Free trade agreements likely to challenge local companies

Its "golden population" phase and other specific advantages can help Vietnam exploit well a slew of free trade agreements (FTAs), but there is zero room for complacency, experts and leading industrialists have warned.
Its "golden population" phase and other specific advantages can help Vietnam exploit well a slew of free trade agreements (FTAs), but there is zero room for complacency, experts and leading industrialists have warned.

They said that the agreements are a double-edged sword that will open the domestic market up to stiff competition local firms are ill-equipped to face.

The increased export opportunities also come with the challenge of meeting international standards, they added.

Vietnam has inked FTAs, bilaterally and multilaterally, with many countries and blocs like the European Union and the Customs Union of Russia, Belarus and Kazakhstan. It is also a party to the Trans Pacific Partnership (TPP) that is being negotiated by 12 countries in the Asia-Pacific region.

A recent VNA report quoted Le Phuoc Vu, Chairman of the Ton Hoa Sen Group, as saying the FTAs can yield sizeable benefits for Vietnam.

"We are clearly seeing that the global integration trend has developed widely and global investment capital is heading towards the Southeast Asian region, including Vietnam. This is good for Vietnam as the country is currently in the ‘golden population' phase, offering a low-cost labour force and many investment opportunities.

"Therefore, the country can boast of having considerable opportunity to boost economic growth, promote exports of Vietnamese businesses and drawing capital," Vu said.

The report also cited Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), as saying the FTAs will motivate Vietnamese companies to speed up their restructuring process and create opportunities for local businesses to penetrate the world's leading markets with a 0 percent tariff as well the lowering of many other trade barriers.

In particular, export opportunities to the United States, Europe, Japan, the Republic of Korea, ASEAN, Russia, Belarus and Kazakhstan will be boosted. The country's key export products include garments and textiles, footwear and farm produce.

However, Loc cautioned that rising technical standards require local businesses to international standards pertaining to product quality, food safety and hygiene as well as proof of origin.

"All trade and production activities in Vietnam must meet international standards if we want to penetrate the markets of other countries. This is a key challenge that local businesses must overcome," he stressed.

A VCCI report has said that up to 96 percent of Vietnamese businesses operate on small and super-small scales, and are weak in capital, technology and quality of labour force. These factors limit local competitiveness, and in turn, their participation in the global production network.

Vu added to this argument, saying that if businesses fail to receive capital investment and are unable to tap opportunities to create highly competitive products, they will lag behind other countries in the region.

Foreign corporations investing in Vietnam often bring satellite enterprises with them, making it hard for Vietnamese businesses to enter the supply chain, he said.

Meanwhile, Vietnam lacks businesses that can assume a leadership position and guide smaller businesses towards further development, he added.

The report cited other unnamed experts as highlighting several shortcomings in Vietnam's private sector, including limited capital, technology and management that affects local competitiveness.

Many domestic industries including steel and fisheries have found it difficult to overcome technical barriers and deal with trade protection tools used by other countries, it said.

Apart from export challenges, Vietnamese businesses are set to face fierce competition in the domestic market, the report said.

It cited a representative of the Truong Hai Auto Joint Stock Corporation as saying that with the roadmap for reducing tariffs gradually to 0 percent, there is a great possibility of cheap automobile products from other countries in the region, such as Indonesia and Thailand, entering Vietnam.

Do Huu Hao, Chairman of the Vietnam Association of Mechanics, who is also a former Deputy Minister of Industry and Trade, pointed out that the nation's support industry lags behind developed countries.

The inability of local firms to produce hi-end products that can earn huge profits shows weaknesses that will be starkly exposed during the integration process, he said.

Given their limited competitive capabilities, local firms expect more support from the Government, the report cited both experts and industry insiders as saying.

Vu stressed that policy and other forms of support from the Government, State management agencies, and trade promotion agencies is very important.

The nation must resolutely tackle trade fraud and counterfeit products, and local firms should have access to long-term capital resources at more reasonable interest rates, he said.-VNA

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