International economic integration: Opportunities and challenges for Vietnamese enterprises in implementing new generation free trade agreements

Since the 1980s, our Party and State have recognized the necessity and inevitability of international economic integration. Since then, our Party's guidelines and policies on international economic integration have been constantly improved, in line with the specific situation of each period, effectively serving the cause of national innovation and development and actively institutionalized, such as: Resolution No. 19/NQ-CP, dated March 18, 2014, of the Government, "On the main tasks and solutions to improve the business environment and enhance national competitiveness"; Resolution No. 02/NQ-CP, dated January 10, 2022, of the Government, "On the main tasks and solutions to improve the business environment and enhance national competitiveness in 2022".

In the process of comprehensive international integration in politics, defense - security, culture - society, science - technology and education - training, international economic integration is the central content and an important and consistent part of the country's innovation. Accordingly, Vietnam's international economic integration process has many important steps forward. In 2019, CPTPP officially took effect in Vietnam; in 2020, Vietnam and the European Union (EU) signed EVFTA. Accordingly, in addition to traditional areas such as market access/MA, technical barriers to trade, sanitary and phytosanitary measures (SPS), technical barriers (TBT), rules of origin, customs cooperation, investment, services, law and institutions, these new generation FTAs ​​provide the signatories with opportunities to expand areas: government procurement/public procurement, competition, intellectual property, labor, environment, cross-border issues... The important point is that the new generation FTA has the broadest level of commitment, covering almost all areas of goods and services; has the deepest level of commitment, the tax reduction is almost 0%; has a strict enforcement mechanism. For CPTPP, Vietnam commits to eliminating nearly 100% of tax lines, of which 65.8% of tax lines have a 0% tax rate as soon as the Agreement comes into effect; 86.5% of tariff lines will have a 0% tax rate in the 4th year from the date the Agreement comes into effect; 97.8% of tariff lines will have a 0% tax rate in the 11th year from the date the Agreement comes into effect; the remaining items are committed to eliminating import taxes with a maximum tax elimination roadmap in the 16th year or according to tariff quotas. For EVFTA, Vietnam commits to eliminating 65% of tariff lines immediately after the Agreement comes into effect; eliminating over 99% of tariff lines within 9 years; the remaining items will apply tariff quotas with an in-quota tax rate of 0%.

Taking advantage of new generation FTAs, Vietnam's pangasius exports in the first 11 months of 2022 reached 2.2 billion USD (up 61.9%) over the same period last year_Photo: VNA

Not only that, in addition to enjoying the benefits of eliminating tariff barriers, the rights and responsibilities of Vietnamese enterprises when participating in new-generation FTAs ​​are also to promptly receive information about FTAs, enjoy incentives under FTAs, and have their interests protected when implementing FTAs, while also being responsible for effectively implementing FTAs. In particular, participating in new-generation FTAs ​​helps Vietnamese enterprises to seize opportunities to increase exports to markets of countries participating in the agreement, for example with CPTPP ⁽¹⁾ : First , export benefits: The fact that countries, including large markets such as Japan and Canada, reduce import taxes to 0% for Vietnamese goods will create positive impacts in promoting export turnover. Accordingly, Vietnamese enterprises when exporting goods to markets of CPTPP member countries will enjoy preferential tariff reduction commitments. Basically, Vietnam's strong export products, such as agriculture, seafood, electricity, and electronics, will have their taxes eliminated as soon as the Agreement comes into effect. With such a level of commitment, according to research by the Ministry of Planning and Investment, Vietnam's exports could increase by 4.04% by 2035. Participating in FTAs ​​with CPTPP countries will help Vietnam have the opportunity to restructure its import-export market in a more balanced direction. Second , the benefits of participating in regional and global supply chains: CPTPP countries account for 13.5% of global GDP with a total trade turnover of more than 10,000 billion USD, including large markets such as Japan, Canada, and Australia. Joining CPTPP will open up many opportunities in forming supply chains, which is an important condition to improve the development level of the economy, increase labor productivity, gradually reduce assembly and processing, participate in production stages with higher added value, thereby developing electronics, high technology, green agricultural products, etc.

In addition, new-generation FTAs ​​open up opportunities to encourage Vietnamese enterprises to upgrade themselves, accept new and more difficult rules of the game to go deeper and reach higher value stages in the global supply chain and distribution chain ⁽²⁾ , especially the EU market, which is a market with strict requirements on quality and high standards for goods and services. CPTPP and EVFTA also promote the role of enterprises and the importance of establishing mechanisms to facilitate enterprises to access the benefits of free trade. This is a progressive and practical approach, because enterprises are the subjects that put commitments into practice. The extent to which enterprises exploit commitments is a measure of the value of the agreement.

