New-generation FTAs to bring opportunities but also risks and challenges, says Minister
Joining new-generation free trade agreements (FTAs) will help Viet Nam diversify its economic and trade relations, especially expanding import and export markets, avoiding excessive dependence on a specific region and helping the economy cope better with external fluctuations.
Joining new-generation free trade agreements (FTAs) will help Viet Nam diversify its economic and trade relations, especially expanding import and export markets, avoiding excessive dependence on a specific region and helping the economy cope better with external fluctuations.
The remark was made by Minister of Industry and Trade (MoIT) Tran Tuan Anh in an article sent to Vietnam News Agency recently.
Anh says in the article participating in FTAs will continue to promote trade between Viet Nam and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU countries, especially in areas of Viet Nam’s strength. For members of the CPTPP, including major markets such as Japan and Canada, to cut import tax to zero per cent for Vietnamese goods will have a positive effect on promoting export turnover.
“Tax on exports, such as agriculture, fishery, electricity and electronics will be eliminated when the agreement takes effect. A MoIT study shows that Viet Nam’s exports are likely to increase by 4.04 per cent by 2035,” Anh says.
According to a study by the World Bank, with this level of commitment, in the context of the basic economic conditions remaining unchanged, Viet Nam’s exports may increase by 4.2 per cent in the context of productivity growth, while export growth will be 6.9 per cent by 2030, he says.
As for the EVFTA, the agreement between Viet Nam and the EU will help the country’s exports increase by an average of 6.7 per cent for the first five-year period of implementation, 13 per cent for the next five years and 20 per cent for the period five years later.
The minister says Viet Nam’s exports currently account for nearly 1.5 per cent of the total EU import turnover. Among them, only about 42 per cent of Viet Nam’s export turnover is entitled to a tax rate of zero per cent (including goods under the GSP universal tariff incentive programme).
“This is a very modest figure compared to the export potential of Viet Nam as well as the market size of the EU. With the commitment to cut taxes in the EVFTA and especially the strong complementary trade structure, the potential for the two sides to further develop economic-trade relations after the FTA is huge,” Anh says.
In addition, Viet Nam also has opportunities to participate in regional and global supply chains. Currently, countries participating in CPTPP and EVFTA agreements account for 13.5 per cent and 22 per cent of global GDP, respectively.
According to the General Department of Customs, the total trade turnover between Viet Nam and CPTPP countries reached more than US$51 billion in the first eight months of 2019; while that between Viet Nam and the EU reached about $38 billion by the end of November 2019.
With the scale of GDP and trade turnover, joining these FTAs will open up many opportunities for businesses when the new supply chain is formed, which is an important condition to raise the level of development of the economy, increase labour productivity, gradually reduce assembly, participate in higher value-added production stages, and then step into the development stage of electronics, hi-tech and green agricultural products.
“This is a great opportunity to improve Viet Nam's economy in the next ten years,” Anh says.
Regarding opportunities for institutional reform, improving the business environment, as well as joining the former WTO and joining the new generation FTAs, will be an opportunity for Viet Nam to continue improving its legal and business environment.
Along with the ratification of the CPTPP, the National Assembly also decided to amend some contents of the Intellectual Property Law and the Insurance Business Law as a testament to the policy of continuing to improve economic and legal institutions of the Party and the State.
At the same time, the extensive commitments in the service - investment sector will give Viet Nam more opportunities to improve the business environment in a more open, transparent and predictable manner, close to national standards. In addition, the economy has advanced, thus promoting both domestic and foreign investment.
“Joining the new generation FTAs also supports the process of renewing the growth model and restructuring Viet Nam’s economy, especially in areas such as finance – banking, public spending and agriculture,” Anh says.
The connection with partners, such as the EU, Japan and Canada also helps Vietnamese businesses connect with technology and management capacity at the most advanced level in the world. “This is an opportunity for Vietnamese businesses to learn and strive to meet the demands of the global competitive environment.”
According to research results from the Ministry of Planning and Investment, the CPTPP can help increase the total number of jobs by an average of 20,000 – 26,000 per year. As for poverty reduction, according to a World Bank study, by 2030, the CPTPP is expected to help 0.6 million poor people escape the poverty line of $5.5 per day. All income groups are expected to benefit.
However, international economic integration and participation in free trade agreements, especially the new generation agreements, not only bring about opportunities, but also risks and challenges.
“These are economic challenges on completing the legal and institutional framework, implementing commitments in new areas not yet included in previous FTAs such as labour and environmental unions,” Anh says.
“Therefore, in the near future, Viet Nam needs to have effective solutions to implement and make good use of the opportunities in these FTAs. At the same time, we will continue to focus resources on promoting the ratification of the EVFTA in the shortest time in order to benefit the people and businesses of both sides soon,” he adds. — VNS
