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Vietnamese businesses fear impact of ASEAN-China FTA
Vietnam has begun cutting tariffs on Chinese goods in a plan to slash 90 percent of tariffs to 0-5 percent by 2015. Worries have been raised that the Chinese, which are very competitive thanks to their low prices, will flood Vietnam’s market.
Le Quang Lan, Deputy Director of the Multilateral Trade Policy Department under the Ministry of Industry and Trade (MOIT), in a recent Tien Phong interview, noted that implementation of the ASEAN-China Free Trade Agreement (ACFTA) kicked off in 2005. The aim of the agreement is to create a free trade, non-tariff area among ASEAN countries and China within 10 years.
2010 will be a very important year for six ASEAN countries, including Singapore, the Philippines, Malaysia, Indonesia, Thailand and Brunei, when 90 percent of tariffs will be cut to 0-5 percent.
Tien Phong: Chinese goods have flooded Vietnam even before the tariff decrease. What will happen if Vietnam has to cut tariffs?
Le Quang Lan: It is obvious that when Vietnam cuts tariffs on Chinese goods, Vietnamese businesses will face a big challenge. However, they can also enjoy the benefits of the free trade agreement.
Under the Early Harvesting Program, though Vietnam has not yet slashed tariffs on Chinese goods, China has already decreased tariffs on Vietnamese goods. This has helped boost Vietnamese farm produce exports to China recently.
In theory, the Early Harvesting Program can bring big benefits to Vietnamese businesses with lowered tariff scales applied to vegetable, fruits and seafood. Under the program in 2008, Vietnam exported $365 million worth of products to China, while it imported $131 million worth of products.
TP: But Vietnam will have to slash tariffs on Chinese goods from 2010 onward?
Lan: As for Vietnam, 2010 will not be the decisive moment, because tariffs on many products will not be slashed to 0-5 percent, but only to 10-20 percent, which is high enough for efficient local production protection. China and 6 ASEAN countries will have to complete the tariff reduction to 0-5 percent by 2010, but Vietnam will complete the tariff cut five years later.
Vietnam will have to decrease tariffs to 0-5 percent by 2015, and then to zero percent. There will be 8,000 tariffs cut. Vietnamese businesses should prepare for this eventuality.
TP: Will Vietnam have to reduce tariffs on items which are the competitive products of China, such as footwear and garments?
Lan: Yes, it is true. Vietnam has put products that need the highest protection level into the group of “highly sensitive products,” which will have tariffs cut by 50 percent at maximum. The schedule for tariff cuts in this group will also last longer. The tariff will only be lowered to 20 percent by 2015 and then five percent by 2020.
Garment products as well as consumer goods and toys will have tariffs cut to 0-5 percent. As such, less competitive domestic businesses will have to either restructure or leave the market.
However, we should also look at the issue from another angle. We are now importing materials in large quantities from China. Therefore, tariff reductions will help Vietnamese businesses obtain get materials more easily and at lower costs.
Currently, Vietnam-made goods have to compete with low cost and low quality Chinese goods that have been penetrating the domestic market through the cross-border channel. When the tariff is lowered, Vietnamese goods will be able to compete in a fairer way, while Vietnam will be able to minimize illegal imports.
TP: Indonesia has asked to delay implementation of ACFTA for fear that Chinese goods will overwhelm their market. How should we treat this information?
Lan: We have not received any official information from Indonesia. However, it is very likely if they ask for a delay, there will be two possible scenarios. When a country can prove that the tariff drop will harm domestic businesses, it can apply safeguard measures or temporarily halt imports. If it can get a consensus, the country can delay the tariff cut for three years and extend it for one more year. In the second scenario, a country has the right to renegotiate the tariff reduction schedule.
TP: Will Vietnam apply these safeguard measures or ask for renegotiation if Chinese goods create losses for Vietnamese businesses?
Lan: In theory, we have the right to do that. However, we have to thoroughly consider all aspects before making any such decision. When we apply safeguard measures, our partners may also consider removing some preferential treatments.
VietNamNet, TT
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