30 Years of Vietnam’s Foreign Trade (1986-2015) and Beyond

Dr Le Quoc Phuong

Deputy General Director

Vietnam Industry and Trade Information Center

(Ministry of Industry and Trade)

Contents

VIETNAM’S TRADE REFORMS SINCE 1986

ACHIEVEMENTS

SHORTCOMINGS

FUTURE TRADE DEVELOPMENT

I. VIETNAM’S TRADE REFORMS SINCE 1986

Before 1986: central planning, inward-looking economy

State monopoly of foreign trade

Trade carried out by small number of state-owned import-export enterprises

Tight regulations over foreign trade

Rigid quantity targets for trade

Fixed exchange rate

Largely inward-looking economy

No international economic integration. Joined only CMEA (Council for Mutual Economic

Assistance), economic cooperation organization of Soviet bloc

Traded mainly with Soviet Union and few other socialist states

No FDI sector.

I. VIETNAM’S TRADE REFORMS SINCE 1986

Since1986: market-economy reform, foreign trade liberalization

Decentralization of foreign trade

State monopoly of foreign trade abandoned

Private firms allowed to take part in exports/imports.

Removal of export licensing control

Export licensing system abolished

Tariff reduction, lowering of NTBs

Number of import tariffs and export duties dropped dramatically

Quotas removed from almost all export and import goods (except few)

Exchange rate reform

Different exchange rates, previously applied to trade transactions within and outside central plan, were unified.

Domestic currency devalued to establish more realistic exchange rate.

International Integration efforts

Milestones 1995: Joined ASEAN

1996: Joined AFTA (ASEAN Free Trade Area)

1998: Joined APEC (Asia-Pacific Economic Cooperation)

2000: Signed Vietnam-US Bilateral Trade Agreement (VUBTA)

2007: Joined WTO

2008: Signed Vietnam-Japan Economic Partnership Agreement (VJEPA)

2009: Joined FTA between ASEAN and its major trade partners: ASEAN - China (ACFTA), ASEAN - Japan (AJFTA), ASEAN - Korea (AKFTA), ASEAN - India (AIFTA), ASEAN - Australia, New Zealand (AANZFTA)

2015:

Signed FTA Vietnam -Korea (VKFTA), FTA Vietnam-Customs Union (Russia, Kazakhstan, Belorus)

Talks for FTA Vietnam -EU (EVFTA) and TPP completed

ASEAN Economic Community (AEC) effective 31/12/2015.

II. ACHIEVEMENTS

During 1986-2015, Vietnam suffered from major external shocks

1989-1991collapse of socialist states of Soviet bloc (Vienam’s major trade partners)

1997-1998 Asian financial crisis badly impacted Thailand, Indonesia, Malaysia, Korea

(Vienam’s important trade partners in Asia)

2008-2009 global economic crisis severely impacted US, EU, Japan (Vienam’s major

export markets)

But Vietnam’s trade keeps expanding, thanks to reforms, international integration efforts

Trade value.1986 exports US$ 800 mil. 2015: expected US$S160 bil

Number of trade partners.

Before 1991 Vietnam traded mainly with Soviet bloc.

Now number of trade partners increases to more than 200.

Growth rate of trade

For almost entire period 1986-2014 (except few years Vietnam affected by external

crises), trade growth generally exceeds 20%.

Average growth rate of exports for this period 25.5%/year, high by world standard

II. ACHIEVEMENTS

Figure 1: Vietnam’s foreign trade (1986-2015)

-20

0

20

40

60

80

100

120

140

160Exports ($US bil)

Imports ($US bil)

Trade balance ($US bil)

II. ACHIEVEMENTS

Exports/GDP ratio

Exports of goods/GDP rose from 30.8% in 1990 to 80% in 2014

(Exports+Imports)/GDP now is some 160%, showing high degree of openness

Exports per capita

US$36 in 1990 => US$2080 in 2014

Commodity composition of trade

In 1991: Vietnam exported 180 items (counted at 3-digit level of SITC).

In 2015: exported items cover almost full range of world trade (269 commodities).

Shift of export commodity structure from resource towards manufacturing

In 1991: 17/20 top exports of Vietnam were resource-based (agriculture, fishery, forestry, mining),

3/20 are manufactured (clothes, travel goods).

In 2014: 9/20 top exports were resource-based, 11/20 are manufactured. Manufactured goods

accounts for more than 70% of exports

Vietnam is world top exporter of many commodities (Table)

II. ACHIEVEMENTS

Table: Vietnam as world’s top exporter of many commodities

Commodity

Export value 2014

(US$ bil) Rank in world

Vietnam share in

world exports (%)

Cashew 2.0 1 21.3

Coffee 3.6 2 9.0

Rice 2.9 3 11.6

Footwear 10.3 3 6.6

Garment 20.9 4 4.5

Seafood 7.8 4 4.7

Wood, wooden products 6,3 4 7,7

Natural rubber 1.8 4 4.0

III. SHORTCOMINGS

Export value high, but value-added very low

90% of export agricultural and seafood products are unprocessed.

