Domestic enterprises advised to take advantage of FTAs

Free trade agreements (FTAs) have opened up many doors for Vietnamese products to enter foreign markets, including demanding destinations with strict requirements and standards.

FTAs have helped Vietnam boost exports significantly, but domestic enterprises need to further study markets and better focus on the country’s strengths to optimise these deals.

According to statistics from the Ministry of Industry and Trade (MoIT), since joining the first FTA with ASEAN more than 30 years ago, Vietnam has so far signed and implemented 16 FTAs while negotiating another three.

Vietnam is also the only country to have signed FTAs with all major economic partners globally, such as the U.S., Japan, China, the EU, the UK, and Russia.

Expert Doan Huu Tue said FTAs have helped Vietnam significantly increase export output, with a growth rate of more than 20%, much higher than the general export growth rate. In 2022, Vietnam's trade surplus with FTA markets was more than $30 billion.

Dominik Meichle, chairman of the Eurocham, said with the EU-Vietnam Free Trade Agreement (EVFTA) alone, Vietnam's export turnover to the EU market increased to more than 48 billion euros in 2023 from about 35 billion euros in 2019.

Hindrances

The signing and implementation of FTAs have brought many positive export impacts for Vietnam, but there remain limitations related to origin and non-tariff barriers that mean many opportunities have not been fully exploited.

According to experts, the certificate of origin (C/O) plays an increasingly important role as a ‘golden key’ to help Vietnamese businesses expand exports and take advantage of tariff incentives under FTAs.

However, the Vietnam Import-Export Report 2023 recently published by MoIT shows Vietnam’s total export turnover which used preferential C/O types under FTAs in 2023 reached $86.1 billion, accounting for 37.35% of the country’s $230.5 billion total to FTA markets.

Professor Nguyen Thuong Lang from the National Economics University’s Institute of International Trade and Economics cited MoIT’s data as saying that for the EVFTA alone, after three years of implementation, Vietnamese enterprises have only taken advantage of 26% of the agreement's incentives, while the rate for FDI-based Vietnamese enterprises was significantly greater.

Specifically, FDI disbursement in Vietnam hit a record high of more than $23 billion in 2023, most of which headed into the export sector to take advantage of FTA opportunities. More than 70% of Vietnam's export turnover was a result of FDI enterprises.

Vietnamese exporters have mainly focused on traditional products with low labor cost advantages, such as textiles-garments, assembled industrial goods, agricultural products, and wooden products. Furthermore, these products have yet to be fully exploited through increased added value by using supply chain and professional marketing development.

Meanwhile, the fields associated with the development of international investment relations have remained moderate, and not commensurate with the great potential of the economy and mainly implemented by transnational companies, according to the International Investment Research Institute (ISC).

Vietnam, Lang said, was optimistically forecast to be the base for manufacturing electronic products worldwide after a series of FTAs take effect. However, this role was unlikely to be played by Vietnamese enterprises in the short term. FTAs have not been used to create enough momentum to form a wave of innovation in domestic businesses.

According to a recent report submitted to the PM on the results of implementing the CPTPP, EVFTA and UKVFTA, though exports to large FTA markets such as the EU, CPTPP and the UK are growing positively, their proportion is still relatively modest, and the preferential utilisation rate has not met expectations.

The preferential utilisation rates in the new CPTPP, EVFTA and UKVFTA are about 5%, 26% and nearly 24%, respectively. Meanwhile, FDI enterprises still account for the majority of Vietnam's key product export turnover, the report noted.

Vietnamese businesses, Tue said, had only participated in some stages of the supply chain. The ability to meet and comply with quality, food hygiene, safety and technical requirements of Vietnamese goods is still limited, especially in the context that many import markets have increasingly improved technical standards and non-tariff barriers. Vietnamese enterprises still mainly make processed products to order, so the added value is low.

Solutions

To optimise FTAs, Vietnamese businesses need to take advantage of market opportunities, participate in the global value chain, and access modern technology, according to Lang.

The first and biggest impact of FTAs is to maximise market expansion in both width and depth. Therefore, to effectively exploit this, domestic businesses need to proactively invest in surveying and understanding the market to firmly grasp the needs of partners. They should actively take part in trade fairs, exhibitions, forums, conferences, and trade connections to find suitable partners.

Participation in FTAs means a connection and deep penetration into the global value chain. To gain a genuine connection, domestic businesses need to meet origin standards as committed in each FTA. They absolutely must not cheat on origin or avoid trade defence measures to avoid a loss of credibility with relevant entities.

Most Vietnamese businesses are small- and medium-sized, so it is difficult for them to cover the entire market, create scale advantages, and invest in high technology, besides being easily dominated by competitors. Therefore, businesses need to proactively connect and cooperate with each other to increase support and complement each other to enhance their capacities to meet large-scale orders.

Domestic businesses need to invest in research, development and innovation, which will create differentiating factors, know-how, and core competitive advantages for them.