In fact, after three years of implementing CPTPP and two years of implementing EVFTA, Vietnamese enterprises have achieved initial positive results in taking advantage of incentives from these agreements. First of all, it can be seen that there are tariff benefits, especially in new markets such as Canada and Mexico. Next are the positive impacts on institutional reform (such as administrative procedure reform measures, policy and legal adjustments), along with expected benefits in the future (in cooperation plans, joint ventures with foreign partners to take advantage of new generation FTAs). In addition, there are also benefits from commitments to rules considered as high standards such as protection of intellectual property rights...

In 2019, international trade was significantly affected by US-China trade tensions, trade conflicts in many regions of the world, and the corresponding decline of many economies... In 2020-2021, the COVID-19 pandemic broke out and spread globally, disrupting trade activities like never before. The development of the pandemic, social distancing policies, decisions to temporarily close the economy, and disruptions in production and transportation chains... are unusual factors that directly impact trade activities. In that context, trade between Vietnam and CPTPP partners is still smoothly connected. In the first year (2019), Vietnam's export turnover to this bloc reached 39.5 billion USD. In the second year (2020), under the impact of the COVID-19 pandemic, export turnover decreased slightly, reaching 38.75 billion USD, but in the third year, it regained growth momentum, showing the efforts to overcome difficulties of Vietnamese enterprises. According to the Ministry of Industry and Trade, in 2021, Vietnam's import-export turnover with the CPTPP market reached 91.4 billion USD. Vietnam exported agricultural products, machinery - equipment, phones - components, textiles, footwear, seafood... to 10 CPTPP member countries with a value of 46 billion USD and imported from this market 45.4 billion USD. Of which, the export markets with large values ​​include: Singapore, Malaysia, Japan, Australia, Canada, Mexico, Chile. The remaining three markets (Peru, Brunei and New Zealand) although growing strongly, the absolute value in trade transactions is still low ⁽³⁾ .

In the first 8 months of 2022, export turnover between Vietnam and CPTPP member countries reached 41 billion USD, up 38.7% over the same period in 2021. On the contrary, Vietnam's import turnover from this region reached 35 billion USD, up 17.2% over the same period in 2021 ⁽⁴⁾ . According to a study by the World Bank (WB), it is forecasted that by 2030, Vietnam's exports to CPTPP countries will increase to 80 billion USD, accounting for about 20% of total export turnover.

Regarding EVFTA, businesses have begun to show more positivity and the benefits of the Agreement are more evident. The rate of using preferential certificates of origin under the Agreement has increased. Notably, in the first 6 months of 2022, this rate increased by over 32% - about 4 times higher than the rate of taking advantage of incentives in the CPTPP ⁽⁵⁾ . In trade with the EU, in 2021 alone, two-way trade between Vietnam and the EU reached 63.6 billion USD, an increase of 14.8% compared to 2020. Specifically, the total value of Vietnamese goods exported to the EU reached 45.8 billion USD, an increase of 14.2%; Meanwhile, EU exports to Vietnam reached 17.9 billion USD, up 16.5% compared to 2020. Notably, Vietnam's export turnover to the EU using certificates of origin (C/O form EUR.1) reached about 7.8 billion USD, showing that many Vietnamese enterprises have taken advantage of the opportunities from the EU's tariff reduction under the EVFTA ⁽⁶⁾ . In the first 6 months of 2022, export turnover to the EU reached 23.82 billion USD, up 22.6% compared to 2021 and imports reached 7.88 billion USD, down 4.7% compared to 2021 ⁽⁷⁾ .

However, besides opportunities, participating in new generation FTAs ​​also brings challenges to Vietnamese enterprises:

Firstly , the provisions of the FTAs ​​are assessed to create many new difficulties for Vietnam in formulating policies and laws in various fields. Notably, issues related to labor, environmental protection, and intellectual property are noteworthy. Therefore, improving the understanding and basic knowledge of the concepts and regulations governing FTAs ​​in related fields is very important for Vietnamese policy makers and businesses, increasing access to the global trading system ⁽⁸⁾ .

Second , after a period of implementing new-generation FTAs, the benefits received from these agreements are still limited. The main reason is that businesses do not fully understand the tariff incentives under the agreements, as well as the ability to meet the quality standards of the importing country. Most businesses only have a preliminary understanding of the agreements, the number of businesses that clearly understand the commitments in new-generation FTAs ​​related to their business activities accounts for a very small percentage. For example, in comparison with other FTAs ​​of Vietnam, the rate of understanding CPTPP commitments is at a relatively high level or clearly known at 25%, only higher than the average (23%) and quite far behind ASEAN FTAs ​​at 31%. In particular, the group of businesses that clearly know and effectively take advantage of CPTPP are foreign-invested enterprises (29.7%) and 100% state-owned enterprises (27.3%) ⁽⁹⁾ . This situation reflects the limited dissemination and popularization of new generation FTAs. With a difficult and complex FTA like CPTPP, it is necessary to have more in-depth, detailed and useful information measures for businesses.

