December 27, 2014
– The Vietnam Business Forum 2014 (VBF 2014) held earlier this month in Hanoi was centered around the theme “Entrepreneurship for New Trade Agreements,” which offered a chance to look back on the preparations of Vietnam for new integration opportunities.
A few hours before Deputy Minister of Industry and Trade Tran Quoc Khanh flew to the U.S. for another negotiation round of the Trans-Pacific Partnership Agreement (TPP) early this month, businesses in the automotive industry had sent a document to the Prime Minister to seek a series of incentives. In the letter, the Vietnam Association of Mechanical Industry and some carmakers proposed land tax exemption, investment incentives, interest-free loans for car purchase, and an unchanged excise tax of 45% for all vehicles whose capacity are below 2.0L.
This was not the only action taken by the automotive industry, arguably the most heavily protected industry for over two decades. At VBF 2014, the Automotive Working Group continued making complains to Prime Minister Nguyen Tan Dung. It said in the context of Vietnam preparing for comprehensive integration with ASEAN in 2018, whether the local automobile industry “will be able to survive and thrive” heavily depended on tax and fee policies the Government imposed, especially excise tax. Some automobile assemblers, such as Toyota and Truong Hai, suggested the maximum protection of 50% should be retained until 2017, whereas the Minister of Finance had submitted a tariff cut road map of 50%-40%-30%-0% from 2015 to 2018.
The more it is pampered and protected, the more uncompetitive the automotive industry becomes. Explaining this reality satisfactorily is a tough job since the cost of a car made in Vietnam is at least 20% higher than that of a vehicle imported from Thailand despite a long time of protection with excessively high tariffs.
The automotive industry is no exception. More and more complaints about the integration process have been brought by local steel, cement and plastic manufactures. Although the process of integration is no longer new following the Vietnam-U.S. Bilateral Trade Agreement in 2000 and the World Trade Organization in 2007, such complaints are growing in number and becoming noisier.
Laughter
Still, it seems such complaints pale in comparison with the economic achievements ushered in by the integration process.
Among the eight free trade agreements (FTAs) Vietnam has signed for the period 2015-2018, the average degree of trade liberalization is 90%, or even 100% in the agreement with ASEAN. The final degree of liberalization in these FTAs is expected to reach 90-97% of tariff lines, with all tariffs scheduled to fall to zero by 2020, according to the Ministry of Finance.
Extensive FTAs with a wide range of partners not only help Vietnam reduce her reliance on raw material sources from traditional markets but also diversify her export markets. Deputy Minister of Finance Truong Chi Trung said export markets for Vietnamese agricultural goods had increased to 240 nations and territories in 2013 (versus 160 in 2011). Also, the number of markets to which more than US$1 billion worth of Vietnamese goods is exported has risen from 25 in 2012 to 27 in 2013. “Integration in general has been putting pressure for internal reforms in Vietnam,” Deputy Prime Minister Vu Van Ninh admitted.
In the context of deeper economic integration as a result of the eight FTAs, Vietnam is currently in talks over six others, with the prominent ones being the TPP and the FTA with the EU. Speaking to foreign investors at VBF 2014, Prime Minister Nguyen Tan Dung said Vietnam would sign the FTA with the EU in early 2015. In addition, the country is stepping up negotiations with 11 others TPP partners in a bid to conclude this agreement by 2015. The Prime Minister said U.S. President Barack Obama had pledged to offer conditions consistent with Vietnam’s low level of development so that the country could join the TPP. “I say this to convey a message: Vietnam is actively deepening her integration to grow faster and more sustainably, to complete reform and to perfect market economy in Vietnam,” he emphasized.
Support
Of course, foreign investors fully support Vietnam’s proper fulfillment of her FTA commitments, including the reduction of 90% of her tariff lines.
Tomaso Andreatta, vice chairman of EuroCham, said the Vietnam-EU FTA would probably be signed next spring. “EuroCham is very supportive of this process and will contribute as much as possible to the conclusion of this FTA. We believe it is very important to reach this agreement to assist Vietnam in the best way. This FTA, as well as TPP, may help stimulate reforms, complete economic restructuring and improve the confidence of international investors in Vietnam.”
Antony Nezic, president of the Canadian Chamber of Commerce in Vietnam, said: “We fully support the TPP for the socio-economic interests of Vietnam. Necessary institutional reforms, negotiations and compromises will promote trade, thereby promote the national interests and also help maintain the stability and the position of Vietnam in the region and in the world. Trade is one of the few ways to stimulate the global growth, on which the growth of Vietnam is entirely dependent. Therefore, the TPP will offer Vietnam double benefits: growth based on commercial development and growth based on institutional reform. Restructuring of State-owned enterprises is the key to such growth potentials.”
Meanwhile, VBF Co-Chairwoman Virginia Foote said: “We hope Vietnam will manage to sign the FTA with the EU and conclude the TPP negotiations in 2015. If they were not concluded in 2015, we expect they would be in 2016.” Vietnam needs to accelerate reforms to take advantage of the opportunities opened up by FTAs, she said. The competition within ASEAN, especially ASEAN 6, will be increasingly intense. Innovation, reform and competition among the ASEAN economies will be taken to the next level.
“There’re many important economic foundations Vietnam is still lacking, thus the country must make every effort to upgrade the standards in such areas as education, accounting, auditing and corporate governance. These are the fields in which Vietnam is lagging behind the world.”
(By Vu Minh)