A report by the Central Institute for Economic Management (CIEM) highlights the nuanced impact of the Regional Comprehensive Economic Partnership (RCEP) on Vietnam’s economy, indicating limited benefits and even setbacks for Vietnamese businesses during 2019-2022. Despite the potential of free trade agreements, the actual gains from RCEP have been modest, with challenges anticipated in maximizing these incentives.
The RCEP, which commenced in January 2022 after being signed by 15 countries in November 2020, poses potential risks for Vietnam’s trade balance, primarily due to cheaper imports from other regional markets. This concern is mirrored in Vietnam’s declining trade value with RCEP countries, which dropped from 45.7% of its total trade in 2012 to 39.5% in 2022, alongside a substantial trade deficit with ASEAN and RCEP partners.
The agreement, promising duty-free access for 92% of tariff lines, is expected to benefit countries like Japan, Australia, China, South Korea, and New Zealand. However, Vietnam, along with Cambodia, Indonesia, and the Philippines, might face reduced exports due to trade diversion, where stronger tariff reductions between other RCEP members, like China and Japan, could disadvantage Vietnamese exports.
Vietnamese businesses, facing similar competitive pressures from ASEAN and China, also grapple with stringent regulations and higher standards from these markets. Misunderstanding of the criteria for enjoying FTA incentives has led to a trade deficit for Vietnam within the RCEP framework. Issues with proving origin rates for exports have prevented Vietnamese firms from leveraging preferential tax rates, compounded by the dependency on raw material imports for key industries like textiles and electronics.
The textile sector, heavily reliant on imports for raw materials, illustrates the challenges in meeting origin requirements for tax benefits under FTAs. The RCEP aims to alleviate such issues by easing origin constraints and fostering new value chains, offering significant tariff reductions for Vietnam, with a gradual implementation over 15-20 years.