Vietnam's fortunes ride high on RCEP trade deal

Vietnam is expected to become a significant beneficiary in the ASEAN region. The country's membership in the Regional Comprehensive Economic Partnership (RCEP), considered by many as the world’s largest free trade deal, came into force in January.

A new report by the research team of DBS Singapore highlights that Vietnam’s effectively applied tariffs on intra-RCEP trade are in the middle of the pack, and lower than South Korea and China.

“Trade integration between Vietnam and the RCEP members is already high, and should grow tighter as companies tap RCEP benefits. Vietnam consistently imported a significant amount of goods from RCEP partners,” the report said.

Chance to raise exports

The report also highlighted that the RCEP offers Vietnam an opportunity to increase exports to RCEP partners, which has been falling over the years. The “US, which is Vietnam’s single largest trading partner currently, has taken RCEP’s market share, rising to almost 30% of Vietnam’s total exports,” the report added.

The influence of China in the ASEAN region and among RCEP members is unlikely to dissipate anytime soon. Chinese imports will ultimately help Vietnamese exports as well.

“With the RCEP agreement, Vietnamese products made from Chinese inputs can potentially increase trade. For instance, Vietnamese ‘textile, garment, and footwear’ made from Chinese materials can enjoy favourable tariffs when shipped to Japan,” the report said.

More FDI inflows expected

It highlighted other segments such as electronics where Vietnam can benefit from the RCEP agreement and Chinese inputs.

Another area where RCEP will help Vietnam is the increase in foreign direct investment. “Even though Singapore continues to receive the lion share of FDI (foreign direct investment) inflows, inflows into Vietnam have been trending higher, and have ranked among the top three recipients within ASEAN-6 (ASEAN plus China, India, Japan, South Korea, Australia and New Zealand). We think that Vietnam continues to boast multiple advantages to attract foreign investors,” the report said.

The biggest gainers from RCEP, though, would be North Asian countries like Japan. “Vietnam is among the ASEAN economies likely to benefit somewhat from tariff reduction, given its high trade openness.

However, Vietnam’s gains would be lesser than that experienced by North Asian peers, as Japan has no bilateral agreements with China and South Korea prior to the RCEP,” the report said.

Source: Capital