Seizing opportunities from FTAs to deepen involvement in supply chains

VCN - Free trade activities are not just gateways for trade and investment cooperation; they also attract resources and facilitate the transfer of modern production technologies. This enables businesses to engage more profoundly in the leading production chains of major global enterprises.
FTAs help strengthen Vietnam – Japan trade cooperation: official FTAs help strengthen Vietnam – Japan trade cooperation: official
Vietnam’s textiles, garments yet to fully tap FTAs’ advantages and potential Vietnam’s textiles, garments yet to fully tap FTAs’ advantages and potential
Take opportunities from FTAs to deeply participate in the supply chain Take opportunities from FTAs to deeply participate in the supply chain
Seizing opportunities from FTAs to deepen involvement in supply chains
FTAs: Catalysts for Expanding Export Markets. Photo: N.T.

Expanding the horizons of export

The Department of Multilateral Trade Policy (Ministry of Industry and Trade) assesses that in 2023, the completion of FTA negotiations with Israel and the memorandum signing to conclude conditional negotiations with the UAE have unlocked doors to the Middle Eastern markets, boasting a GDP of around $2,000 billion. To date, Vietnam has successfully signed 16 FTAs, positioning itself as one of the economies with significant openness and trading relations within the free trade area with over 60 economies.

Moreover, the execution of the already signed FTAs has been and is continually broadening market access for exports. This is seen as a golden opportunity for Vietnam to strengthen connections and deepen its involvement in global value chains and production networks. A case in point is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), where the usage rate of CPTPP Certificate of Origin (C/O CPTPP) for most of Vietnam's major export commodities continues to show robust and significant growth compared to previous years. For example, rice has seen an increase of over 2,503%, cassava and its products over 3,648%, machinery, equipment, tools, and other spare parts by 134.68%, and chemicals and chemical products by 66.96%.

In the context of the Vietnam-United Kingdom and Northern Ireland Free Trade Agreement (UKVFTA), Mr. Ngo Chung Khanh, Deputy Director of the Department of Multilateral Trade Policy, mentioned that in 2021 - a year after UKVFTA came into effect, trade growth in both directions was remarkably strong. Specifically, exports from the UK to Vietnam surged by 24%, and from Vietnam to the UK by 19%. In 2023, despite a significant decline in exports to many major markets, exports to the UK still showed a rise of about 1.9%, and imports from the UK to Vietnam experienced nearly 3% growth. Noteworthy is that one of Vietnam's key export sectors to the UK still maintained a double-digit growth rate.

In contrast, Mr. Bob Fletcher, Director of Global Customs and Trade Services at Deloitte Vietnam, opines that the agreement significantly benefits British businesses in Vietnam, including tariff reductions and expanded market access. This has enhanced the competitiveness of British products in the Vietnamese market, and the volume of goods exported from the UK to Vietnam has also seen a considerable increase.

Notably, the UKVFTA has also created a more transparent and approachable business environment for British companies planning to establish, invest, and operate in Vietnam. Currently, the UK ranks 15th among 143 countries with direct investment activities in Vietnam.

Mr. Tran Van Hieu, Director of the DACE Agriculture Development and Environmental Consultancy Company, revealed that post-Brexit, the volume of goods his company exported to this market decreased from 10% to 2-3%. However, immediately after the UKVFTA implementation, exports began to rebound. Now, the company's exports to the UK account for 9-10%, recovering to pre-Brexit levels.

Additionally, Mr. Bob Fletcher highlights that Vietnamese enterprises also benefit from participating in technology transfer, supply chain integration, and branding with British businesses. Vietnamese enterprises can exploit the network and international market expertise of British companies to expand exports to new markets, diversify their customer base, and boost export revenues. Moreover, through collaboration, Vietnamese enterprises have opportunities to access advanced technologies, thereby enhancing their competitive capability and productivity.

Capitalizing on market demand

The augmented value benefits in exports are also vividly seen in the implementation of the CPTPP Agreement. Mr. Bui Tuan Hoan, Head of the Americas Department, European and American Markets Department (Ministry of Industry and Trade), reports that since the CPTPP took effect, Vietnam's exports to CPTPP member countries in the Americas have shown substantial growth. The four American countries participating in CPTPP are Canada, Mexico, Peru, and Chile. Except for Chile, which already has a bilateral FTA with Vietnam, Canada, Mexico, and Peru are three markets that have established FTA relationships with Vietnam for the first time. Therefore, the tariff advantages in CPTPP have positively impacted Vietnam's export activities to these markets.

From a market perspective, these are markets filled with potential and opportunities for Vietnamese export goods. For instance, Canada is a market heavily reliant on imports with a total import turnover of about $500 billion/year, ranking among the top 15 countries in the world for import volume. While its import scale is only equivalent to 10% of the US market, its purchasing power and average import value per capita are twice as high as that of the US. The demand for imported consumer food products is extremely diverse due to Canada's substantial immigrant population, each community having distinct tastes and preferences.

Similarly, Mexico, with a population of about 130 million people and an annual import demand of about $400 billion, is viewed as a gateway for Vietnamese goods to the Central and North American markets and a backdoor to the US market.

The European and American Markets Department also views Peru as a relatively suitable market for Vietnamese enterprises, as 75% of Peru's import-export companies are small and medium-sized. Notably, from Peru, Vietnamese goods can penetrate into other neighboring countries like Colombia, Ecuador, Bolivia, and the vast western region of Brazil.

It's clear that FTAs are creating avenues for Vietnamese businesses to boost their exports, while simultaneously imposing competitive pressures on local businesses. The Department of Multilateral Trade Policy states that in the upcoming period, it will continue to effectively implement the signed FTAs. It will also actively engage in negotiations for the ASEAN-Canada FTA, the Vietnam-EFTA FTA, upgrade the ASEAN-China 3.0 FTA, the ASEAN-India FTA, and complete negotiations for the Vietnam-UAE FTA. The focus will be on eliminating non-tariff barriers for Vietnamese exports and continuing to broaden export opportunities for Vietnamese products.

By Ngọc Linh/Tran Minh

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