13:10 | 03/08/2015 Trade
(VEN) - The ASEAN Economic Community (AEC) will be officially established in a few months providing great opportunities for Vietnamese businesses to increase exports to this market. However, reducing the tariff rate to zero percent is also creating major challenge. Businesses now need to become active to adapt to the new playing field.
The textile industry is facing new opportunities
Opportunities to increase exports
AEC will be formed at the end of 2015. By making of the most of tariff preferences in trade with AEC countries, Vietnam will have a huge opportunity to export key commodities such as textiles, rice, seafood and electronic components to ASEAN countries. Following international commitments, by 2018, 97 percent of goods imported from ASEAN countries will be duty-free. Currently, the 10 ASEAN countries are creating a production-consumption zone with 620 million consumers and total gross domestic product (GDP) of about US$2.5 trillion per year.
Since joining ASEAN in 1995, Vietnam has reduced the import tariffs for certain categories of goods. By 2015 Vietnam will reduce 90 percent of tariff lines to 0-5 percent. By 2018 Vietnam will remove tariff quotas for four categories of goods including sugar, salt, poultry eggs and raw tobacco.
Most of Vietnamese goods have been exported to neighboring countries like Laos, Cambodia and Myanmar. But as integration is increasing, new markets for Vietnam will also be available such as Indonesia, Thailand, Singapore and Malaysia, without much pressure in terms of law and tax.
According to statistics from the Ministry of Industry and Trade, in the first quarter of 2015, Vietnamese exports to ASEAN countries reached US$6.22 billion, a 2.7 percent growth compared to the same period last year, while imports from these countries came to US$8.03 billion, marking a 12 percent increase. Besides traditional exports such as textiles, agricultural and seafood, industrial and high-tech product exports have been increasing dramatically.
Deputy Minister of Industry and Trade Nguyen Cam Tu said that after AEC is established, removal of tariff barriers and the zero percent tax rate are the greatest benefits. He believed that this will stimulate exports, attract investment and boost economic growth in member countries.
However, as the removal of tariff barriers will bring great economic benefits, the rules of origin will become a new barrier for firms. In order to receive the benefits, goods from ASEAN countries must prove their origin. This would create pressure for businesses as they need to have a sound roadmap for adaption and change.
Improving the quality of agricultural
Agricultural products are expected to benefit most from the establishment of AEC. With these products, removal of tariff barriers will help Vietnamese firms expand their market. However, besides the advantage of selling tax-free agricultural products, especially livestock the timber industry will face challenges in terms of competitiveness. Therefore, it is important for Vietnamese firms to create high-quality products, with special attention to processing and supplying products to meet market needs requirement. It is also important to build sales capacity in the form of smaller consignment but higher quality and value.
Dr. Nguyen Quoc Vong, Head of the Applied Science Department of RMIT University, Australia said that in the context of deep integration, Vietnam should focus on the manufacturing industry chain and increase value of agricultural products to sharpen competitiveness and ensure high quality. He said that harvesting, post-harvest, and processing are the three weakest parts in the agricultural sector of Vietnam. Following the ASEAN Free Trade Agreement a lot of tariff lines have been slashed or removed. Vietnamese agricultural products will be exported to ASEAN countries where the market is big. Regional integration has created opportunities but also challenges for Vietnam given that the quality of Thai rice is better than Vietnamese rice; Filipino bananas look better than Vietnamese bananas; Indonesian coffee and cocoa have better quality than Vietnam; and Japanese seeds and beans outstrip Vietnam in terms of quality.
To create a breakthrough, the agricultural sector needs to follow the agricultural policy for farmers, develop the industry chain, strongly support technological innovation and apply high technology. In doing so the sector will motivate farmers and investors, enable them to flexibly adjust the crop structure, improve product quality, meet requirements of the market and adapt to the new situation during of the process of integration.
The textile industry faces new opportunities
The textile industry has many advantages. With more than 5,000 firms and 2.5 million employees, it is expected that the sector’s exports will reach US$27-27.5 by the end of 2015. The establishment of AEC and removal of tariffs will open up huge advantage as the current tariff rate for the textile industry is between 17-18 percent. With the AEC membership and efforts in strengthening internal resources, the textile industry will take big steps in the future.
However, raw textile materials imported from China currently account for a big percentage. To resolve the problem, several firms have invested to build capacity. The Hanoi Textile and Garment Joint Stock Corporation (Hanosimex) has invested VND1.5 trillion for the production of knitwear, yarn and garments to enhance textile exports. In 2014 alone, Hanosimex invested VND800 billion in production facilities. Similarly, the Phong Phu Corp has invested VND1 trillion per year to increase the production of key products such as knitwear, denim and yarn. In addition, several projects started in early 2015 like expanding the knitwear production line in Nha Trang with an investment of VND400 billion and the VND860 billion denim production project in the Le Minh Xuan Industrial Zone in Ho Chi Minh City.
Le Tien Truong, General Director of the Vietnam National Textile and Garment Group (Vinatex) said that after AEC is established, huge opportunities will be opened for the textile industry. The textile industry is very competitive and is now dominating some key markets such as the US, the EU and Japan. It is now gradually conquering average markets where competition is not high.
“To be able to compete, firms will have to invest to shift from processing to making products with high added value, said Le Tien Truong.
There is not much time left to get ready to join the common playing field. Apart from authorities who need to provide information and directions, businesses must become well-informed and cooperate with the government to make the most of international economic integration opportunities, while reducing risks.