Will RCEP agreement increase trade deficit with China?

VCN - The Regional Comprehensive Economic Partnership (RECP) has just been signed on November 15 and is expected to take effect next year. This world's largest FTA will create a great opportunity to help Vietnam promote exports, while not creating a "shock" of trade deficit from markets, especially the Chinese market.
Businesses advised to improve knowledge to optimize chances from RCEP Businesses advised to improve knowledge to optimize chances from RCEP
RCEP does not create a RCEP does not create a "shock" in tariff reduction for Vietnam
Trade between Vietnam and RCEP nations reaches US$240 billion Trade between Vietnam and RCEP nations reaches US$240 billion
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RCEP will create opportunities to expand markets, promote exports, and participate in new value chains in the region for Vietnamese enterprises. Photo: Thai Binh

There are many differences between RCEP and CPTPP, EVFTA

According to information from the Multilateral Trade Policy Department (Ministry of Industry and Trade) at a press conference on the "RCEP agreement: Opportunities and Challenges" held on November 19, in Hanoi, the RCEPagreement has a very different character from the new generation FTAs ​​that Vietnam recently joined, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or Vietnam – EUFTA (EVFTA). If the CPTPP or EVFTA aims to open the market, RCEP aims to be ASEAN's central role, namely to create a framework to facilitate trade and create a space to connect production across ASEAN. Therefore, the benefits are also different.

According to a World Bank (WB) study conducted in 2018, the implementation of the RCEP agreement can increase Vietnam's gross national product (GDP) by 0.4% by 2030 if considering direct benefits. It can be up to 1% if indirect benefits from institutional reform are considered.

This is an agreement that when implemented with 15 members, it will create an extremely large market with about 2.2 billion consumers, about 30% of the world's population. According to many forecasts, the markets under the agreement will soon reach the threshold of income for consumption boom, so there is a lot of potential in the future.

Mr. Luong Hoang Thai, Director of Multilateral Trade Policy Department said: “Along with commitments to open goods, services and investment markets, the difference is that RCEP creates a framework to simplify the customs procedures and establish rules of origin that facilitate trade. As a result, Vietnamese enterprises will be given opportunities to expand markets, promote exports, participate in new value chains in the region and increase foreign investment attraction. The import tax cut will open up new opportunities for products from prominent sectors such as telecommunications, information technology, textiles, footwear and agriculture.”

As an expert, Mr. Le Quoc Phuong, former Deputy Director of the Center for Trade and Industry Information (Ministry of Industry and Trade), said Vietnam has many bilateral and multilateral FTAs ​​with each country or many countries in the group participating in this agreement. For example, Vietnam took part in the ASEAN Trade in Goods Agreement (ATIGA), ASEAN Economic Community (AEC), ASEAN + 1 Agreement with 5 partner countries, including China, Japan, Korea, Australia and New Zealand.

In addition, Vietnam also has a bilateral agreement with two important partners, Japan and Korea. However, the level of RCEP's commitment to preferential tariffs is stronger than all the agreements signed earlier. Therefore, Vietnamese enterprises have more opportunities to choose the most beneficial tariff preferences for each export item to the countries in the union.

"Enterprises that are selected to execute the agreement have more favorable commitments for them to serve the export of goods. That is, which goods in the RCEP are given stronger tax incentives, enterprises can choose RCEP.If the products donot reduce export tax according to the roadmap of RCEP implementation, they will choose to comply with another agreement," Mr. Le Quoc Phuong said.

Does not create new competitive pressure

Regarding to the signing of the RCEP Agreement, besides the opportunities, many expressed concern that Vietnam always has a big trade deficit from China, so RCEP agreement may make the dependence on China increase.

In this respect, Mr. Luong Hoang Thai stated that Vietnam joined the ASEAN countries to open their markets to China through the ASEAN-China Free TradeAgreement (ACFTA) in 2010. With the rate of tariff liberalization that Vietnamcommitted to China under the RCEP is not higher than the ACFTA agreement, the implementation of the RCEP will not create newcompetition pressure and is committed to open the market to Vietnam.

In addition, with the advantage of harmonizing rules of origin in the RCEP, Vietnam will have the opportunity to use more optimal input materials to produce goods for export to RCEP member countries including China with higher competitiveness when only exploiting the ACFTA, so there is a chance to promote exports to this market.

The RCEP can basically be seen as the"multilateralization"of the ASEAN countries' previous bilateral trade relations with China based on the WTO rules to have the countries updated accordingly. Therefore, it cannot be said to the RCEP agreement that ASEAN is more dependent on any market, dependence here is on multilateral, transparent and internationally recognized regulations for many years,” Mr. Luong Hoang Thai said.

Expert Le Quoc Phuong said China is the market from which Vietnam imports a lot of raw materials, the two countries do not have a bilateral agreement, so the RCEP agreementis forecasted to have a significant impact on bilateral trade.

Meanwhile, the Chinese side recently made many moves to tighten the import of agricultural products from Vietnam by restricting imports through small quotas and strengthening technical barriers.

"If Vietnam's agricultural products can increase their competitiveness and meet technical barriers, they can take advantage of the preferential tariff rates with China from this agreement," said Mr. Phuong.

By Thanh Nguyen/Quynhlan

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