Third , in addition to opening up many opportunities to develop the Vietnamese market and supporting Vietnamese enterprises in orienting their trade and investment activities with foreign trade partners, new-generation FTAs ​​also set strict regulations and requirements for participating parties to improve product quality standards and promote the basic principles of sustainable development. Compliance with these standards aims to ensure that the Vietnamese economy operates effectively and meets the requirements of the global supply chain. Therefore, enterprises face losses due to competitive pressure (most commonly losses due to their products having to compete more fiercely with imported goods enjoying preferential treatment), as well as compliance costs (additional costs to prepare for high-standard commitments on intellectual property, labor, environment, etc.).

To overcome obstacles, effectively take advantage of opportunities

The Ministry of Industry and Trade, in coordination with the British Embassy, ​​organized the launching ceremony of the free Vietnam Trade Database Portal (VNTR), providing updated information in Vietnamese and English on the content of free trade agreements that Vietnam participates in. Photo: VNA

Currently, the world situation is changing rapidly, complicatedly, unpredictably, strongly affecting the global economy as well as each country, especially the COVID-19 pandemic; the Russia-Ukraine conflict has led to local disruptions in the supply chain, labor, and production; prices of input materials and agricultural products are high, inflation in many countries is increasing; energy security, food security are at an alarming level, non-traditional security, such as natural disasters, epidemics, climate change ... are complicated; many countries, including Vietnam's major partners, have changed their policies towards increasing interest rates, tightening monetary and fiscal policies ... leading to a decline in aggregate demand ⁽¹⁰⁾ . Therefore, in order to effectively utilize new-generation FTAs, while minimizing unwanted negative impacts, overcoming limitations, and avoiding risks in the process of implementing commitments, it is necessary to implement a number of solutions:

First, state agencies need to Continue to innovate and improve the quality of institutional building work, especially the timely institutionalization of the Party's viewpoints and guidelines on international economic integration, ensuring compliance with international commitments and practices. On August 24, 2020, the Government issued Decree No. 9/2022/ND-CP amending and supplementing a number of articles of Decree No. 95/2020/ND-CP of the Government guiding the implementation of procurement bidding under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), on that basis, it is necessary to continue to institutionalize and internalize international commitments, especially for FTAs. The amendment of the Law on Technical Standards and Regulations, the Law on Product and Goods Quality aims to create a specific legal framework for the activities of technical standards and regulations, quality management, and assessment of Vietnamese products and goods in accordance with the commitments in the new generation FTAs ​​that Vietnam participates in. At the same time, taking advantage of the opportunities of the Fourth Industrial Revolution, the digital transformation process, promoting the strong development of Vietnamese products and goods with quality, meeting national standards and overcoming technical barriers in trade. The important thing in amending the law is to pay attention to strengthening state management in the field of quality measurement standards but still creating "push and pull" for businesses to innovate and develop sustainably.

Second , the dissemination and propaganda activities on new generation FTAs ​​implemented by state agencies in the coming time need to be detailed, with the contents built in a practical, concise manner, suitable for the interests of each specific group of businesses. Programs and activities to support businesses need to focus on substantive activities to improve product competitiveness, promote trade at the national level systematically, especially in new markets, update market information and connect supply and demand. These activities also need to be designed according to specific groups of subjects, with special priority given to small and micro businesses.

Third , promote the role of enterprises, clearly identify enterprises as the subject and center in foreign economic activities by focusing on removing difficulties and obstacles for enterprises, increasing support for enterprises in the process of implementing international economic integration commitments; continue to promote reform, simplify administrative procedures, facilitate investment, business and import-export activities; especially orient and support Vietnamese enterprises to invest in foreign markets to access advanced technology, acquire management experience and send Vietnamese workers abroad to work in order to change their vision and labor skills ⁽¹¹⁾ . Market research, policy advice and improving the effectiveness of supporting domestic enterprises to build and adjust appropriate production and business strategies and plans, taking advantage of opportunities from agreements.

Fourth , there should be policies to further support businesses in terms of trade information through developing market information systems, organizing trade promotion programs, strengthening market analysis and forecasting and research, and issuing policies to facilitate businesses, thereby supporting Vietnamese businesses to directly and effectively participate in supply chains and commodity value chains. Strengthening warnings about regulations on barriers and issues arising for exported goods ⁽¹²⁾ .

Fifth, businesses need to carefully study the commitments in FTAs, especially new generation FTAs; study carefully the markets of FTA member countries. Proactively respond to trade defense measures, such as: Regularly exchange information with import partners; update early warning information; actively participate in the investigation process, actively coordinate with the investigation agency. From there, proactively use trade defense measures. At the same time, improve competitiveness, through applying standards, techniques, complying with regulations of partner markets; applying technology to production and management; building strategies, choosing customers, choosing markets.