Manufactures account for more than 70% of exports, but most are assembled.

Vietnam export commodity competitiveness is low

Most of export products (including agricultural and manufactures) are low quality and

have no brand name, thus have low price.

Slow shift from low value-added exports to high value-added.

Export structure shifted from resource-based towards manufactures in early 1990

Further shift from low value-added exports to high value-added has been slow.

Vietnam’s top export items still dominated by raw materials (rice, coffee, rubber, seafood,

vegetables, crude oil, coal), labor-intensive manufactures (garment, shoes, travel bags,

furniture) and assembled hi-tech products (smart phones, computers, photo- and video-

cameras).

III. SHORTCOMINGS

Persistent high trade deficit

Vietnam has chronic trade deficit in 1986-2015 (except 1992, 2012-2014). Extremely large trade deficit with China (US$ 30 bil in 2014).

Most manufactures based on assembly. Supporting industries under-developped => Vietnam imports most of materials, parts to make final export products => trade deficit.

Trade deficit common for developing countries, which intensively import capital goods for industrialization. But Vietnam’s high long-lasted trade deficit => economic instability (current account deficit, devaluation of domestic currency, inflation)

High dependency on limited number of export commodities and markets

Although Vietnam’s export commodities cover almost full range of world exports, limited number of goods dominates exports (Table)

24 major export items (above US$ 1bil) account for 86.5% exports in 2014

10 largest items (above US$3bil) covers 70%, 2 largest items (smart phones, garment) make up 30%

Although Vietnam trades with 200 economies, most trade is with limited number of economies (Table)

6 top export markets (US, EU, China, ASEAN, Japan, Korea) account for 75% of Vietnam’s exports.

7 top import sources (China ASEAN, Korea, Japan, EU, US) make up 80% of imports

Dependency on few trading partners risky if unfavorable conditions occur on these markets.

Collapse of Soviet bloc 1989-1991 => Vietnam lost major export markets.

Asian economic crisis 1997-1998 => Vietnam’s major Asian trade partners severely impacted.

Global crisis 2008-2009 => Vietnam’s major trade partners (US, EU, Asian economies) were hurt).

III. SHORTCOMINGS

Vietnam’s top export items (value above US$ 1 billion in 2014)

TT Item Export value (USD mill) Share (%)

Total export value 2014 150,217 100.0

- FDI companies 93,956 62.5

- Domestic companies 56,261 37.5

1 Phones and parts 23,598 15.7

2 Garment 20,911 13.9

3 Computers, electronic products, devices 11,434 7.6

4 Footwear 10,326 6.9

5 Seafood 7,825 5.2

6 Machinery, equipment and parts 7,315 4.9

7 Crude oil 7,224 4.8

8 Wood, wood products 6,230 4.1

9 Transport eqipment and parts 5,678 3.8

10 Coffee 3,557 2.4

11 Rice 2,935 2.0

12 Yarn, weave fabrics 2,542 1.7

13 Travel bags, wallets, hats 2,536 1.7

14 Photocameras, videocameras and parts 2,220 1.5

15 Plastic products 2,045 1.4

16 Iron, steel 1,998 1.3

17 Cashew 1,992 1.3

18 Natural rubber 1,780 1.2

19 Steel products 1,734 1.2

20 Vegetables 1,489 1.0

21 Pepper 1,201 0.8

22 Cassava and products 1,137 0.8

23 Material for textile and footwear 1,110 0.7

24 Gasoline and refinery products 1,055 0.7

III. SHORTCOMINGS

Vietnam’s top export markets and import sources (2014)

Market

Value (USD million) Share (%)

Exports Imports Exports Imports

Total 150,217 147,849 100.0 100.0

1 US 28.644 6,297 19.1 4.3

2 EU-28 27,906 8,877 18.6 6.0

3 China 14,931 43,711 9.9 29.6

4 ASEAN 19,118 22,972 12.7 15.5

5 Japan 14,693 12,926 9.8 8.7

6 South Korea 7,144 21,763 4.8 14.7

7 Taiwan 2,308 11,079 1.5 7.5

8 Hong Kong 5,202 1,038 3.5 0.7

9 UAE 4,627 466 3.1 0.3

10 Australia 3,990 2,056 2.7 1.4

11 India 2,511 3,113 1.7 2.1

III. SHORTCOMINGS

Domination of FDI sector in exports

FDI companies make up more than 2/3 of exports,

domestic companies less than 1/3

Some export items dominated by FDI companies:

smart phones (99.6%), computers and electronics

(98.9%), cameras (98.1%) and so on

Vietnam‘s high growth of exports stems mainly from

high growth of FDI exports, while domestic sector

grows very slowly

IV. Future trade development

To date, apart from WTO and BTA with US, Vietnam signed 10 FTAs :

