RCEP benefits on horizon for ASEAN

Vietnam Investment Review

With the Regional Comprehensive Economic Partnership scheduled to be signed this November, doors will soon open to attract more investment and swell Vietnam’s trade with international partners.

Last week, two Vietnamese companies, Hanoimilk JSC and Bel Vietnam Co., Ltd. were granted permission for exporting dairy products, including fermented milk and cheese, to China by their General Administration of Customs. The administration is also now appraising a dossier on obtaining an export code for Vietnam’s NutiFood JSC, with results expected to be announced soon.

According to the Vietnamese Ministry of Industry and Trade’s (MoIT) Department for Asian and African Markets, China has so far provided export codes for four Vietnamese companies to export dairy products to its market, including TH Group, Vinamilk, Hanoimilk, and Bel Vietnam.

Currently, average import tax rates for Vietnam’s dairy products into China are amounting to 10-15 per cent.

However, these rates are expected to be removed with the Regional Comprehensive Economic Partnership (RCEP), meaning that Vietnamese dairy products could have a bigger market in China.

In 2012, leaders of the 10 ASEAN member states and the ASEAN’s partners, namely Australia, China, India, Japan, New Zealand, and South Korea, launched negotiations for the RCEP.

In 2013, the first negotiation round was kicked off, and then followed by another 27 rounds. However, India dropped out of the RCEP in September 2019, aiming to protect its vulnerable sectors and persuade China to grant reciprocal market access.

Strong commitment

At the 36th ASEAN Summit last week, Prime Minister Nguyen Xuan Phuc stated that the bloc committed to economic liberalisation and connectivity with the early inking of the RCEP. Minister of Industry and Trade Tran Tuan Anh reaffirmed that as ASEAN chair in 2020, Vietnam has been working closely with other member countries to maintain the bloc’s leadership and close co-operation with the five partners, to accelerate finalising RCEP talks and the legal review of the deal’s wording so that it may be inked in Hanoi in November, when the fourth RCEP Summit will take place.

“The inking of the RCEP in 2020 will send a message that the negotiating countries support a multilateral trade system, and increase economic integration among regional nations, therefore contributing to recovering economic activities, and establishing a new normalcy in the whole region,” said a statement from the MoIT’s Department for Multilateral Trade Policy.

The 15 negotiating nations stressed that the RCEP will provide a more stable and predictable economic environment to support the much-needed recovery of trade and investment in the region, which has been adversely affected by COVID-19.

“Regarding India, all parties said India has been an important member in the RCEP, and its participation in the deal could contribute to the entire region’s progress and prosperity. They stress that the RCEP member states are open for India to rejoin,” the statement said.

The RCEP is regarded as the world’s largest regional trade agreement as it covers a market of roughly 30 per cent of the world’s population, or about 2.3 billion people.

Good times ahead

The RCEP signatories have committed to opening their doors to goods, services, and investment, simplify custom procedures, setting up rules of origin and removing trade barriers to enhance trade facilitation.

The RCEP will establish high-quality rules for the supply of services between parties, including obligations to provide access to foreign service suppliers, to treat local and foreign suppliers equally on a national level and to treat foreign suppliers as well as suppliers of any other non-RCEP country. Service suppliers from the RCEP countries will benefit from commitments to enhance the transparency and predictability of domestic regulation affecting trade in services, bettering the business climate in the region.

Currently, no specific levels of tariff reductions under the RCEP have been revealed.

Former Malaysian Ambassador to Vietnam M. Zamruni Khalid told VIR that Vietnam and Malaysia’s participation in the RCEP has enhanced their position as an attractive location for investment, and Malaysian firms will benefit more from the Vietnamese market via the RCEP.

“A sector of big interest for Malaysian financiers is agriculture as the country has developed expertise in logistics and packaging for agriculture and agro-based products. While agriculture is a major contributor to Vietnam’s economy, the sector is still lacking in terms of technologies and output quality,” said Khalid. “This provides opportunities for potential Malaysian investors, especially by bringing in advanced, value-added processing technologies.”

Ibnu Hadi, Indonesian Ambassador to Vietnam, told VIR that he is optimistic about the impacts of the RCEP on Vietnam’s economy, and expects it to expand trade and woo more investment inflows.

“Such impacts will help Vietnam reap higher growth and deepen its business climate in regional and global value chains, allowing the country to boost exports,” Hadi said. “Moreover, the benefits from the RCEP will become more visible if Vietnam improves institutional reforms.”

According to Hadi, the RCEP will also offer massive opportunities for Vietnam’s agricultural exports.

“Demand for agricultural products from the agreement’s member states is high, especially tropical agricultural products and assorted processed food. Moreover, China which accounts for 30 per cent of the world’s total trade, is a huge market for Vietnam,” the ambassador said.

Vietnam is among the largest exporters of farm produce in the world, such as coffee, rice, pepper, fish, and shrimp. It is expected that agro-forestry-fishery export turnover this year will be around $43 billion, up from $41 billion last year.

Tim Harcourt, professor of economics at the University of New South Wales, told VIR that based on his calculations, the RCEP will give numerous opportunities to Vietnam in many sectors thanks to the its tariff reductions. “This is particularly true for sectors like ICT, textile, footwear, and agriculture. Vietnam has strengths in all of these sectors.”

Under the RCEP, import tariffs for these products will be slashed remarkably upon the deal’s entry into force, and will be reduced to zero within 3-10 years.

Preparation is everything

According to experts, to benefit from the RCEP, Vietnam needs to improve its economic institutions, including corporate governance, rule of law, and overall transparency. “The country’s main task will be at home, undertaking structural reform so its institutions are transparent and effective, to boost productivity and international competitiveness and to take advantage of all the trade deals on offer,” Harcourt said. “Vietnam needs to improve its skills and infrastructure and its overall institutions.

Meanwhile, Raymond Mallon, senior economic advisor from the Australia-Vietnam economic reform programme, told VIR that although the RCEP will enable Vietnam to attract more foreign direct investment, much remains to be done for the country to significantly benefit from the deal.

“Authorities need to remain aware of the business and investment environment in other countries to further improve the national business climate and protect its natural environment,” Mallon said.

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