The Regional Trade Agreements (RTAs) and their Impacts on...

Proceedings of the Second Asia-Pacific Conference on Global Business, Economics, Finance

and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6

Danang, Vietnam, 10-12 July 2015 Paper ID: V525

1 www.globalbizresearch.org

The Regional Trade Agreements (RTAs) and

their Impacts on Vietnam

Nguyen Vu Hoang,

Academy of Politics, Region I, Vietnam.

E-mail: [email protected]

___________________________________________________________________________

Abstract

The paper examines formation of RTAs, the number and the formation of RTAs in the world,

the relationship of RTAs with globalization, the existing model of RTAs, the economic content

and legal framework of RTAs. The paper clarifies factors affect to the formation of RTAs:

development and economic efficiency, historical linkages, political stability, negotiation and

power balances, safety of market integration. The paper also examines the impact of RTAs on

Vietnam: tariffs, non-tariff barriers, dispute resolution, benefits for importing countries,

investment in new technology, human resources, technology transfer, foreign investment,

trade policy..., including agreements Vietnam are member and in negotiation: ASEAN-China

Free Trade Agreement, ASEAN Korea Free Trade Agreement (AKFTA), Framework

Agreement on Comprehensive Economic Cooperation Between the Republic of India and the

ASEAN, ASEAN-Japan Comprehensive Economic Partnership Agreement, Agreement

Establishing the ASEAN - Australia-New Zealand Free Trade Area (AANZFTA), ASEAN-EU

Free Trade Agreement, Vietnam – Canada Free Trade Agreement, Vietnam – India Free

Trade Agreement, Vietnam – Japan Free Trade Agreement, Regional Comprehensive

Economic Partnership (RCEP), Agreement on the Trans-Pacific Partnership (TPP), Viet

Nam-European Union Free Trade Agreement, Vietnam – Korea Free Trade Agreement,

Russia-Belarus-Kazakhstan and Vietnam Customs Union, Vietnam – EFTA Free Trade

Agreement, Vietnam - Chile Free Trade Agreement...

_________________________________________________________________________

Key words: regional trade agreements, free trade area, impacts on Vietnam

JEL Classification: F00, F4, K00





1. Introduction

International economic integration and its impacts are always interested topic to both

domestic and foreign researchers. Therefore, international economic integration is early

studied, especially in countries with developed market economy. The process of regional

economic integration began in the 50s of the 20th century and developed from the 90s to date.

Today, international economic integration is an ongoing process. After the International Trade

Organization (ITO) under the Havana Charter cannot be established, many countries have

tried to protect their personal interests by participating in several treaties relating to bilateral,

regional and multilateral investment. Regional trade agreements (RTAs) have become

increasingly since the early 1990s. As of 8 January 2015, some 604 notifications of RTAs

(counting goods, services and accessions separately) had been received by the GATT/WTO.

Of these, 398 were in force. These WTO figures correspond to 446 physical RTAs (counting

goods, services and accessions together), of which 259 are currently in force. (1)

2. RTAs and the WTO

RTA used to refer to an agreement, or arrangement, creating a mutual relation between

the member states. In other word, a regional trade agreement refers to free trade among a

number of nations in a specified area or region (2). This agreement is not consistent with the

bedrock principles of the General Agreement on Tariffs and Trade (GATT).

"Most-favored-nation-treatment" or "MFN" - is one of the bedrock principles of the

WTO, which requires contracting parties to accord the most favorable tariff and regulatory

treatment given to the product of any one contracting party at the time of import or export to

"like products" of all other contracting parties. Under the MFN, should contracting party A

agree in negotiations with contracting party B to reduce the tariff on same product X to 5%,

this same "tariff rate" must also apply to all other contracting parties as well. In other words,

if a country gives MFN treatment to one country regarding a particular issue, it must handle

all other countries equally regarding the same issue.

The idea of MFN treatment has a long history. Prior to the GATT, it was often included

in bilateral trade agreements, and as such it contributed greatly to the liberalization of trade.

However, in the thirties, several measures were taken which limited the functioning of the

MFN principle. These measures led to the division of the world economy into trade blocs.

Having learned from this mistake, after World War II the MFN clause was included in the

GATT, on a multilateral basis, which has contributed to the stability of trade around the

world. GATT Article I provides for contracting parties to accord MFN treatment to like

1See: https://www.wto.org/english/tratop_e/region_e/region_e.htm. 2See: http://www.ehow.com/facts_6850611_definition-regional-trade-agreements.html.

http://www.ehow.com/facts_6850611_definition-regional-trade-agreements.html





products of other contracting parties regarding tariffs, regulations on exports and imports,

internal taxes and charges, and internal regulations (3).

RTAs can apply to the system of World Trade Organization (WTO) with some

limitations. There are some reasons RTAs was applied under the GATT/WTO. The first

reason is political factors. For example, it cannot be removed the trade barriers at the time to

attend to GATT/WTO because of its long history. Another reason is RTAs may form blocs in

the multilateral trading system through the reduction of trade barriers between the member

states.

