Japan-Vietnam Economic Partnership Agreement: Strategy changes needed

Export growth engine

Japan is a key market which benefits Vietnam in both exports and imports. Vietnamese export turnover growth to Japan has reached an average of 19 percent a year in the recent five years. This was the first bilateral free trade agreement of Vietnam after participating in the World Trade Organization (WTO) and was the second agreement which saw the participation of Vietnam and Japan after the signing of the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) in 2008.

According to the JVEPA, Japan had pledged to eliminate tariffs on almost 94 percent of Vietnamese imports for 10 years and 7,287 tariff lines as soon as the agreement took effect. The agreement has opened great opportunities for Vietnamese exports as many items enjoying preferential tariffs are agricultural products, fisheries, garments and textiles.

More than 150 tariff lines were reduced to zero percent on April 1, 2015 following the committed roadmap and tariff reduction commitments will be gradually implemented in each period. Computers, electronic products, garment and textile materials, footwear and leather have enjoyed tariff reduction as they are high-tech items, components for assembly and auxiliary materials needed to be imported. In the coming periods, import duties of the remainder will be descending towards zero percent.

New business strategies are needed

However advantages always come with challenges. Tariff barriers are not the key issue in trade relations with Japan. Vietnamese businesses need to overcome difficulties posed by technical barriers on trade and stringent regulations on food safety and hygiene, especially for agricultural products, fisheries and food.

According to Vietnam-Japan Business Club Chairman Do Van Dung, export items must prove the point of origin of each material and outsourcing time and must comply with every technical detail, quality and regulation.

The removal of tariff barriers has also caused challenges because Vietnamese goods have to compete with higher quality and lower priced Japanese products. The Ministry of Industry and Trade’s Inter-agency Steering Committee for International Economic Integration Deputy Director General Nguyen Son said that after import tariffs reduce to zero percent, Japanese goods will massively enter the Vietnamese market.

Vietnam is promoting the signing of a series of free trade agreements. The JVEPA has greater tax incentives but the AJCEP is more favorable in terms of point of origin. Therefore, businesses need to consider which agreements would bring the greatest advantages. In particular, if the Trans-Pacific Partnership Agreement is signed, 95 percent of tariff lines will be reduced immediately to zero percent. Therefore, businesses need to prepare for those changes.

Vietnam Institute of Economics Director Tran Dinh Thien said that state management agencies and businesses need to revise the national strategy and the sector strategy with a focus on investment in enhancing product quality to bring higher added value instead of based on raw export products with low values and increasing productivity and output. Changes in thinking to enjoy the benefits from higher added value are needed. Businesses should also take opportunities to promote exports to Japan, actively invest in technology and design innovation and meet requirements on food safety and hygiene following the Japanese law for agricultural products, fisheries and food.

Nguyen Huong