Regional trade agreement aids Vietnam to access large consumer markets hinh anh 1Photo: Enterprises speed up production to fulfill their orders. (Photo: VietnamPlus)

Hanoi (VNA) - The Regional Comprehensive Economic Partnership (RCEP), which entered into force on January 1, 2022, is expected to boost Vietnam’s export and improve its access to large consumer markets, according Standard Chartered Bank.

In its latest Global Research Report titled “Vietnam–RCEP: Opportunities and Challenges”, the bank said the membership in the pact further strengthens Vietnam’s trade position and should contribute to the post-pandemic recovery this year. Major export categories that are expected to benefit from the RCEP include information technology, textiles, footwear, agriculture, automobile and telecommunications.  

The deal is expected to eliminate about 90 percent of tariffs on trade between the signatories within 20 years.

Over the longer term, the deal could form a basis for a new supply chain in the region, with Vietnam playing a key role. The country targets average export growth at 6-7 percent a year from 2021 – 2030.

“SMEs, which account for 98 percent of all enterprises in Vietnam and contribute 40 percent of GDP, are poised to benefit as the pact provides opportunities for them to move up the value chain,” the report said.

However, Vietnam is also likely to face more competition, both in export markets and domestically, as a result of the RCEP. For exports, the pact increases competition from other Southeast Asian countries, some of which are strong in similar product categories to Vietnam.

Over time, this could prompt Vietnam to move into high-tech manufacturing, said the report. The RCEP should facilitate this process, making it easier to source high-quality materials from other member countries and improving market access for higher-value-added goods.

More broadly, the RCEP is likely to accelerate China’s economic integration with the rest of the Asia–Pacific region; in contrast, the US is not an RCEP signatory. Vietnam will continue to benefit from its role as an alternative manufacturing hub as companies adopt a “China plus one” diversification strategy.

At the same time, however, China’s low-cost products will gain better access to Vietnam’s domestic market under the RCEP, posing potential challenges to domestic competitors, it added.

Standard Chartered Bank’s economists expect a strong current account (C/A) surplus and FDI flows to remain the key pillars of support for the Vietnamese currency over the long run. The RCEP is likely to further boost Vietnam’s exports, supporting the C/A balance, and help attract increased direct investment flows.

“Total current account and FDI flow to Vietnam averaged 19 billion USD each year in the past nine years. With this result, we expect VND will increase against the USD in the time to come. The USD/VND exchange rate is forecast at 22,500 VND in the end of 2022 and 22,000 VND in the end of 2023”, said Divya Devesh, head of ASEAN and South Asia FX research at Standard Chartered.

The Regional Comprehensive Economic Partnership (RCEP) Agreement, the world’s largest trade pact, was signed on November 15, 2020 by leaders of 15 member countries after eight years of negotiations.

The trade pact involves 10 ASEAN member nations - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, and the bloc’s partners - Australia, China, Japan, the Republic of Korea (RoK) and New Zealand. Together, they account for almost 30 percent of the globe's gross domestic product (GDP) and nearly a third of the world's population.

The agreement is expected to create the world’s largest free trade area and numerous new supply chains, and make significant contributions to regional economic recovery post COVID-19.

Vietnam and Malaysia are the countries that are expected to benefit the most from this agreement. RCEP will help Vietnam access consumer markets twice the size of the markets in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as RCEP includes China, the Republic of Korea and Japan. However, it required Vietnam to raise standards to meet higher demand and stiffer competition.

Another advantage that RCEP brings to the country is that it is creating more equality in the job market as sectors that employ women are expanded, such as textiles, apparel, electronics and some service sectors. The wage of female workers will increase faster than that of males, especially in Vietnam.

About 50 percent of the population in RCEP, or 1.1 billion people, contribute 10 USD or more per day based on purchasing power. The agreement can help boost the middle class by 27 million people for all member countries by 2035, of which Vietnam is expected to benefit the most when it has an additional 1.7 million people enter this class, according to the World Bank./.