There are examples of RTAs in the world, including the North America Free Trade Area

(NAFTA), the South American Common Market (MERCOSUR), the Caribbean Community

(CARICOM), the Andean Community (South American Customs Union), the Central

European Free Trade Area (CEFTA), European Union (EU), the African Economic

Community (AEC), Common Market for Eastern and Southern Africa (COMESA),

Community of Economic and Monetary of Central Africa (CEMAC), ASEAN Free Trade

Area (AFTA)..., the Commonwealth of Independent States (CIS), the Economic Cooperation

Organization (ECO)... (4). In February 2005, there were about 250 RTAs notified to the

GATT/WTO, of which 162 are still in effective. Although RTAs can exist in various forms

such as the Free Trade Area (FTA), Customs Union (CU) ..., the most common form of RTAs

are free trade areas, accounts for about 72% of RTAs (5). The number of RTAs is increasing.

To strengthen links with other trading partners, ASEAN attends FTA negotiations with

China, Japan, Korea, India, Australia and New Zealand, and the EC, and has economic

partnerships with Canada and the United States through trade and investment framework

arrangements. According to the authorities, the trade-in-goods chapters of the ASEAN-China

FTA (ACFTA) and the ASEAN-Korea FTA (AKFTA) entered into force in 2005 and in

2006, respectively. The services chapter of the ACFTA was signed in 2006 and those of the

AKFTA at the 2007 Summit. The investment chapters for both FTAs are currently under

negotiation. Negotiations for the ASEAN-Japan Comprehensive Economic Partnership

Agreement are in their final stages. There are also many other negotiations: the ASEAN-India

FTA (AIFTA) and the ASEAN-Australia-New Zealand FTA (AANZFTA). The AANZFTA

is being negotiated as a single document (i.e. all chapters are under negotiation

simultaneously with the aim of concluding a comprehensive FTA).

3 See: http://www.meti.go.jp/english/report/data/g400011e.html: Part I, Chapter I: “Most-Favoured-

Nation Treament Principle”. 23. 4 See: Oli Brown, Faisal Haq Shaheen, Shaheen Rafi Khan, Moeed Yusuf: “Regional Trade

Agreements: Promoting conflict or building peace?”. 2005. Page 3. 5 See: Geethanjali Nataraj: “Regional Trade Agreements in the Doha Round: Good for India?”. 2007.

Page 7.

http://www.meti.go.jp/english/report/data/g400011e.html





Many RTAs were not notified to the WTO such as the Georgia-Ukraine-Azerbaijan-

Moldova FTA, Azerbaijan-Kazakhstan FTA, Azerbaijan-Moldova FTA, the Gulf Cooperation

Council-Singapore FTA, the EU and South Korea FTA, Pacific Agreement on Closer

Economic Relations (PACER) Plus... (6)

Besides, there are hundreds of other RTAs are being negotiated, and many of which are

important RTAs. Agreement on the Trans-Pacific Partnership (TPP) is outstanding agreement

among them. The Trans-Pacific Partnership (TPP) aims to establish a common FTA for the

Asia Pacific countries. In present, 12 countries have participated in the TPP negotiations

(including New Zealand, Brunei, Chile, Singapore, Australia, Peru, USA, Malaysia, Vietnam,

Canada, Mexico and Japan). TPP negotiation is one of the most important negotiations of

Vietnam, including not only market access in goods and services but also non-trade issues.

TPP is a historical agreement and a special agreement derives from its importance. TPP sets a

new standard for trade agreements in the future. This Agreement is a comprehensive and

ambitious in all areas: competition; cooperation and capacity building; providing services

across borders; customs; e-commerce; the environment; financial services; government

procurement; intellectual property; investment; labor; the legal issues; goods market access;

rules of origin; the sanitary and phytosanitary (SPS); the technical barriers to trade (TBT);

telecommunications; movement of natural persons; trade remedy ...

The trade objectives of TPP, as elaborated more specifically through its principles and

rules, including national treatment, most-favoured- nation treatment and transparency, are to

(7):

(a) Encourage expansion and diversification of trade among each Party’s territory;

(b) Eliminate barriers to trade in, and facilitate the cross-border movement of, goods and

services among the territories of the Parties;

(c) Promote conditions of fair competition in the free trade area;

(d) Substantially increase investment opportunities among each Party’s territory;

(e) Provide adequate and effective protection and enforcement of intellectual property rights

in each Party's territory; and

(f) Create an effective mechanism to prevent and resolve trade disputes

TPP not only mentioned the traditional matters such as market access to trade in goods,

investment, services ... but also mentioned many new issues, such as non-traditional workers,

environment, government procurement, state-owned enterprises, supply chain management...

