Free Trade Agreements offer several opportunities

(SGI) - The current ongoing economic fluctuation occurring worldwide is clearly affecting many export businesses in Vietnam in the last months of 2022 and is forecast to continue to affect throughout 2023.
Free Trade Agreements offer several opportunities

Many solutions are being discussed to support businesses to overcome this difficult phase one of which is to take full advantage of all opportunities offered by Free Trade Agreements (FTAs) signed by Vietnam.

FTA use still modest

Up until now, there are 15 FTAs that Vietnam has signed to participate in. Despite these, by the end of 2021 the export turnover of goods taking advantage of tariff incentives from new FTAs accounted for 20% of Vietnam's total export turnover. In many markets with new generation FTAs such as EVFTA and CPTPP, despite the strong tax reduction, the market share of Vietnamese products is still very small.

For instance, in the Canadian market under the CPTPP, Vietnamese wood products are exempt from tax as soon as the agreement takes effect, but only account for 1.6% of the market share in the country. Similarly, the tax on seafood will also be exempt as soon as CPTPP comes into effect, but so far this product only accounts for 6.9% of the market share in Canada.

Mr. Đặng Thái Thiện, Deputy Director of the Supervision and Management Department at Ho Chi Minh City Customs, said that in many training classes, trainees are only interested in cutting import tariffs and less interested in exports. This is because many businesses think that they will not be able to meet the rules of origin and regulations to enjoy preferential treatment from FTAs when exporting goods.

This is really unfortunate for the export segment of Vietnamese enterprises. Mr. Thiện shared that the opportunities offered by FTAs are not permanent because we also have to compete with other competitors in exports as they have many common FTAs. Therefore, it is necessary to take advantage of opportunities from FTAs, especially in those exports facing many difficulties.

The fact that difficulty comes from fear of not meeting the rules of origin is just one of the barriers that makes it difficult for businesses to benefit from FTAs. According to a survey of a group of businesses affected by FTAs, 40.1% of these enterprises said that they faced difficulties due to lack of specific information on commitments and how to apply them, while 40.6% of enterprises faced difficulties due to limited competitiveness.

This limitation can be attributed to many different factors, such as capital and technology leading to limitations in ability to meet standards in difficult markets, or lack of brand positioning. 28.2% of enterprises faced difficulties due to inadequacies in the organization and implementation of FTAs by state agencies.

Keeping the pace

In order to make effective use of FTAs, the proactive role of businesses is the first most important step. At a seminar on new generation FTAs held at the end of November in Ho Chi Minh City, Mr. Phan Minh Thông, Chairman of Board of Directors of the Phuc Sinh Group, said that his business has made good use of EVFTA in both exports and imports.

In 2020, his company exports to the EU reached USD 50 mln and by 2021 export turnover had increased to USD 63 mln, up 26%. When EVFTA comes into effect it will help increase the number and value of orders, expand markets, and find more customers. On the other hand, EVFTA has helped businesses enjoy preferential tax rates when importing machinery and equipment for production and development of deep processed products.

According to Mr. Thông, to make good use of FTAs, businesses must always update new information and guide and train staff on how to approach and make full use of what FTAs have to offer. Enterprises must always be ready to improve products and processes to meet regulations of international markets and benefit from FTAs.

In addition, businesses need to closely follow information and guidance from the Ministry of Industry and Trade, the Trade Promotion Agency, and other related agencies, to proactively respond to changes in international trade. Along with their own efforts, businesses can hire consultants to assist in how to make the best use of FTAs.

Dr. Phạm Đình Thưởng, General Director of the FTA Utilization and Investment Consulting Company (KTPC), said that businesses will be consulted to understand opportunities from FTAs, develop business plans, and approach the market methodically to ensure they meet the requirements as committed under FTA.

Mostly company's efforts are not enough, because not all businesses have enough qualified staff who understand the regulations to be able to take full advantage of the FTA or have enough finances to get consulting units take advantage of the FTA. At this time, the supporting role of state agencies, in particular the Ministry of Industry and Trade, is very important.

In coming time, the Ministry of Industry and Trade will update and upgrade the FTA portal and implement and evaluate FTAs in provinces and cities through the FTA Index. In particular, the Ministry will innovate the form of communication through social network, develop short videos, focus more deeply on training courses, short seminars, and practical topics. It will promote the implementation of credit access for businesses taking advantage of FTAs and identify key industries to accompany each small step. These solutions will greatly support the business community.

Along with drastic actions taken by the Ministry of Industry and Trade, other ministries must also actively participate in supporting enterprises to step by step achieve the criteria for FTAs. The shrimp industry is one such example. Mr. Hồ Quốc Lực, Chairman of Board of Directors of the Sao Ta Food Joint Stock Company, said that ASC certified shrimp is a passport to take advantage of EVFTA. But in order to have many large farms that meet ASC standards, the State must consider the deadlines and policies to encourage investment in shrimp farming. If we don't hurry, we will lose to our current biggest rival, Ecuador.

Currently, Ecuador has an FTA with Europe, and they also have about 1 million tons of shrimps and about 20% of their production is ASC certified. Ecuador is also investing in modern factories for deep processing. On the other hand, Vietnam has also an output of 1 million tons of shrimps, but only about 2,000 tons is ASC certified. Mr. Lực is concerned that if we do not hurry to keep up the pace, Vietnamese shrimp will no longer be favored in the international market in a few years.

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