Dr. Vu Thanh Huong provided “An Overview of Methods to Assess the Impact of Free Trade Agreements,” and Dr. Nguyen Tien Dung made a presentation on “Evaluating the Impact of Regional Comprehensive Economic Partnership: Applying a Solvable Balance Model.” The two speakers took the rat but out of the hat by revealing what methods, models economic researchers and strategic planners can use to assess with depth the impacts of free trade agreements. At the seminar, various issues with a regard to Free Trade Agreement (FTA) opportunities and challenges, as well as what should be done by the Vietnamese government and businesses to reap the benefits of FTAs were discussed with excitement.

Vietnam's integration into FTAs

Besides its ASEAN membership in 1995 and WTO membership in 2007, Vietnam has been involved in 14 FTAs in force (i.e.: AFTA, ACFTA, AKFTA, AJCEP, VJEPA, AIFTA, AANZFTA, VCFTA, VKFTA, VN - EAEU FTA, CPTPP (formerly named as TPP), AHKFTA, EVFTA, UKVFTA); 01 FTA not yet ratified, to take effect soon (RCEP) and 02 more FTAs being negotiated (i.e.: Vietnam - EFTA FTA and Vietnam - Israel FTA).

Integration outcomes and challenges

Vietnam has achieved many successes in socio-economic development thanks to its highly active regional and global economic integration, especially its recent involvement in three new-generation FTAs including CPTPP, EVFTA, and UKVFTA. The signing of and involvement in FTAs has provided Vietnam with a larger import and export market. Vietnam's import-export turnover to the global market has continuously increased despite of global economic fluctuations. In 2019, Vietnam's total import-export turnover reached a record level surpassing the 500 billion USD mark. In 2020, even in the Covid-19 pandemic, Vietnam's trade remained positive, with the trade surplus reaching a high record of nearly 20 billion USD. Vietnam is one of very few Asian countries that has maintained positive trade growth during the pandemic. Vietnam's trade increased by more than 24 percent in the first quarter of 2021 compared to the same period last year, with the export turnover of goods increasing by 22 percent, the import turnover of goods increasing by 26.3 percent, and the trade balance trade surplus estimated at more than 2 billion USD. With the implementation of the EVFTA in August 2020, the growth rate of exports to the EU gradually improved in the final months of 2020 and increased by 18% in the first three months of 2021. Those are very encouraging signs Vietnam has gained in the first quarters of the year which demonstrates Vietnam’s strong recovery in production and trade in goods though the Covid-19 epidemic is occurring complicatedly in many countries around the world. Those results have been achieved thanks to significant contributions of the FTAs in recent years.

Vietnam not only strengthens its traditional markets, but also opens up many potential markets by promoting relations with important economic strategic partners while improving the competitiveness of domestic businesses. The participation in and implementation of new-generation FTAs set a prerequisite for Vietnam to promote economic growth, to attract high-tech investment, and to improve the business environment, thereby promoting economic growth in 2021 and beyond.

Specifically, some recently signed agreements such as CPTPP, EVFTA, RCEP... can provide great opportunities for Vietnam because Vietnam will be involved with its major trade and investment partners which have a market size of approximately 500 million people and account for more than 13% of the global GDP. Joining the CPTPP will help increase Vietnam's GDP by 1.7 billion USD and exports by more than 4 billion USD by 2035, representing increases of 1.32 percent and 4.04 percent, respectively. With a regard to EVFTA, Vietnam will be able to create approximately 146,000 jobs on an annual basis; Vietnam’s GDP will increase at an average rate of from 2.18 to 3.25 percent for the first five years of implementation, at from 4.57 to 5.30 percent for the next five years, and from 7.07 to 7.72 percent for the following five years; and Vietnam will have around 0.8 million to be lifted out of poverty by 2030...

The RCEP was recently signed by ten ASEAN member states and five of their FTA partners with ASEAN including: Australia, China, Japan, Korea, and New Zealand. When the agreement goes into effect, it will create a market of 2.2 billion consumers, accounting for roughly 30% of the global GDP, and will become the world's largest free trade zone.

