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Vietnam – ASEAN Trade: Tepid growth

May 03, 2014

Growth in trade between Vietnam and other ASEAN countries had decelerated in recent years although tariff barriers have gradually been lifted since the ASEAN Trade in Goods Agreement (ATIGA) came into force on May 17, 2010.

In the first three months, Vietnam’s exports to other ASEAN markets totaled US$4.5 billion, an increase of only 2.2& year-on-year, according to the General Department of Customs.

This was true not only in the first quarter of this year. The same has happened over the past two years when trade between Vietnam and other ASEAN countries has witnessed a sluggish growth. Particularly, Vietnam – ASEAN trade growth rate was 19.4% in 2010 and 28.8% in 2011, but then it dwindled to 9.4% in 2012 and 3.5% in 2013.

In the first quarter, Malaysia was the largest buyer of Vietnamese goods in ASEAN, followed by Thailand, Cambodia, Singapore and the Philippines. Whereas Vietnam’s exports to most ASEAN countries rose, though slightly, its export to the three largest markets declined. Exports to Cambodia recorded the sharp drop, down 16.7% over the same period last year.

Rice and crude oil remain major export items

Under ATIGA commitments, the tariffs applicable to many items traded among ASEAN members have been gradually cut to zero since May 17, 2010. In particular, Vietnam committed itself to remove some 93% of its total tariff lines, meaning to bring the tariffs down to 0%, by 2015 and make a number of tariff lines flexible until 2018 (before slashing them to zero in 2018).

Before ATIGA took effect, in the 2005 – 2009 period, Vietnam’s exports to other ASEAN nations were mainly rice, crude oil, machinery, computer, electronic products and components. Such a profile has remained almost unchanged so far, except for the strong growth in cell phone exports.

Therefore, once Vietnam’s rice and crude oil exports to other ASEAN states shrink, the overall turnover will be immediately affected. For example, in the first quarter of this year, Vietnam’s exports to Malaysia dipped by 13% (down more than US$150 million) year-on-year, mainly due to the decrease of 20.8% in crude oil exports to this market (which tumbled by over US$68 million).

On the contrary, Vietnam’s exports to the Philippines in the first three months brought in a 46% higher turnover, which was largely attributed to the six-fold increase in rice exports to this market, hitting more than US$175.3 million.

This is clearly indicated in a report by the General Department of Customs on Vietnam-ASEAN trade in 2013. Last year, Vietnam’s exports to the Philippines reached US$18.4 billion, up 4.4%, and its imports from this market totaled US$21.6 billion, up 2.7% against 2012.

As explained by the General Department of Customs, although Vietnam achieved significant growth in its exports of mobile phones, computers and electronic products to other ASEAN countries in 2013, its major export items to these markets suffered a considerable downturn, such as rice and crude oil with a drop of 51.3% and 14.4% respectively. In particular, rice exports to the Philippines fell to 500,000 tons from 1.1 million tons in 2012, while exports of this farm produce to Indonesia slid from 930,000 tons to 150,000 tons.

Economists Pham Chi Lan said tariff cuts under ATIGA initially stimulated growth in exports of the commodities which had long been subject to tariff barriers. However, it is likely that exports of such items have reached their peak and could hardly grow anymore. In addition, Vietnam’s key exports to other ASEAN markets are raw products and natural resources, and her resources are running out.

Deep penetration yet to be achieved, intense competition in place

Why is it that Vietnam’s key exports to other ASEAN markets up to this point remain rice and fuels?

In ASEAN, Cambodia is one of the major markets of Vietnamese enterprises thanks to the geographical proximity, with goods such as processed foods and household products being outstanding. Although Vietnamese products have entered this market for years, many Vietnamese businesses have managed to export only modest volumes. Worse, such volumes have declined recently due to the Cambodia unrest.

Van Duc Muoi, general director of Vissan, said his firm was now mainly exporting to Cambodia and Laos, with Cambodia still being the major market.

After a few years of unofficial export to Cambodia, meaning selling its products to intermediary traders who would then transport the products to Cambodia, in August 2012, Vissan opened its representative office in Cambodia.

Muoi said his firm previously sold to Cambodia only insignificant volumes, but the potentials of this market prompted Vissan to set up a representative office there to set up a distribution channel. Since the opening of its representative office, Vissan’s exports to Cambodia, primarily sausages and canned food, improved in quantity, until the political unrest after elections in this country broke out. Currently, the company is operating to maintain its distribution channel waiting for better times.

Vissan is still one of the leading Vietnamese players in Cambodia, which has invested strongly in facilities and business networks. Muoi said Vissan’s exports to this market remains modest, adding that it is now still the first stage for “Cambodians to get acquainted with the company’s products”.

One of the most formidable barriers Vissan is facing in Cambodia is that this market has already been dominated by Chinese goods which are 10-15% cheaper than Vissan’s, even though their quality is inferior, Muoi said.

Being considered a successful business in the Cambodian market, Dai Dong Tien, however, has exported its plastic household products mainly to Australia and Europe over the past few years. Only a very small volume was destined for Cambodia and Myanmar. The company’s main market remains the home market.

Not many Vietnamese enterprises are exporting to Cambodia via official quotas the way the two mentioned above are pursuing. Reversely, other companies have shipped goods via intermediary traders. This form of trade is now also in trouble.

The Investment and Trade Promotion Centre of HCMC (IPTC) remarked that since Cambodian customs tightened its control in late 2013, Vietnamese exporters who sell several kinds of items at a time have been facing difficulties in customs declaration. Meanwhile, goods from China and Thailand are often exported to Cambodia in large shipments, which enjoy favorable conditions for declaration and inspection at the border.

If Vietnamese enterprises continue to export their products via Cambodian intermediary traders, it will be difficult for them to develop in this market as they lack initiatives in distribution and will hardly make adjustments during the tough times, said IPTC. In addition, Cambodian distributors are always seeking new supplies. As such, partnerships with Vietnamese manufacturers are therefore fragile.

(By Thu Nguyet)