ASEAN Economic Community - One year on

Disappointing export figures after AEC comes into effect

Thursday, 2017-01-05 10:30:51
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Vietnam’s seafood exports to ASEAN were around US$1.6 billion, down 20.3%.
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NDO - In late 2015 Vietnam officially joined the ASEAN Economic Community (AEC), a region of over 600 million people and GDP of nearly US$3,000 billion. A huge market full of potential was anticipated but after one year, such expectations have yet to materialise.

>>Part 2: Beaten on home soil

Meanwhile in the domestic market, many Vietnamese enterprises are paying the price for their lack of preparation for this important playground.

Commitments on tax cuts in the AEC are the regarded as the most sweeping and come the soonest among the free trade agreements (FTA) that Vietnam has signed. Such cuts should have opened up great opportunities for Vietnam’s exports but on the contrary many of Vietnam’s exports fell or grew at a less-than-expected rate.

Failure to capitalise opportunities

According to the General Statistics Office (GSO), Vietnam’s exports to ASEAN enjoyed an average growth rate of 12.5% per year during the 2006-2010 period, 12% during the 2011-2015 period but dropped to just 4.8% last year. The sharp slowdown can be clearly seen in both agriculture and industry.

Data released the Ministry of Industry and Trade’s Department for Export and Import showed that Vietnam’s seafood exports to ASEAN were around US$1.6 billion, down 20.3%. It should be noted that sharp declines were recorded in key exports such as rubber (down 40.7%), rice (down 48.8%), pepper (down 25.5%) and cassava (down 19.2%). For rice, exports to all three key ASEAN markets, namely the Philippines, Malaysia and Singapore, all recorded steep falls at 65.5%, 48.1% and 30.7% respectively.

Duong Viet Hung, general director of Ca Mau Food Export and Import Company, attributed the fall in both volume and value of Vietnam’s rice exports to the partial success of many ASEAN countries in rice self-supply, thereby reducing their reliance on imports. At the same time, Vietnam was less competitive than Cambodia and Thailand in terms of high-quality rice. As of December 2016, Hung’s company had managed to export only 400 tonnes of rice to Indonesia.

Nguyen Thi Mai Linh, from the MOIT Department for Export and Import says that the fall in agricultural exports to ASEAN was in part due to a fall in domestic output and in part due to plummeting global prices. Specifically the prices of coffee, rubber and cassava fell 21.2%, 12.5% and 14.4% respectively in the first nine months of 2016. Coffee price drops made revenue of the beans fall by up to US$59 million.

Most of Vietnam’s industrial exports to ASEAN also contracted, with crude oil falling up to 76.3% in the first eleven months of 2016. Growth in other sectors was also minimal and far behind expectations, especially the garment sector. According to experts, Vietnam’s garment sector would be among the largest beneficiaries of the AEC because export tariffs would be cut to zero and about 50-60% of Vietnam’s garment exports are destined for ASEAN countries.

But data showed the sector’s exports to the AEC only increased by 15% in the first eleven months of 2016 to US$638 million. Chairman of Hung Yen Garment Company Nguyen Xuan Duong said after one year of joining the AEC, garment companies still failed to take advantage of tariff cuts to expand their market. Vietnam’s garment products are only present in Laos, Cambodia and Myanmar while still being unable to penetrate more demanding markets such as Thailand and Singapore. Duong says it is time for domestic enterprises to improve the quality and design of their products and build their own brands in order to meet the needs of these markets.

Similarly, the performance of footwear exports to ASEAN was also less than impressive, up by only 10.3% to reach US$192 million in the first eleven months of 2016. Nguyen Chi Trung, general director of Gia Dinh Footwear Company, says many enterprises only stopped at exploring ASEAN markets with modest export volume.

Hurdles from many directions

Analysing the reasons behind a fall in exports to ASEAN, especially after Vietnam joined the AEC, many economists say that it was due to global and regional impacts. Trinh Minh Anh, head of an inter-sectoral steering committee for international economic integration, says in 2016 imports of ASEAN countries from other economies all saw declines. According to the World Trade Organisation, Indonesia’s imports in the first nine months of 2016 dropped 8.6%, Malaysia down 7%, Singapore down 7.4% and Thailand down 7.3%. Therefore Vietnam’s exports to these markets were also affected.

Another reason is that in addition to the AEC, Vietnam also entered free trade agreements between ASEAN and its partners, and other FTAs, which significantly reduced the proportion of Vietnam’s exports to ASEAN. Defence measures taken by Thailand, Malaysia and Indonesia against Vietnam’s exports such as steel products were also a factor. For agricultural products, many technical barriers were also put up, making the window for Vietnam’s exports to ASEAN become narrower.

Sharing the same view, Le Thi Minh Thuy, head of the GSO Department of Trade and Services Statistics, says the value of a number of exports fell sharply due to the global impact. If oil, coal and other minerals, which tumbled 77%, 33.6% and 38.9% respectively, were excluded, Vietnam’s exports to ASEAN fell by only 1%.

But there is another reason. Vietnam’s export structure is quite similar to that of ASEAN countries while the competitiveness of Vietnam’s products is poorer, making it difficult for them to expand to the region, according to Trinh Minh Anh, CEO of My Hao, a cosmetics and toiletries company. He says that competing in ASEAN is not easy, adding that in Thailand his company can only sell its products to regions outside the capital Bangkok and cannot compete with products from other countries at major tourist attractions because foreign-made products usually far excel My Hao’s in terms of quality and design.

Like My Hao, many confectionery makers also met with difficulty when exporting to ASEAN. A representative of Bibica says with half of its exports going to ASEAN, the company planned to expand its market when Vietnam joined the AEC, but met with fierce competition from enterprises of Thailand, Indonesia and Malaysia which offer consumers a wider variety of products and even with higher quality and cheaper prices.

One year earlier, Vietnam’s participation in the AEC gave many domestic enterprises hopes of expanding their market and increasing their exports. But the reality has shown that domestic enterprises are yet to take advantage of opportunities brought by the AEC while they are facing greater competition from ASEAN countries. The presence of Vietnam’s products remains insignificant while the concern that Vietnam is becoming more attractive to ASEAN imports is increasingly visible.