP in particular and the process of economic integration in general, Mr. Khuong said that Vietnam's reform level is still far from other countries’ progress in the region, as well as in the world.

Reforms to create a foundation for the future, for people "to respond", but Vietnam has not yet done that. "For example, with investment attraction, investors in Vietnam are still focusing on opportunity, but not for sustainable development. Vietnam must strive towards the goal of a business environment that is not inferior to other countries, and Vietnam’s institutions that are progressive so that investors find that investing in Vietnam is beneficial and encouraging. If we create trust for the people, for businesses, to go together to reach the dream of the whole nation, it will be much better," Mr. Jiang stressed.

By Thanh Nguyen/ Ngoc Loan