FTAs create new growth challenges

09:06 | 30/06/2015 Cooperation

(VEN) - Vietnam has concluded six multilateral and four bilateral free trade agreements. These agreements are considered as visas for Vietnamese goods to spread worldwide. Vietnam Economic News presents several major FTAs which could have a major impact on Vietnamese trade, services and investment.

FTAs create new growth challenges

Photo: Can Dung

Eurasian Economic Union-Vietnam FTA (EEUV FTA):

Increasing bilateral trade revenues to US$10-12 billion

The EEUV FTA between Vietnam and the five countries in the EEU including Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan was signed on May 29, 2015. According to the agreement, the two sides will open their markets for goods which account for more than 90 percent of bilateral trade revenues.

EEU countries will give preferences to Vietnam and ample opportunities for major Vietnamese exports such as agricultural products, textiles and garments, leather and footwear, wood furniture, and a number of processed products. The union will apply the zero percent tariff on all Vietnamese seafood items following the FTA taking effect.

Vietnam has agreed to open its market to the EEU’s livestock, machinery, equipment and means of transport following a specific itinerary.

After the EEUV FTA takes effect, bilateral trade revenues are expected to reach US$10-12 billion by 2020 and Vietnamese exports to the union would increase by 18-20 percent per year.

Korea-Vietnam Free Trade Agreement (KVFTA):

Vietnam has offered preferences to 200 Korean items

The KVFTA was signed on May 5, 2015 and is about to come into effect allowing the Republic of Korea (RoK) to liberalize 97.2 percent of its import value which is equivalent to 95.4 percent of all tariff lines. The RoK will provide preferences for Vietnam and cut and slash its tariffs on major Vietnamese agricultural products, such as seafood, textiles and garments, wooden furniture, and mechanical products.

The RoK will exempt its tariff on 10,000 tonnes of Vietnamese shrimp in the first year and will progressively increase to 15,000 tonnes per year after the first five years. After the sixth year, the quota will be maintained.

Vietnamese tuna will also enjoy preferences during a ten-year period, while pangasius, carp and snake-head fish will receive preferences for three years.

The RoK will also reduce its tariffs on Vietnamese pineapple, guava, mango, mangosteen, papaya and durian during a ten-year period.

Vietnam has also committed to offer preferences for 200 imported items from the RoK valued at US$737 million.

Apart from the commitments within the framework of the World Trade Organization (WTO) and the FTA between ASEAN and the RoK, Vietnam will open two more service segments for the RoK including urban planning and architecture, and machinery/equipment leasing.

The RoK will also give more opportunities to Vietnam in five service segments including legal services, express services, railway maintenance and overhauling, railway transport service support, and natural science R&D.

Vietnam-Chile Free Trade Agreement (VCFTA):

Vietnam recorded a trade surplus with Chile for the first time

Negotiations on the VCFTA started in October 2008 and were completed in November 2011. However, due to the slow pace of ratification the agreement only came into effect in January 2014.

The VCFTA addresses commodities, regulations on market access facilitation, rules of origin, animal and plant hygiene and quarantine measures, technical barriers and trade remedies.

Vietnam has committed to terminating 87.8 percent of the tariff lines for Chile (accounting for 91.22 percent of import revenues from Chile in 2007) within 15 years. Chile will also terminate tariffs on Vietnamese exports (accounting for 99.62 percent of Vietnamese export revenues in 2007) within 10 years.

Several major Vietnamese exports were subject to immediate and rapid tariff reduction to zero percent including textiles and garments (203 tariff lines immediately reduced from six to zero percent and 17 tariff lines will reduce to zero percent within five years), seafood (36 tariff lines immediately reduced to zero percent and 28 tariff lines will reduce during five years), seafood, coffee, tea, computers and computer accessories (reducing to zero percent immediately after the FTA became effective).

Rules of origin under the FTA are fairly simple as most commodities subject to tariff preferences must be made from materials, of which a minimum 40 percent are Vietnamese or Chilean.

The VCFTA has brought about obvious benefits. After less than a year of the FTA, two-way trade revenues soared by 65 percent from 2013-2014 reaching US$890.5 million. Of this, Vietnam sold US$522.3 million worth of goods to Chile and bought US$368.2 million worth of goods, recording a trade surplus with Chile for the first time.

