Catching opportunities from ASEAN economic community – Part 2

Part 2: Opportunity for Vietnam to further fly

Vietnam only ranked seventh among ASEAN countries when the negotiations for the establishment of the ASEAN Economic Community (AEC) were begun. But, Vietnam will strive to reach fifth position in the bloc as the AEC officially takes effect on Jan.1, 2016. This not only shows Vietnam’s breakthrough in economic growth, but also is an opportunity for the country to further fly.

Advantages

During the AEC negotiation process, the ASEAN countries have signed 4 major agreements, including the ASEAN Trade in Goods Agreement (ATIG), the ASEAN Framework Agreement on Services (AFAS), The ASEAN Comprehensive Investment Agreement (ACIA) and the ASEAN Agreement on the Movement of Natural Persons (MNP).

Production of a company at Binh Duong-based Vietnam-Singapore Industrial Park

The birth of the AEC will create a non-tariff market with 600 million people and total annual GDP of approximately US$2trillion. Noticeably, although the AEC officially comes into effect on Jan.1, 2016 ahead, the ASEAN countries still have the right to be proactive in tax policies for enterprises in accordance with the roadmap for developing the AEC of each country. This will help the ASEAN’s emerging markets like Vietnam, Myanmar, Cambodia…have enough time for the integration.

With recent great strides, Vietnam has become one of powerful countries with key voice in the AEC. The total trade turnover between Vietnam and ASEAN countries over the past ten years reached considerable growth from US$9bln in 2003 to approximately US$21.09bln in 2015.

In 2014 alone, Vietnam’s export turnover to ASEAN market was US$18.47bln, up 6.7% compared to 2013 while import value reached US$21.3bln, up 2.8% compared to 2013. ASEAN has become the third largest export market of Vietnam after the US and the EU. This is a vital market full of potentials because of having flexibility and strategic position in the region and the world.

The total trade revenue between Vietnam and partners in ASEAN between 2003 and 2014 gained the annual growth of 17%. Vietnam’s export structure to ASEAN has been moving in a positive direction recently both in quality and in value. With more than 90 million people, Vietnam is appreciated as one of attractive markets for retailers in and out of the region.

Challenges

Along with advantages, the AEC also poses a raft of challenges for Vietnam. The competition from imported goods to foreign service providers and investors will be much greater for domestic enterprises. This may lead to a number of industries, if preparations are lacking, having to narrow their production scale or even withdraw from the market.

When the AEC is formed, domestic enterprises will face a more competitive game because of tax barriers removed.  As of July 2013, Vietnam reduced import duties to 0-5 percent on more than 10,000 tariff lines under the ATIGA. With such tax reduction, commodities of the ASEAN countries will overwhelm Vietnamese market in the coming time. It is harder for Vietnam to improve its excess of imports over exports with ASEAN countries.

According to statistics from the General Department of Customs, Vietnam saw a trade deficit with other ASEAN countries over the past years. Vietnam’s import value to the ASEAN countries was double compared to export turnover in the period of 2009 and 2015. This saw a reduction between 2009 and 2015, but was still high.

Thus, the AEC will not only create business opportunities for domestic enterprises, but also great challenges, forcing them to reform themselves, to improve their competitiveness in order to survive and grow. They need to be proactive to grasp opportunities from the AEC. The successful establishment of the AEC is also a major of ASEAN. The AEC will be a previous opportunity for Vietnam to quickly catch up with economic development of the region and world. Therefore, policy makers and domestic enterprises need to take full advantage of opportunities, overcoming challenges during the AEC construction process in order to enhance Vietnam’s role in developing and perfecting ASEAN.

Assessing the impact of the AEC on Vietnamese economy, Tran Thanh Trong, Vice-Chairman of Binh Duong provincial Business Union said that the AEC will help Vietnam increase the volume of trade exchange with countries in the region. Possibly seeing, one of key goals in an overall plan on AEC development is to form up a unified production base and a common market. The goal is being promoted by ASEAN through the ATIG, AFAS, ACIA and MNP. All will be a motivation for Vietnam to promote export turnover with ASEAN countries and the bloc’s partners as well.

Reported by Khanh Vinh-Translated by K.T