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Vietnamese Retailers before FTA Pressures
07/08/2015

A series of seminars on impacts of multilateral and bilateral free trade agreements (FTAs) on Vietnam’s economy have organised, at a more frequent density, from professional level to administrative level. It is undeniable that FTAs produce positive impacts but opportunities for domestic companies, typical of weak competitiveness, are really worrying.

To date, Vietnam has signed 10 bilateral and multilateral FTAs, including two recently signed agreements: Vietnam-Korea FTA (VKFTA) and Vietnam-Eurasian Economic Union FTA. According to a recent report of the Ministry of Finance on commitments to be implemented, FTAs have two-way impacts on Vietnam’s economy. Vietnam’s exports will rise sharply but imports will also increase accordingly. And, it is worth noting that State budget revenue from exports may be reduced. Some agricultural sectors of Vietnam will have certain advantages as they can utilise exotic inputs for export-driven production. A typical case is the Vietnam – Japan Economic Partnership Agreement (VJEPA) signed in 2008. Once VJEPA takes effect, the current average export tariff (according to most favoured nations – MFN) on Vietnam’s goods imported into Japan will fall 5.05 percent to 2.8 percent by 2019. Accordingly, Japan has pledged to liberalise 94.53 percent of trade turnover in 10 years. As many as 2,586 tariff lines (accounting for 28 percent of 9,390 tariff lines) will be slashed to zero immediately after the effective date of VJEPA. After 2019, additional 3,717 items will be imposed zero tax, bringing tax-eliminated items to 6,302 items, accounting for 67 percent of total pledged tariff lines.
According to the Ministry of Industry and Trade, with sharp tax cuts, many agricultural commodities of Vietnam such as cattle meat, poultry meat, processed foods, milk and sugar will be strongly affected. On the other hand, Vietnam’s industries like automobile, steel and apparel will confront with regional rivals.
At a conference on “FTA impacts on State budget collection”, Mr Nguyen Duc Thanh, Director of the Vietnam Centre for Economic and Policy Research (VEPR) under the Vietnam National University of Hanoi, said domestic enterprises will face two pressures, one from tax obligations and another from foreign competition.
At a seminar on “What is left in the space of support policies for economic sectors after FTAs?” organised in late May by the WTO Centre under the Vietnam Chamber of Commerce and Industry (VCCI), many business leaders, business associations and economic experts expressed many concerns and recommendations. Dr Dinh Thi My Loan, Chairwoman of the Association of Vietnam Retailers (AVR), said when Vietnam fully engage in FTAs (both bilateral and multilateral), its economic sectors will have many opportunities, especially exports with lower tax rates and increased foreign investment flows from partner countries. However, in addition to opening up FTA benefits, FTAs will have substantial direct impacts on the future of economic sectors as the space of support policies for economic sectors will be narrowed.
With respect to retail distribution services, the opening roadmap has been completed. Accordingly, according to Vietnam’s commitments, foreign parties were allowed to establish retail ventures where they could hold up to 49 percent of stake when Vietnam joined WTO and ownership restrictions were gradually lifted from January 1, 2009 to set up wholly foreign-owned retailers. Paradoxically, when FTAs are signed, foreign businesses are provided all opportunities and policies for expanding the system while domestic firms are tightened into the space of policies and endure competitive pressures. This has made AVR Vietnam feel uneasy even on the home ground.
Before these difficulties, Vietnamese companies need policies to respond. She proposed reviewing and adjusting wholesaling and retailing network planning in provinces and cities across the country; making public notifications to the business community; and supporting distributors and retailers to access affordable spaces. According to AVR, how can domestic companies compete with foreign rivals when space rents account for 20-50 percent of input costs in big cities like Hanoi and HCM City?
A representative from gigantic Hanoi Trading Corporation, which runs over 45 supermarkets and convenience stores in Hanoi, also expressed concerns about the competitiveness of Vietnamese distribution and retail systems. It is urgent to issue a national retail and distribution sector development strategy and impose preferential corporate income tax, space/land rent reduction and exemption for retailers and distributors operating in rural areas. In the past few years, the “Buy Vietnamese” Programme which encourages Vietnamese people to give priority to made-in-Vietnam products on their shopping lists have little impact. Besides, it is necessary to support building modern retail and distribution formats, transfer technologies and scientific and technical progress, support legal consultancy, perform market research, supply market information, share international experience, and support branding construction and protection. In other words, it is the “trade promotion” policy from the macro angle.
Master Cao Hoang Cuong 
Department of Business Administration, University of Commerce

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