Japan-Vietnam Economic Partnership Agreement (JVEPA):

Creating an impetus for Vietnamese goods to enter Japan

Vietnam’s first bilateral FTA, the Japan=Vietnam Economic Partnership Agreement (JVEPA) was signed on December 25, 2008 and officially came into effect on October 1, 2009. The JVEPA is a comprehensive bilateral agreement with commitments on liberalization of trade in goods, trade in services, investment and other economic cooperation between the two countries which follow the standards and principles of the World Trade Organization.

According to the JVEPA, average tariffs on Japanese imports into Vietnam will reduce progressively from 6.1 percent in 2015 to 3.7 percent by 2018. Seafood, agricultural products, textiles and garments, iron and steel, chemicals, and electronic components will be rapidly and significantly liberalized.

By 2026, Vietnam and Japan will complete the tariff reduction itinerary to establish a complete bilateral free trade area. 94.53 percent of Vietnamese import revenues and 87.6 percent of Japanese export revenues will be exempted from import tariffs.

ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA):

Vietnam will terminate 85 percent of tariff lines by 2018

With the goal to merge 12 small markets into one large market, the AANZFTA was concluded on February 27, 2009 and took effect on January 1, 2010.

The AANZFTA is the first regional agreement that ASEAN has comprehensive commitment with non-ASEAN partners. According to the agreement, the parties have pledged to step-by-step liberalize tariffs and terminate a minimum 90 percent of the tariff rates of all tariff lines under a specific itinerary.

Australia and New Zealand agreed to facilitate the movement of goods via applying specific provisions on the rules of origin, customs procedures, SPS measures, and technical standards.

Vietnam pledged to reduce and slash 90 percent of the tariff lines, of which 85 percent will be terminated by 2018 and five percent by 2020. Tariffs on items under the Vietnamese Normally-sensitive Itinerary will be reduced progressively to five percent by 2022 including seafood, canned meat and fish, several kinds of medicine, petroleum gas, plastic materials, tires, inner tires, paper, several kinds of iron and steel, iron and steel products, spare parts, automobile motors, motorbikes, high-capacity automobiles, specialized vehicles, and high-capacity motorbikes.

Items under the Vietnamese Normally-sensitive Itinerary will maintain high tariff rates including chicken meat, fruits (oranges and mandarins), alcohol, beer, cigarettes, sugar, iron, steel, cars, buses, trucks with a capacity of less than 10 tonnes, and fishing boats.

Vietnam will terminate tariffs on several kinds of Australian and New Zealand goods by 2016 such as beef, lamb, milk materials, milk products and particle boards.

ASEAN-India Trade in Goods Agreement (AITIG):

The Vietnamese-Indian- trade pide has been bridged significantly

The AITIG was inked in August 2009 with 24 articles and an agreed content of establishing a tariff reduction itinerary. In addition, the AITIG stipulates rules of origin, dispute resolution procedures and mechanisms, non-tariff measures, policy transparency, commitment examination and amendment, protection measures and exceptions.

As a new member of ASEAN, Vietnam is subject to tax reductions under an itinerary which is five years longer than other ASEAN countries and India. However, Vietnam was allowed to receive all preferences in accordance with tax reduction commitments by India and other ASEAN countries.

According to Vietnam’s normal track tariff elimination list, 80 percent of the tariff lines will be reduced to zero percent on December 31, 2017, and nine percent will be flexibly reduced to zero percent from December 31, 2020. The Vietnamese exclusive list includes 485 tariff lines on products not subject to tariff cuts. According to the list, most Vietnamese must-be-protected products are on the exclusive list.

India has pledged to reduce tariffs on several key Vietnamese exports such as garments, footwear, wood and wood products, seafood, fossil coal, rubber, and iron and steel. In addition, according to Vietnam’s requirement, India has agreed to reduce tariffs on Vietnamese coffee and black tea to 45 percent and pepper to 50 percent by 2018. These are sensitive items for India but are particularly key exports for Vietnam.

Diem Phuong & Ca Huong

Theo ven.vn