The implementation of the RCEP can help Vietnam increase GDP by 0.4 percent by 2030 if direct benefits are considered, and possibly up to 1% if indirect benefits from institutional reforms are considered. The RCEP will be able to bring more "breathable" rules of origin for many Vietnamese export industries compared to other FTAs, most notably form textile and garment, agricultural and aquatic products. For instance, for textile products, the previous FTAs between Vietnam and Japan, and between ASEAN and Japan, all required two-stage rules of origin. That means to be eligible for preferential tariff treatment, fabric must be manufactured in the ASEAN region or Japan. With the RCEP, however, Vietnam can import fabrics from anywhere; all it needs is to do cutting and sewing in Vietnam (a change of product chapters) to qualify for tax breaks when exporting to Japan. Similarly, for aquatic products, previous agreements always required the pure origin in Vietnam; the RCEP anyway accepts the import of seed, farming into Vietnam, while the export still can enjoy preferential treatment. With the RCEP, Vietnamese businesses will be able to participate in regional production and value chains while benefiting from lower transaction costs and a more welcoming business environment thanks to the harmonization of existing regulations and the adaptation of various FTAs of ASEAN. However, in addition to the effects of integration, Vietnam is confronted with environmental pollution, the noodle bowl effect, the wealth gap, and brain drain. The RCEP agreement, in particular, entails some trade challenges, such as the possibility of an increase in trade deficit. Vietnam has a trade deficit with many RCEP members. Vietnam previously had trade deficits with ASEAN and China, but it now has trade deficits with Australia, New Zealand, and Japan... This may put Vietnam at a risk of facing defensive lawsuits as imported raw materials for production and export to markets outside the region are not properly controlled.

Policy recommendations for Vietnam as it involves in FTAs

The year 2020 marks a watershed moment in Vietnam's international economic integration process, with the implementation and signing of a slew of new-generation FTAs. This will serve as a springboard for domestic enterprises on the way to the big sea” and a driving force in Vietnam's economic recovery following the pandemic.

For the Government:

In the context of intertwined benefits and drawbacks, it should be determined that Vietnam's core strategy for dealing with fluctuations in the global economic situation and the Covid-19 pandemic is to promote macro stability, implement a dual strategy, continue on the path of international economic integration, strengthen the implementation of signed FTAs to increase exports, and maintain growth. It is necessary for Vietnam to take advantage of FTA benefits in order to participate more deeply and at a higher level in the global value chain, while also taking advantage of the 4^th Industrial Revolution to promote the development of e-commerce and digital trade, as well as keeping up with new trends in international trade and the digital economy. Furthermore, in order to effectively implement FTAs, Vietnam should continue to review mechanisms and policies in accordance with international commitments, widely disseminate information so that incentives can be exploited thoroughly, improve enterprise competitiveness, and assist enterprises in participating in global production and value chains

Vietnam should assess, analyze, and forecast the global and regional situation in order to develop appropriate guidelines and countermeasures in the context of the Covid-19 pandemic. It is necessary for Vietnam to closely monitor each move and predict the scenarios of the global economy in the current volatile conditions, in order to plan solutions for each of those scenarios and be ready to prepare for all possibilities, including the worst-case scenario. In the face of the wave of positioning, Vietnam also needs implement the process of international economic integration, improve the investment environment to welcome foreign businesses, and rebuild the global value chain effectively. The fact that the Government makes efforts in reducing costs for exporters and manufacturers as well by simplifying procedures and cutting time in granting permits and actively assisting businesses in finding new markets demonstrates necessary solutions taken by the Government. With regard to the WTO, Vietnam should recognize and better assess the WTO's role for its trade development so as to determine a reasonable approach to multilateral trade issues in the future.

For the Ministry of Industry and Trade:

On its part, the Ministry of Industry and Trade, which is the state management agency being directly responsible for Vietnam's trade integration, should continue directing trade affairs and related units to strengthen the implementation of various solutions in promoting key product exports, expanding markets, and concentrating on capitalizing on Vietnam's export advantages. The ministry should also direct the agencies that are in charge of investment and trade promotion to urgently assist businesses in developing and implementing product promotion and introduction plans so they are able to participate in trade fairs, cooperation activities with partner businesses under FTAs, to improve the efficiency of trade promotion, and to innovate trade promotion methods, in which a focus is placed on goods with export advantages, potential markets, and niche markets so as to diversify export markets.