AFTA (ASEAN Free Trade Area), also known as ATIGA (ASEAN Trade in Goods Agreement)

Five (ASEAN+1) FTAs between ASEAN and its major trade partners in the region (China, Japan, Korea, India

Australia and New Zealand)

Latest development in 2015:

Signed FTA Vietnam -Korea (VKFTA) in May 2015. To be effective 2016

FTA Vietnam –Customs Union (Russia, Kazakhstan, Belorus) in May 2015. To be effective 2016

Talks for FTA Vietnam-EU (EVFTA) completed in Dec 2015. Expected effective in 2016

Talks for TPP completed in October 2015. Expected effective 2018

ASEAN Economic Community (AEC) effective on 31/12/2015.

Currently talks going on for:

RCEP: FTA of 10 ASEAN members and 6 major trade partners which have FTA ASEAN +1

FTA with European Free Trade Area (Switzerland, Norway, Liechtenstein, Iceland)

Future development: Vietnam’s foreign trade sector and its companies will

Greatly benefited by FTAs and other international treaties

Face with higher and tougher requirements (technical, SPS, environment and labor standards, rule of origin,

equal treatment , etc)

IV. Future trade development

Future trade development greatly influenced by FTAs and other international treaties

FTAs Vietnam has signed, or is going to sign, have many differences (participating partners, scope of sectors involved, roadmap for liberalization, depth of liberalization measures).

But all have one common point: each member economy committed to opening up its own market for goods/services from other members, in exchange of having greater access to other members markets. This creates opportunities and imposes challenges.

Opportunities

For entire economy: pressure to speed up reforms to raise competitiveness for whole economy, for each company, for goods/services on both domestic and world markets.

For trade: Vietnam’s export goods will have better access to vast markets => Vietnam’s exports further expands => Creates ‘Economies of scale effect’ for Vietnam’s economy => more efficient

For FDI: creates more favorable conditions to attract more investment (Investment stimulus)

Challenges

Fast opening up economy under trade pacts => Vietnam’s companies/goods/services have to face fierce competition from foreign companies/goods/services on both domestic and world markets.

This takes place in context of low competitiveness of Vietnam’s economy its companies/goods/services => Vietnam’s uncompetitive sectors and companies may get in serious trouble.

IV. Future trade development

Opportunities and challenges of selected trade pacts

1. WTO: Vietnam joined 2007

Positive impacts

Dispute settlement: Vietnam’s companies have equal rights, as companies from other members, to

file complaints and settle trade disputes.

Tariff reduction: tariff commitment under WTO has quite limited impact as most tariff cuts are not

significant (except for IT and textile products) and have quite long reduction roadmap.

WTO has larger positive impacts on institutions and services sector

Impact on Institutional sytem: WTO has larger impacts on institutional system (trading rights,

distribution rights, rights of investors) => making Vietnam’s business environment more transparent

and competitive => pressure on Vietnam’s companies to restructure towards world standard and

higher efficiency.

Foreign companies given rights to do business in Vietnam => encourage competition

Impact on service sector: Commitments under WTO to open service sector => speed up the

development of Vietnam’s service sector => making service sector more developed, more efficient

=> reducing service cost => reducing companies production cost => enhancing economic growth.

Future trade development

1. WTO

Negative impacts

Vietnam’s companies have to accept rule ‘winner is stronger and more efficient company’.

Most of Vietnam’s companies have limited capacity in terms of capital, technology, human resources, business and management skills in global environment => at risk to be taken over by more experienced, more efficient foreign companies.

Joining WTO means opening up domestic market on MFN basis to all WTO members => Vietnam’s companies/goods/services are under competition pressure from foreign companies/goods/services => Some Vietnam’s companies, even sectors, will collapse

In projects not using state budget, Vietnam does not have rights:

to select sub-contractors.

to require sub-contractors use domestic goods.

Some FDI companies in production sector will shift to import activities or take part in distribution activities to take advantage of gradual lower tariffs => Imports surge.

Future trade development under signed and to-be-

signed FTAs

2. Vietnam-Korea FTA (VKFTA) signed May 2015, effective 2016

Opportunities

Vietnam opens market for extra 200 commodities from Korea (as compared to FTA ASEAN – Korea), raising number of tariff lines liberalized from 87% of total in AKFTA to 894% in VKFTA

Korea opens market for extra 495 commodities from Vietnam (as compared to AKFTA), raising number of tariff lines liberalized from 91.3% of total in AKFTA to 95.4% in VKFTA. In particular, Korea cuts tariffs on Vietnam’s manufactures (garment, machinery) and agricultural products (shrimp, fish, fruits, vegetable).

