New generation FTAs offer opportunities for Vietnam’s agricultural exports

Monday, 2019-01-28 14:51:58
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Workers at Can Tho Seafood Import-Export JSC (Caseamex) process catfish for export. (Photo: NDO/Quoc Tuan)
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NDO – New generation Free Trade Agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), or the EU-Vietnam FTA (EVFTA) are expected to bring new opportunities for Vietnamese goods, including agricultural products.

Vietnam's international economic integration process has achieved positive results during the drastic implementation of the consistent guidelines and policies of the Party and State. For the first time Vietnam has made its presence in the region's leading country group in the process of proactive international economic integration. After joining ASEAN in 1995 and participating in the ASEAN Free Trade Area (AFTA), Vietnam has continued to negotiate, sign and implement 12 bilateral, multilateral and regional FTAs.

Multiple beneficial commitments

According to the Ministry of Industry and Trade, at the beginning of the integration process, Vietnam mainly participated in the ASEAN-based FTAs with its partners (starting with China in 2004 and followed by the Republic of Korea (ROK), Japan, Australia, New Zealand and India). However, in the later stage, Vietnam has developed a clear orientation, moving to actively negotiate FTAs with markets that are profitable and highly enforceable. This trend started with the Vietnam - Japan FTA and then the FTAs with Chile, the ROK, the Eurasian Economic Union and the CPTPP. In addition, negotiations have also been concluded on the EVFTA and it is in the process of preparation for signing.

The process of joining FTAs shows that international economic integration through participation in FTAs is a highly correct strategy, opening new opportunities for the nation’s economic development, expanding export markets, and helping Vietnam to participate more deeply in the global value chain and production network, as well as transforming its economic structure in a positive direction, improving the business environment and competitiveness, taking advantage of investment, technology and management experience, and creating more jobs. New generation FTAs are putting Vietnam ahead of a new playing field with strategic changes to improve economic cooperation and remove previous tariff barriers that hindered trade before.

The trend of promoting trade liberalisation for agricultural products through signing and enforcing FTAs, especially new generation ones, will help Vietnam enjoy more preferential tariffs and non-tariffs, while also having the chance to restructure the import-export market in a more balanced way, thereby avoiding excessive dependence on certain markets. With the CPTPP, a series of agricultural products exported by the member countries, including Vietnam, will receive a tax reduction. In the Canadian market, Vietnam has reached a 100% tax abolishment agreement on the export of timber, while Vietnamese rice import tax will also be eliminated as soon as the agreement comes into effect. For the Japanese market, Vietnam enjoys a tariff elimination rate at 78% for agricultural exports, 91% for seafood exports and 97% for wood exports. Chile agreed to abolish taxes on most key Vietnamese agricultural and fishery products as soon as the agreement comes into effect, while Peru will also eliminate taxes on all Vietnamese seafood products.

It is expected that after the EVFTA comes into effect, 99% of the import tariff lines will be removed within seven to 10 years. This can be considered the highest commitment level that Vietnam has achieved in the signed FTAs. Notably, many items will enjoy 0% tax rate as soon as this agreement takes effect, such as coffee (currently imposed with the basic tax rate from 0-11.5%), pepper (0-4%) and natural honey (17.3%). The EU is currently the second largest market for Vietnamese exports of key commodities such as coffee, cashew nuts and pepper. For Vietnamese fruit and vegetables, processed vegetables, fruit and juice, the EU pledged to basically eliminate all tariffs as soon as the agreement comes into effect. For milled rice, unmilled rice and fragrant rice, the EU will apply tariff quotas, while broken rice exported to the EU will be taxed according to the roadmap and taxes for products and grain rice will also be brought to 0% within seven years.

As soon as the EVFTA comes into effect, roughly 50% of the EU tariff lines for Vietnamese seafood will be removed, and 50% of the remaining tariffs will be abolished within three to seven years under a specific schedule. Exported seafood is entitled to tax rates according to EVFTA commitments, instead of the previous GSP, which is expected to offer more benefits as EVFTA tax rates are applied to the majority of export products while GSP is only for certain products.

New opportunities for Vietnamese exports

So far, Vietnam has almost completed its opening process to access new markets, with 12 FTAs being signed or in negotiations, as well as ending negotiations on several FTAs. By participating in new generation FTAs ​​such as the CPTPP or EVFTA, the process has opened up multiple opportunities for economic development in general and the agricultural sector in particular. The main export agricultural products of Vietnam to the CPTPP, including timber, wood products and fishery products (mainly shrimp and pangasius), earn the largest export turnover, accounting for a high proportion of the total export turnover of agricultural products. At present, Vietnam's agricultural export activities only focus on several main products and a few key customers within the CPTPP. Participating in the CPTPP is a good opportunity for Vietnam to expand its exports to major markets such as Mexico, Australia and Canada, as well as helping to diversify its agricultural export products.

Another greater opportunity for trade expansion is the transnational investment activity associated with science and technology and labour capacity improvement. When signing the CPTPP, some countries without advantages in agriculture are likely to shift their investment to Vietnam. Through receiving foreign investment, in addition to creating more jobs and increasing income, the most important aspect is that Vietnamese agriculture will absorb new science and technology, thus changing the traditional ways of production and improving efficiency.

For the EU market, after the EVFTA is signed, Vietnam will become one of the leading countries in exporting agricultural products to the EU. In addition, Vietnam's agricultural products will also enjoy more advantages compared to other countries, because the tax on Vietnamese agricultural products exported to the EU will be only 0% within seven years. The preferential tariffs in the EVFTA will bring new opportunities for Vietnamese seafood exporters, thereby expanding the potential to export their products to other import markets, as well as participating in the global seafood value chain. In the future, the Ministry of Industry and Trade will focus on institutional and policy reforms to create favourable conditions to promote the business and investment environment, while ensuring compliance with the commitments to promote Vietnam’s advantages and potentials in agriculture.