Tariff cuts help swell investment and trade

Friday, 2019-08-09 16:32:18
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Regional integration has enabled Vietnam to attract more investment and expand trade
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NDO - Vietnam’s tariff cuts under regional commitments, and its bettered business climate have helped it swell trade and win more investment from regional member states.

In 2020, Vietnam will complete removal of almost import tariffs imposed on goods imported from ASEAN member states, making it totally favourable for enterprises to do business in the country, especially those investing in Vientam and then exporting products to Southeast Asian markets.

Notably, since the ASEAN Economic Community was established in late December 2015, and under the tariff cuts under the ASEAN Trade in Goods Agreement (ATIGA), Vietnam has been attracting a great deal of regional investments, and its trade ties with regional members have also been increasing.

Currently, Vietnam’s major ASEAN export markets include Thailand, Malaysia, Singapore, and Indonesia.

According to the General Statistics Office, Southeast Asia is now Vietnam’s fourth-largest export market, after the US, the EU, and China. Vietnam’s export turnover to the region surged from under US$1 billion in 1995 to US$18.23 billion in 2015, and US$17.45 billion in 2016. However, the figure ascended to US$21.7 billion in 2017 and US$24.7 billion last year, and US$15.2 billion in the first seven months of this year, up 5.5% on-year.

As one of the main pillars of ASEAN, the AEC is aimed to create a tariff-free zone with 0% tariffs on all traded goods and services, while setting a timetable for removal of non-tariff barriers regionwide.

The ASEAN-6 nations, which are the region’s most developed economies Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, erased 99% of their import tariff lines in 2010. Meanwhile, the remaining nations – Cambodia, Laos, Myanmar, and Vietnam – removed 90% of their import tariff lines in 2015.

From 2019 to 2020, the remaining 10% of tariff lines will be removed by Vietnam, focusing on items such as spare parts, steel, motorbikes and bikes and their spare parts, wine, beer, plastics, and paper, as well as sensitive agricultural items like poultry, eggs, sectioned fruit, rice, processed meat, and sugar.

Nguyen Huu Truong, sales representative of Garmexi Trade JSC, a Vietnamese-Chinese joint venture company in the northern province of Bac Giang, said that if his company directly exports its garments from China to Southeast Asia, it would face an average import tax rate of 8-10%; but when the business exports from Vietnam, it enjoys a far lower import tax rate of merely 2-3%, which will be removed completely this year.

In the first seven months of this year, Garmexi has exported to Malaysia and Singapore, with turnover increasing 23% on-year. “We are planning to expand our exports to Thailand, Myanmar, the Philippines, and Indonesia in the future,” Truong said.

Currently, Garmexi’s peers already export their products to Southeast Asia, with key markets including Thailand, Malaysia, Singapore, Indonesia, and the Philippines.

According to the Ministry of Planning and Investment (MPI), investment from the region has also been on the rise in Vietnam over the past years, especially thanks to import tariff cuts under the ATIGA.

Currently, the total investment from ASEAN member states in Vietnam reached about US$73.3 billion, with Singapore’s investing US$49.17 billion, Thailand (US$10.72 billion), Malaysia (US$12.54 billion), Indonesia (US$575.8 million), and the Philippines (US$276.44 million).

Last month, leaders of 40 Singaporean groups led by the Singapore Business Federation (SBF) and the Enterprise Singapore, which is the Singaporean governmental agency championing enterprise development, came to Vietnam to explore business opportunities in the consumer, innovation, industrial and urban development sectors in Hanoi, Haiphong, Ho Chi Minh and Danang. They met with leading Vietnamese corporations and took visits to industrial and business parks.

“This is a clear sign of the Vietnam government’s interest and commitment in welcoming foreign investments. For our participants, this is an invaluable opportunity to gain first-hand insights into Vietnam’s economic priorities and also provide feedback and raise their concerns about doing business in Vietnam,” said SBF chairman S.S. Teo.

CEO of Enterprise Singapore Cheong Boon also said, “As one of Southeast Asia’s fastest growing economies, Vietnam presents significant business opportunities for Singapore companies.”

Enterprise Singapore has also announced the expansion of its Global Innovation Alliance (GIA) network to Ho Chi Minh City, plugging Singapore technology startups into the emerging innovation scene in Vietnam.

Enterprise Singapore, Quest Ventures, and Saigon Innovation Hub inked a memorandum of understanding (MoU) to boost collaborations between Singapore startups and small- and medium-sized enterprises (SMEs), and their counterparts in Vietnam. Under the MoU, the three partners will organise programmes to introduce Singaporean startups to the innovation ecosystem in Ho Chi Minh City, and connect them to partners, investors and customers in Vietnam.

“This will help Singaporean set up startups, test-bed and commercialise their solutions, as well as form business partnerships in Ho Chi Minh City and Vietnam. It will also support Vietnamese startups to set up in Singapore,” Enterprise Singapore said in a statement.

Enterprise Singapore’s CEO Png Cheong Boon stated that the GIA, which has connected Singapore with 10 innovation hubs globally, aims to connect Singapore with major innovation and startup hubs around the world, including Vietnam as the 11th innovation hub globally.

At the Vietnam-Singapore Business Forum in Singapore in April 2019, firms from both nations inked investment and trade deals worth about US$10 billion.

Prime Minister Nguyen Xuan Phuc stated at his meeting with the Singapore business delegation, “We are significantly improving the domestic business climate, making it more favourable for enterprises and investors to do business in the country.”

Not only Singaporean firms, other ASEAN investors and groups are building Vietnam as a hub of their manufacturing and processing projects.

Recently many Indonesian enterprises have come to Vietnam in search of business and investment opportunities in the sectors of iron and steed sandpaper, coal, cotton, glove, industrial cable, tyre, organic fertiliser, hand tractor and power tiller. The firms include Gunung Steel Group, Pantheon Energie, Sinar Deli, Trias Indra Saputra, Sumberdaya Sewatama, Karya Hidup Sentosa, Citra Westlake City Development, Infrastruktur Asia, and Excellence Qualities Yarn, among many others.

Indonesia’s state-owned Semen Indonesia Group is seeking more opportunities to acquire construction material making companies in Vietnam. Semen acquired part of Vietnam’s Thang Long Cement Joint Stock Company in 2013.

Japfa Comfeed Vietnam, which began operation in Vietnam in 1996, said this firm will expand production in Vietnam to raise its annual capacity to one million tonnes. Currently it has at least five animal feed mills and 12 breeding chicken farms in Vietnam.

In another case, Thailand’s SGC Cement and Building Materials has spent US$440 million purchasing 100% stake worth US$156 million of Vietnam’s Vietnam Building Materials JSC. After this transaction, SCG’s total annual cement capacity within ASEAN (excluding Thailand) has risen to 10.5 million tonnes, in addition to an annual capacity of 23 million tonnes in Thailand.