What RCEP means for Vietnam

What RCEP means for Vietnam

As the Regional Comprehensive Economic Partnership, or RCEP, came into effect on 1 January 2022, there will be important effects for Vietnam in relation to sustainability, institutional support, and economic development, said experts from RMIT.

news-1-What RCEP means for Vietnam (From left to right) RMIT School of Business & Management academics and experts Dr Erhan Atay, Dr Santiago Velasquez and Dr Duy Dinh.

New opportunities for Vietnam to sustain its economic development 

Along with establishing common standards for trade, rules for the origin of traded items, intellectual property, and e-commerce, RCEP is expected to eliminate trade barriers and tariffs, said Dr Erhan Atay, RMIT Senior Lecturer of International Business.

As COVID-19 brought severe challenges and disruptions to economies, Dr Erhan Atay believes “RCEP can provide an important opportunity to members to increase their exports and modernise standards.”

RCEP can also be the source of motivation for local businesses to reach diverse customers across Asia-Pacific by being part of regional e-commerce networks.

“E-commerce and new digital services eliminate the borders and provide small players opportunities to access new customers across the globe,” Dr Erhan Atay said.

“Vietnamese businesses can utilise the benefits of e-commerce to reach RCEP countries,” he added. “Increased worldwide demand for digital products, telecommunication items, and agriculture may provide opportunities for Vietnamese enterprises to reach all Asian-Pacific customers. There is a high demand in Australia for electronic products, crude oil, textile, footwear and furniture, which could provide new opportunities for Vietnam.”

“RCEP may also help Vietnam businesses import raw materials and intermediatory or semi-finished inputs for production at a lower price than the pre-RCEP period as most of the imported materials are being used to produce export items,” Dr Atay said.

To promote exports into RCEP countries, Dr Atay emphasised particular policies and guidance, which will help Vietnam consolidate and expand export markets, especially small and medium enterprises (SMEs).

“SMEs should concentrate on e-trade, small and niche markets that look for items Vietnamese industries can provide, acquire knowledge and expertise on e-commerce networks, regulations on quality control, international standards and import-export related policies of target markets,” he said.

Challenges for Vietnam businesses to survive the harsh competition

Apart from opportunities for Vietnam, the country will also face increased competition as entry into the domestic market of foreign products will become easier than ever before, according to RMIT International Business Associate Lecturer Dr Duy Dinh.

“Additionally, within new-generation Foreign Trade Agreements (FTAs), Vietnam is making commitments to liberalise the field of trade in services further. Therefore, competition pressure will not be limited to the manufacturing sector but also the services sector due to enhanced market access conditions,” Dr Duy said.

As one of the fifteen members of RCEP, the trade agreement will allow Vietnam to take advantage of the reduced tariffs and non-tariff barriers, which means the level of protection in trade in goods has significantly decreased. Dr Duy Dinh cited an example as “the ASEAN Trade in Goods Agreement (ATIGA) has eliminated tariffs on various automobile products since 2018, and the Vietnam-EU Free Trade Agreement (EVFTA) also cuts down tariffs in this sector remarkably.”

Dr Duy added “deeper regional integration urges local firms to adapt, innovate, and make use of new market opportunities and potential partnerships with foreign firms. Otherwise, it would be difficult for them to survive the harsh competition.”

What Vietnam should do in the coming years

Vietnam’s government has recently signed a decision approving a plan on the implementation of RCEP which aims to assign tasks and responsibilities to relevant agencies and organisations, decide on measures related to direction and administration, and other elements to implement this agreement fully and effectively.

Several improvements need to be carried out in Vietnam in the coming years:

RMIT International Business lecturer Dr Santiago Velasquez said Vietnam should focus on higher-value products while maintaining close control of  raw materials.

“As a key player in the global supply chain, Vietnam will continue to become more attractive for FTAs – both bilateral and multilateral – as other countries will tend to secure the flow of raw materials and consumer products,” Dr Velasquez said.

“Vietnam will continue to see opportunities from commodities and primary production industries. However, the most lucrative endeavors will emerge from higher-value manufacturing,” Dr Velasquez explained.

By improving both in terms of technology-adoption and labor-skillsets, Vietnam would export higher-value products while still maintaining close control of the raw material supplies. As a result, these higher-value products would be highly competitive with respect to production, transportation, and FTA-alleviated import costs, he added.

The Vietnamese government would also need to continue restructuring the economy and focus on institutional reforms. A strengthened banking sector and better business environment would facilitate trade and enable firms to use the opportunities brought about by the FTAs.

While institutional reforms may take decades, and a short-term recommendation is expected for the year to come, the emphasis should be on how we manage to implement the agreement efficiently.

Dr Duy said improved information disseminationto firms, especially SMEs, should be the government's priority.

“Firms need to be well informed of RCEP from a business perspective: new market opportunities, challenges they may face, the support they may expect from the government, and what they need to do to gain benefits from these FTAs,” he said.

“In addition to information dissemination, the government needs to focusmore attention to capacity-building activities to help improve the competitiveness of domestic firms,” he said. “Capacity-building activities should help firms realise their position in regional and global value chains and help them understand how to maintain that strategic position and gradually move up the value chain.”

Story: Thuy Le

01 February 2022

Share

  • Sustainability

Related news