Vietnam’s garment-textile industry: Tariffs on textile materials imported from Korea reduced (Korea is2nd largest supplier of textile materials rts for Vietnam after China). Korea abolished tariffs on Vietnam’s garment

500 Korea FDI textile-garment companies in Vietnam also benefiied

Vietnam’s electronic industry

Tariffs on devices imported from Korea reduced. Vietnam currently imports large amount of mobilephone parts from Korea.

Korea FDI companies in Vietnam benefitted (most smart phones produced by Korean companies Samsung, LG…)

Vietnam’s automobile industry: tariffs on vehicle parts imported from Korea reduced to 0-5%). Currently tariffs on vehicle parts imported from Korea range from 3 to25%

Vietnam’s seafood industry (shrimp, fish)benefitted: Tariffs on Vietnam’s seafood exported to Korea reduced. For shrimp, Korea abolishes tariff for import quantity within the import quota of 15 thousand tons. Vietnam now 3rd largest supplier of seafood for Korea after China and Russia. Korea is Vietnam’s 5th largest export market for shrimp after US, Japan, EU, China

Vietnam’s agricultural products

Korea for the first time opens markets for Vietnam’s sensitive produce such as garlic, ginger, bee honey.

Tariffs on tropical fruits (mango, banana, pineapple) imported from Vietnam abolished within 10 years

However rice, chilly and onion are excluded from list.

Future trade development under signed and to-be-

signed FTAs

2. Vietnam-Korea FTA (VKFTA)

Challenges for Vietnam companies

Vietnam companies producing vehicle parts: to face fierce competition with cheaper parts imported from Korea

Vietnam companies producing trucks: to face fierce competition with cheaper trucks imported from Korea

Vietnam retail companies : to face fierce competition with Korea retail companies coming to Vietnam (eg Lotte)

Vietnam agricultural-seafood export companies:

on one hand benefitted from Korea opening markets

on the other hand will have to face with more strict SPS and food security regulations.

3. FTA Vietnam – EU (EVFTA)

Opportunities

EU opens market for 99% of total tariff lines on Vietnam’s goods => Vietnam’s exports to EU expected to jump by 30-40% after EVFTA effective

Vietnam’s garment industry gets large benefits, as EU is 3rd largest export market for Vietnam’s garment

Vietnam’s footwear industry greatly benefitted, thanks to tariffs gradually reduced to 0% on roadmap

EU is world 2nd largest import market for footwear

EU is one of 2 largest export markets for Vietnam’s footwear (US and EU)

Vietnam is 2nd largest footwear supplier for EU after China

Vietnam footwear export value to EU expected to double current value after EVFTA effective

Vietnam seafood industry: currently 461 companies have meet requirements to get licensed to export seafood to EU (after only China) => opportunity to increase Vietnam’s seafood market share in EU.

Future trade development under signed and to-be-signed FTAs

Future trade development under signed and

to-be-signed FTAs

3. FTA Vietnam – EU (EVFTA)

Challenges

Vietnam’s garment industry

To get benefits from 0% tariff: Vietnam’s garment has to comply with ‘fabric forward’ rule,

meaning at least fabric and sewing should be done in Vietnam

But Vietnam currently imports fabric largely from China => making it difficult for Vietnam

garment companies to be benefitted from EVFTA

Vietnam’s seafood industry will face with more strict quality requirement (origin certificate,

traceability, SPS and food security requirements)

Vietnam’s companies will face with more strict requirements on environment protection, social

responsibility, labor standards

Future trade development

4. TPP

Opportunities (eg for US market)

Vietnam’s garment industry: TPP reduces tariff to 0% from current average

tariff of 17%

Vietnam’s footwear industry: TPP reduces tariff to 0% from current average

tariff of 12%

Vietnam’s seafood industry: TPP reduces tariff to 0-6% on Vienam’s seafood

(shrimp, catfish)

Vietnam’s wooden furniture industry : TPP reduces tariff to 0% on Vienam’s

furniture

Future trade development

4. TPP

Challenges

Vietnam’s garment industry faces "Yarn forward" clause

IPR protection: much longer than in WTO

Possibilty of increased anti-dumping, anti-subsidy measures, more strict technical and SPS

barriers when Vietnam‘s imported goods increase rapidly.

TPP limit power of home government over foreign companies

Disputing foreign companies may sue home government by submitting claim to foreign courts

instead of home courts.

Disputing foreign companies may claim compensation for damage or loss by reason of

alleged breach of any rights by domestic regulations (on land use, environtment, health,

finane, etc)

End of presentation

Thank you!