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Opportunities for Vietnam Based Distributors Handling Russian and EAEU Imports

05/02/2020    90

Vietnam has been the beneficiary of a Free Trade Agreement (FTA) with the Eurasian Economic Union since 2016, as a result of which bilateral trade with Russia has boomed. With three years of experience and investment in increasing trade infrastructure, Vietnamese importers, distributors and retailers considering expanding this trade should be conducting market research activities into the opportunities in this market.

Vietnam is a good choice as a developing trade partner for Russia, it has a large and increasingly prosperous consumer base of 96 million, spending US$0.6 trillion in 2018, and a GDP per capita of about US$2,750. (Russia’s per capita GDP is about US$11,500). National GDP growth in 2020 is expected to be about 6.5%.

Consumer confidence is also high. Recent reports here by ourselves and here by Societe Generale point to a booming, domestic economy. Hanoi, Ho Chi Minh City, and Da Nang are all high-value consumer hotspots with consumer values far above the Vietnamese average.

Current Russian trade trends with Vietnam are also on an upward path, as we can see in these statistics courtesy of Trading Economics (figures in millions of US dollars) and grew steadily during the course of 2019. Both the Russian and Vietnamese Governments have stated that bilateral trade should reach US$10 billion in 2020.

Key imports from Russia, are petrol, oil, steel, fertilizers, and machinery. Major Vietnamese exports include phone components, electronic devices, computers, apparel, and footwear. Food exports include fruits, vegetables, coffee, cashew nut, and seafood.

The Vietnam-EAEU Free Trade Agreement covers more than 90 percent of all traded goods and has significantly benefited the EAEU’s exports of agricultural and industrial products. In turn, it has also increased Vietnamese exports of garments, textile products, farm products, and electrical devices.

An additional 5,535 tariff lines were reduced to zero percent in 2019. These focused-on items are input materials for the textiles, footwear, electronics, plastic, fertilizers, and farming sector. Another 3,270 tariff lines were reduced to zero percent for goods such as milk and dairy products, chemicals, automobiles, and spare parts, steel products, rubber products, and electrical appliances at the end of 2019.

However, the FTA also provides some protective measures.

According to Article 2.1 in the FTA, the EAEU may apply a trigger safeguard measure for Vietnamese goods in case the import volumes during a calendar year exceeds the trigger level as established in Annex 2 of the agreement.

Currently, under this measure, certain products in the textile and garment sector in Vietnam face safeguard duties from the EAEU, which aims to limit the increasing volume of imports to the Union. Since March 14, 2018, duties were imposed on Vietnamese underwear and children’s wear products for nine and six months, respectively.

Traders have to ensure that they do not exceed the trigger levels as defined under the agreement; else, they may face most favored nation rates and not the preferential tax rates as prescribed under the free trade agreement.

To reduce trade violations, the Vietnamese government has to ensure that traders are well informed and aware of such measures. In addition, individual governments have to promote the FTA and investments to increase the participation of private firms.

In the last few years, the EAEU has also started to work with other ASEAN member states on trade and investment, and this puts Vietnam in a unique position, as it can act as a supply chain gateway for Russian and other EAEU businesses in the region.

Going forward, to achieve their target of US$10-12 billion bilateral trade by 2020 and US$30 billion by 2030, trade between Vietnam and the EAEU can be expected to grow exponentially.

There are numerous opportunities for foreign distributors and manufacturers to compete in the Vietnamese market. Russian truck manufacturer Gaz has recently established operations in the country.

In terms of Russian exports to Vietnam, it should be noted that there are Quality Control standard differences between Russia and ASEAN nations, and Russian exporters should be aware of these.

Source: Vietnam Briefing