Vietnam Firms Urged to Act to Benefit from FTAs

Tuan Minh

10:06 22/04/2016

BizLIVE - Panelists at a PwC-hosted conference suggested CEOs in Vietnam take immediate actions to harvest benefits from FTAs.

Vietnam Firms Urged to Act to Benefit from FTAs

Panelists talk at the Vietnam CEO Conference 2015. (Photo: PwC Vietnam)

Executives of companies in Vietnam need to act promptly to benefit from free-trade agreements (FTAs) and deal with challenges originating from them, participants said at the Vietnam CEO Conference jointly held by PwC Vietnam and the Vietnam Chamber of Commerce and Industry (VCCI) in Ho Chi Minh City Thursday.
As of 2015, Vietnam is party to 16 FTAs, nine of which are currently effective. Two new-generation agreements, the EU-Vietnam FTA (EVFTA) and the Trans-Pacific Partnership (TPP), are poised to enter into force within two years’ time.
Experts have raised concerns that Vietnamese businesses are not well prepared for integration.
A number of companies, especially small- and medium-sized enterprises (SMEs), are not fully equipped with, or have limited access to essential information on FTAs. Consequently, many of them cannot benefit from these FTAs due to lack of information.
A survey by VCCI in early 2015 showed that only 20-30% of Vietnamese businesses understand and are prepared for the TPP and AEC, while the rest are hardly aware of Vietnam’s part in the AEC. Worse still, up to 60-70% of the respondents thought these FTAs would not affect their companies.
Local producers will have to face fierce competition from goods imported from FTAs’ counterparts, with better branding and quality products, and possibly, lower prices.
In addition, Vietnam’s local labor market struggles with a lack of essential skills, and ILO standards enforcement. These can increase the costs of doing business as enterprises will have to spend more on salary, training, and standard implementation.
  A panelist talks on Vietnam's garment industry. (Photo: PwC)
Just 36% of Vietnamese firms now join the export-oriented manufacturing chain, which is lower than 605 in Malaysia and Thailand. What’s more, 21% of SMEs are engaged with the global supply chain, said Doan Duy Khuong, vice chairman of VCCI.
Tran Dinh Thien, director of the Vietnam Institute of Economics, noted that Vietnam’s industry sector exposes a lot of shortcomings.
After 30 years of renovation, the industry’s weight in GDP has increased by 16 percentage points, but manufacture, the core sector, has seen a pickup of 1.6 percentage point, Thien added, pointing out that local firms only focused on construction, real estate, mining and outsourcing.
“After Vietnam joined the WTO, we expected its advantages to be well leveraged by Vietnamese businesses,” said Vu Tien Loc, chairman of VCCI.
“Unfortunately, we have missed several opportunities to become a leading market in the region. Businesses cannot wait around for support from the government or trade organizations. They must be the captain of their own ships on the way forward,” he stressed.
“The TPP, EVFTA, and other FTAs have brought businesses opportunities together with challenges. They are right at our front door. Recognizing these factors is as important as taking actions to benefit from, or deal with them. We cannot do it easily, but we should act immediately,” said Dinh Thi Quynh Van, general director of PwC Vietnam.
According to the International Labor Organization (ILO), joining the AEC is expected to help the Vietnamese economy grow by 14.5% and more foreign capital is expected to enter the economy. Vietnamese businesses will have access to a larger market of more than 600 million people with GDP to reach $2.6 trillion.
The TPP will open up a huge market to Vietnamese goods, and is expected to add $33.5 billion to Vietnam’s GDP and $68 billion to export’s value by 2025.