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Carpe diem: businesses to take initiative in FTA

VietNamNet Bridge

Carpe diem: businesses to take initiative in FTA

17 September 2010

Source: Thoi bao Kinh te Saigon

VietNamNet Bridge – Trade experts say that Vietnamese enterprises cannot take full advantage of multilateral and bilateral free trade agreements (FTA) to boost export because they lack initiative.

Reviewing the impact of FTAs on Vietnam’s economy under the framework of the EU-funded “Multilateral Trade Policy Assistance Project” (MUTRAP III), participants at a workshop late last week agreed that Vietnam has not reaped big rewards from free trade agreements

In theory, implementation of FTAs will open doors to export markets. In fact, the benefits remain modest. To date, Vietnam has only taken full advantage in 25 percent of export revenue for ASEAN countries, which is a low percentage of companies’ using materials sourced from ASEAN nations.

The similar situation exists in trade with China: only 20 percent of export revenue to the market could use preferences from the ASEAN-China FTA (ACFTA).

According to Le Quang Lan, Deputy Director of the Multilateral Trade Policies Department under the Ministry of Industry and Trade, in two-way trade with China, since ACFTA took effect, Vietnam has still been importing more than exporting to China.

Of Vietnam’s exports to China, agricultural products account for 39 percent, while raw materials account for 33 percent. Others like footwear or garments account for just one percent of total exports. Industrial machines and equipment account for three percent.

Vietnam now imports up to 80 percent of raw materials used for domestic production from China. Vietnam-made consumer products must now compete fiercely with Chinese imports.

Non-tariff barriers installed by import countries during FTA implementation have also strained Vietnamese firms. They cannot meet requirements on quality standards, such as certificates on origin.

Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM), observed that the biggest problem in FTA implementation is Vietnamese awareness.

After Vietnam officially joined WTO, government agencies released information, but there has not been much made clear about the nature and issues of FTA. Vietnamese businesses still do not understand FTA technical issues, including the principle on goods’ origin.

Therefore, to take full advantage of FTA, policy makers, management agencies and enterprises need to take more initiative, Thanh maintained.

Under ASEAN-Republic of Korea FTA, the import tariff on tapioca set by South Korea decreased from 800 percent to zero, a big change in domestic production protection. If Vietnamese enterprises had enough information, then they could enjoy the opportunity and more easily penetrate the market.

It is clear that firms still lack details and guidance on implementing FTAs. Though the Ministry of Industry and Trade regularly releases information relating to FTAs on its official website, Thanh still thinks that it is necessary to have a two-way exchange between the State and businesses.

Businesses have also been encouraged to take more initiative so they can “grab” opportunities instead of sitting and waiting.

Lan added that the State needs cooperation from enterprises to implement FTAs more effectively.

Lan pointed out that the Australian Government has a taskforce in charge of supporting companies and clearing up FTA queries. The taskforce goes to firms to disseminate information and listen to problems. Vietnam is also following that method, but, according to Lan, it has not been going smoothly.

According to Thanh, there will be some changes in FTA negotiations and enterprises and associations will join the process from the start. This will allow them to access information more easily and draw up long-term business plans. The Vietnam Chamber of Commerce and Industry (VCCI) has just set up a legal consultant division that will consider opinions of businesses during negotiation and international commitment implementation.