In this article, we give an overview of the key regional trade organisations which Vietnam is a member of, and strategic benefits. The article is an extract from our latest publication Vietnam 2016: Frontier in Transition, available to download here.
Association of Southeast Asian Nations (ASEAN)
The Association of Southeast Asian Nations (ASEAN) is a regional bloc representing the over 600 million citizens of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. In 2014, the group’s combined GDP was $2.57 trillion, giving it an economy around the size of the United Kingdom.
Through its ASEAN membership, Vietnam has free trade agreements (FTAs) with Australia and New Zealand, China, India, Japan and South Korea. The country also has bilateral FTAs with China, Eurasian Economic Union, the European Union, Japan, and South Korea.
The aim of ASEAN is to integrate its ten member countries facilitate trade in goods and services, eliminate tariffs, harmonise capital markets, and ease mobility of skilled labour.
The head of ASEAN in 2016 is Vietnam’s neighbour, Laos.
ASEAN Economic Community (AEC)
The ASEAN Economic Community (AEC) came into effect in 2015, integrating Cambodia, Laos, Myanmar and Vietnam (CLMV) further with the rest of ASEAN.
The AEC Blueprint 2025 lays out the strategy over the coming decade. It sets targets of an integrated and competitive economy, enhanced connectivity and sectoral cooperation, and of a global ASEAN resilient against global economic shocks. The group is committed to promote micro, small and medium enterprises (MSMEs) in economic integration.
The AEC aims to facilitate seamless movement of capital, goods, services, and skilled labour within ASEAN. This is carried out by tariff reductions in accordance with the ASEAN Trade in Goods Agreement (ATIGA). The group has committed to refining ATIGA as the region takes part in other FTAs, including the ASEAN +1 bilateral agreements and Regional Comprehensive Economic Partnership (RCEP) negotiations.
Key aspects of ATIGA are simplification and enhanced implementation of rules of origin requirements, and supporting the ASEAN Single Window in expediting cargo clearance. A similar agreement on services is also progressing.
Asia Pacific Economic Cooperation (APEC)
APEC is a regional forum for 21 member economies situated in the Pacific Rim. Vietnam’s APEC partners include economic giants China, Japan, Russia and the USA, as well as member economies Hong Kong and Taiwan.
Central to APEC is the aim of easing crossborder trade by lowering transaction costs. The organisation claims to have reduced these by $58.7 billion so far.
The organisation’s agenda also focuses on non-tariff barriers to trade, including promoting easier access to construction and other permits.
Like ASEAN, APEC also promotes the Single Window system, with a goal of bringing all members on board by 2020. The system can reduce customs waiting times at the borders from a matter of days to a matter of hours.
APEC also works together to promote supply chain efficiency, environmental and other issues. The APEC Business Travel Card provides pre-approved holders with business visa clearance and fast-track lanes in international airports.
The APEC Business Advisory Council, comprised of three private sector delegates from each member state, makes annual recommendations to APEC leaders.
2016 is scheduled to see publication of a long-term roadmap towards an APEC regional free trade area. In the short-term, the forum serves a purpose of bringing together economies excluded by other regional trade blocs.
APEC will be hosted by Peru in 2016, and Vietnam in 2017. Evidence of APEC drawing member economies closer together is clear; when the Peruvian Embassy opened its doors in Vietnam in 2015, the first Ambassador expressed a desire for closer cooperation in upcoming APEC fora.
Regional Comprehensive Economic Partnership (RCEP)
The RCEP initiative was announced in 2011 during the 19th East Asia Summit, and formal negotiations began in 2013. It is an ASEAN-led process which has evolved out of initial investigations into feasibility of free trade area encompassing ASEAN, China, Japan and South Korea, and expanded to include Australia, India, and New Zealand.
RCEP is expected to expand trade in goods and services, investment facilitation and technical cooperation, intellectual property rights and dispute settlement mechanisms.
Key for Vietnam and other CLMV countries, priority in early tariff elimination on goods will be given to the least developed ASEAN member states.
RCEP has the potential to create a single integrated market comprising of over three billion people, with a combined GDP of around a third of global GDP.
It recognises the centrality of ASEAN, aspiring to improve over the bilateral ASEAN +1 FTAs. It will not displace other bilateral and multilateral FTAs, rather to broaden and deepen existing arrangements.
The RCEP agreement is scheduled to be finalised in 2016.
Trans-Pacific Partnership (TPP)
The 12 parties to the Trans-Pacific Partnership (TPP) concluded the agreement in 2015, integrating Asia-Pacific and American markets which generate 40 percent of global GDP. Seven of the members are also participating in RCEP negotiations.
The agreement prohibits the parties from increasing any existing customs duty, or adopting a new duty, and lays out a schedule to eliminate tariffs.
The agreement focuses on rules of origin, textiles and apparel, customs administration and trade facilitationg, trade remedies, sanitary and photosanitary measures, technical barriers to trade, investment, cross-border trade in services, financial services, and business visas.
A wide range of tariffs on Vietnam’s agricultural products have been eliminated immediately. However, it will take over a decade for tariffs to be eliminated goods including wine, diesel, aviation and other fuel, and for many inputs into automobile and aircraft manufacturing and maintenance.
Vietnam will benefit from drastic reductions on textile input tariffs, but the yarn forward rule means that from the yarn stage, a garment must be made in a TPP country in order to benefit from tariff exemptions. As Vietnam imports around 49 percent of its yarn from China, many of its textiles products will not benefit from eased market access under the TPP. Time will tell if this incentive to source from within TPP countries will cause a shift in supply chains.
The TPP also aims to eliminate favouritism of governments for their own companies, attempting to ensure that SOE’s decisions are made on the basis of commercial considerations, and that SOEs will not be granted sovereign immunity.
Pending ratification, we expect the TPP to be implemented by 2017.
This article is an extract from our latest publication ‘Vietnam 2016: Frontier in Transition’. Download a free copy by filling in your details below:
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