The Ministry of Industry and Trade should also accelerate the development and implementation of a national standard system for exported goods that is in accordance with international and regional standards. Simultaneously, it should develop a specific plan for developing and guiding the application of standards for goods exported to the markets of partner countries, because the standards for imported goods that the governments of partner countries especially the governments of developed countries established, regulated are likely to erect trade barriers for Vietnam's exported goods and services. Furthermore, the Ministry of Industry and Trade and industry associations should develop a plan to disseminate, advise, and train exporters on the application of goods quality standards adopted by partner countries in order to avoid risks as exported goods that do not meet prescribed standards will not be imported into the markets of partner countries.

For businesses:

At present, it is observed that mainly large enterprises make good use of FTAs because they have well understood how important it is to build international brands. However, many small and medium-sized businesses yet to make good use of FTAs. Therefore, it is highly necessary to set up a strong connection within the business community in sharing information and strengths so they can reap benefits of signed FTAs. The Covid-19 pandemic has also revealed a slew of new issues, for instance increased logistics costs..., which raises questions for import and export in the coming time. As long as Vietnam integrates more deeply into the global economy, domestic businesses must prepare themselves for changes associated with the global economy, develop solutions for themselves in responding proactively to unusual factors. Especially, businesses should rely on production conditions, strategic market information when making choice of the agreements most appropriate for them, and taking advantage of preferential advantages. Moreover, businesses are required to improve the quality of products and services so as to meet the requirements of picky markets, as well as to keep themselves update of regulations and non-tariff measures issued in the markets where they hope to be able to take full advantage of FTA's benefits

Export businesses must actively learn and develop plans for adjusting the supply chain and input materials to ensure that they can meet rules of the origin in order to benefit from preferential tax rates when the UKVFTA and RCEP come into effect. At the same time, in the time to come, it is necessary for businesses to redirect raw material imports in a number of industries, including textiles, garments, and footwear, in order to capitalize on opportunities generated by commitments under the agreements.

Vietnamese enterprises must improve the homogeneity of each shipment, post-harvest storage capacity, and product quality in order to conquer the markets of developed countries as partners. Most of the countries involving in the EVFTA, UKVFTA, and RCEP have an open economy, support global free trade, but goods to be exported must undergo a stringent control in terms of technical standards, food safety... Furthermore, in fact, as developed countries adopt highly stringent mandatory requirements on food hygiene and safety, labeling, the environment, it is not easy to meet those requirements at all. As a result, even if it benefits from tariffs, Vietnamese goods must be improved significantly in terms of quality in order to overcome those barriers. Simultaneously, new-generation FTAs not only liberalize trade in goods and services, but also incorporate many other critical factors, such as green growth and sustainable development. In short, Vietnamese businesses seeking to enter the markets of partner countries must address at least three issues: standardization, health, and the environment.

 Enterprises should carefully control food hygiene and safety issues for exported goods in the agricultural - food sector to avoid risks because the standards of food safety in developing countries, particularly the maximum threshold of pesticides, are very strictly regulated. Furthermore, despite the fact that Vietnam signed FTAs with the EU and the UK, it allows Vietnamese vegetables and fruits to maintain a tariff advantage over competitors. Vietnam's tariff advantage in vegetables and fruits, however, will not last for long as Vietnam's competitors are also negotiating similar agreements with the EU and the UK. As a result, businesses that already have strengths in raw material areas and a full quality management system should quickly seize opportunities and dominate markets in the early stage when the EVFTA and UKVFTA come in force.

It is necessary for seafood exporters to voluntarily and strictly comply with traceability regulations; strengthen inspection and supervision of the use of antibiotics in their production and processing stages for export. At the same time, it is important for them ensure food safety and hygiene throughout the entire chain of preservation and processing to have high-quality aquatic products that meet requirements of import countries. In addition, it is necessary to build active cooperation and links in order to increase strengths, create supply chains by promoting production linkages between enterprises, cooperatives, farmers, fishermen, and production households, which then helps strengthen the “value chain,” corporate social responsibility, and the long-term development of new-generation FTAs.

Dr. Nguyen Tien Dzung gained his PhD and Master's degree in development economics in Nagoya University in Japan. He is working as a lecturer for the Faculty of Economics and International Business at the VNU University of Economics and Business.

Dr. Vu Thanh Huong earned her Master of Science in Natural Resource Economics from the University of Queensland in Australia and her PhD in International Economics from the VNU University of Economics and Business. Dr. Vu Thanh Huong is currently Vice Dean of the Faculty of International Economics at the VNU University of Economics and Business. Dr. Huong’s research interests include in International Trade, Trade Impact Assessment, Trade Facilitation, and International Economic Integration.