In addition, linking and cooperating in business to become stronger together, thereby directly or indirectly benefiting from this process, is also something to pay attention to. At the same time, instead of ineffective individual efforts, businesses need to strengthen cooperation (within the framework of the Vietnam Federation of Commerce and Industry - VCCI or business associations) to advocate policies, improve the investment and business environment, thereby promoting creativity and successful international integration./.

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(1) See: Ministry of Industry and Trade: Handbook on International Economic Integration , Office of the Inter-sectoral Steering Committee for International Economic Integration, Dan Tri Publishing House, Hanoi, 2021
(2) “EVFTA promotes Vietnamese enterprises to upgrade themselves”, Online Finance Magazine , August 7, 2020, https://tapchitai chinh.vn/evfta-thuc-day-cac-doanh-nghiep-viet-nam-tu-nang-cap-chinh-minh.html
(3) “Vietnam's exports to CPTPP markets grow positively”, Website of the WTO and Integration Center, Vietnam Federation of Commerce and Industry , March 21, 2022, https://trungtamwto.vn/chuyen-de/20302-xuat-khau-cua-viet-nam-sang-cac-thi-truong-cptpp-tang-truong-duong
(4) The Hoang: "Vietnam has a trade surplus of 6 billion USD to the CPTPP market", Investment Newspaper online , October 11, 2022, https://baodautu.vn/viet-nam-xuat-sieu-6-ty-usd-sang-thi-truong-cptpp-d175141.html
(5) Tue Minh: "Enterprises have seized opportunities and effectively utilized EVFTA after 2 years of implementation", Ministry of Industry and Trade's electronic information portal , July 28, 2022, https://moit.gov.vn/tin-tuc/thi-truong-nuoc-ngoai/doanh-nghiep-da-nam-bat-co-hoi-va-tan-dung-hieu-qua-evfta-sau-2-nam-thuc-thi.html
(6) “New generation FTAs ​​stimulate growth in Vietnam's export turnover”, Ministry of Industry and Trade's electronic information portal , May 15, 2022, https://moit.gov.vn/tin-tuc/thi-truong-nuoc-ngoai/cac-fta-the-he-moi-kich-da-tang-kim-ngach-xuat-khau-cua-viet-nam.html
(7) Tue Minh: "Enterprises have seized opportunities and effectively utilized EVFTA after 2 years of implementation", Ministry of Industry and Trade's electronic information portal , July 28, 2022, https://moit.gov.vn/tin-tuc/thi-truong-nuoc-ngoai/doanh-nghiep-da-nam-bat-co-hoi-va-tan-dung-hieu-qua-evfta-sau-2-nam-thuc-thi.html
(8) See: Phan Thanh Vu: "Challenges in the fields of labor, environment and intellectual property when integrating internationally", Vietnam News Agency website , November 5, 2021, https://news.vnanet.vn/?created=365%20day&keyword=FTA&servicecateid=1&scode=1&qcode=17
(9) Topic: “Vietnamese enterprises after two years of implementing the CPTPP agreement”, Website of the WTO and Integration Center, Vietnam Federation of Commerce and Industry, https://trungtamwto.vn/file/21001/chuyen-de--doanh-nghiep-viet-nam-sau-2-nam-thuc-thi-cptpp.pdf
(10) Pham Tiep: "Prime Minister Pham Minh Chinh chairs online conference with Vietnamese trade representative agencies abroad", Vietnam News Agency website, August 19, 2022, https://news.vnanet.vn/?created=365%20day&keyword=hi%E1%BB%87p%20%C4%91%E1%BB%8Bnh&servicecateid=1&scode=1&qcode=17
(11) Phuong - Diep: "National Foreign Affairs Conference: Improving foreign affairs thinking in economic development", VietnamPlus electronic newspaper, December 14, 2021, https://www.vietnamplus.vn/hoi-nghi-doi-ngoai-nang-cao-tu-duy-doi-ngoai-trong-phat-trien/760755.vnp
(12) Special issue of EVFTA with Vietnam's trade, Specialized in: Agricultural products, Quarter IV-2021, Ministry of Industry and Trade's electronic information portal, http://www.moit.gov.vn/upload/2005517/fck/files/chuyen.san.FVFTA_voi_thuong_mai_Viet_nam.pdf

Source: https://tapchicongsan.org.vn/web/guest/quoc-phong-an-ninh-oi-ngoai1/-/2018/826698/hoi-nhap-kinh-te-quoc-te--co-hoi-va-thach-thuc-doi-voi-cac-doanh-nghiep-viet-nam-trong-trien-khai-cac-hiep-dinh-thuong-mai-tu-do-the-he-moi.aspx