This Agreement aims to create favorable conditions for the trade development, promotes

manufacture and supplies chains among TPP members, supports to create jobs, raises living

6 See: Ganjar Nugroho: “An Overview on the Trend of Regional Trade Agreement (RTAs)”. Page 111,

112. 7 See: The Trans-Pacific Partnership Agreement (TPP).





standards and improves welfare in the member states. To achieve this, TPP has made a

commitment to help solve overall problem related to the manufacturing development and

supply chain management, including customs cooperation and standards. TPP countries also

agreed to build a common tariff as well as the common rules of origin to help businesses to

access this Agreement in an advantage way. Agreement was built on the basis of the

agreements under the framework of APEC and other forums and on the basis of new and

cross issues, including policy environment, competitiveness capacity and business facilitation,

small and medium enterprises (SMEs), comprehensive liberalization and powerful market,

regulations improvement... A study by Ian F. Fergusson 2010 indicates that the structural

strategies and the Asian economy are going strongly. According to Fergusson’ opinion, one of

the documents that mark these processes is Agreement Trans-Pacific Partnership. This

research also indicates that the integration formed two groups: The first group took the Asia

as center and eliminated the influence of the United States, and the second group (Trans-

Pacific Nations) took the United States as center. TPP is a mean used to strengthen influence

of the United States (8).

There are many reasons leading to the strong formation of RTAs. For instance, the

consecutive delay to achieve a positive outcome of the Uruguay Round has made doubt about

the future of the multilateral trading system. Therefore, many countries have made efforts to

create regional trade agreements to protect in the event of failure of the multilateral trading

system. Therefore, most of the member countries of the World Trade Organization are

members of at least one RTA. However, there are some exceptions, for example, as of

October 1999, South Korea and Japan still is not a member of any RTAs (9).

From a multilateral perspective, one of the main questions regarding regional trade

agreements (RTAs) is whether they support or detract from the WTO’s multilateral trading

system.

The supporters for the formation of RTAs assumed that such agreements can facilitate the

multilateral trading system through the reduction of trade barriers between countries and said

that there are no integration obstacles on a small scale. These agreements can be used as a

stepping stone to the process of global trade liberalization and a stepping stone in

strengthening the multilateral commitments.

But opponents argued that RTAs limited multilateral trade liberalization because of its

introverted nature. According to them, regionalism derives from the discriminated preference

in trade against countries without membership of the Agreement. They also insisted that the

8 See: Ian F. Fergusson, Bruce Vaughn: “The Trans-Pacific Partnership Agreement”. June 25, 2010.

9 See: Course on International Trade and the WTO Agreement. September 28-October 17, 1999.

School of Public Policy and Global Management, KDI and Korea International Cooperation Agency

(KOICA).





best choice for the global trading system is the GATT. Although there are many objections,

but it is obviously that RTAs are increasing with various participants, including the rich and

poor countries, old and new countries in international trade...

3. The main types of RTAs

According to WTO, RTA can be classified into the following four kinds of treaties (10).

The first one is Free Trade Agreement (FTA), which is the lowest level of RTA. With

FTA, a country should reduce or eliminate a tariff for member countries but impose a

different tariff on non-member countries. The typical example is North American Free Trade

Agreement (NAFTA). Under NAFTA, there are no tariffs for trades among Canada, Mexico

and U.S., but each country imposes different tariffs on non-member countries.

The second one is Customs Union (CU). Under CU, there is no tariff between member

countries, but each member country imposes a common tariff on non-member countries.

Mercado Comun del Cono Sur (MERCOSUR) is one example.

The third one is Common Market. Under Common Market, member countries carry out

common monetary and fiscal policies. One example is European Community (EC).

The last one is Single Market, which achieves a political and economic unity with

common currency and common assembly. One example is Europe Union (EU).

According to some scholars’ opinions, RTAs can be classified into the five categories of

treaties: Preferential Trade Agreements (PTAs), Free Trade Area (FTA), Customs Union

(CUs), Common Market and Economy Union (EU) (11). The examples of PTAs are Asia

Pacific Agreement (APTA) - Accession of China, South Asian Preferential Trade

Arrangement (SAPTA)… (12) Preferential Trading Agreements (PTAs) lower trade barriers

among members. Such preferential trade is usually limited to the portion of actual trade flows

from LDCs, and is often non-reciprocal (13).

4. The impact of RTAs to Vietnam

a. The scope of RTAs

Vietnam has become increasingly involved in free trade agreements in recent years after

joining the ASEAN Free Trade Area (AFTA) in 1995. This has mainly been through its

ASEAN membership. Apart from AFTA, Vietnam is now involved in FTAs of varying

10 See: Yong Joon Jang: “The Impact of Free Trade Agreements on Foreign Direct Investment”.

Indiana University. Department of Economics. Apr 6, 2007. 11 See: http://www.networkideas.org/feathm/may2004/survey_paper_rta.pdf. Parthapratim Pal:

“Regional Trade Agreements in a Multilateral Trade Regime: An Overview”. 12 See: https://www.wto.org/english/tratop_e/region_e/region_e.htm. List of all RTAs in force, by type

of Agreement. 13 http://intl.econ.cuhk.edu.hk/topic/index.php?did=14.

https://www.wto.org/english/tratop_e/region_e/region_e.htm





complexity with Australia-New Zealand, China, India, Japan and Korea. Other FTAs are

being considered with Chile, the EU and Turkey (14).

As of 31 December 2014, Vietnam has signed and participated in 8 Free Trade

Agreements, including 6 regional agreements: ASEAN-China, ASEAN-Korea, ASEAN

Japan, ASEAN-India, ASEAN-Australia-New Zealand and two bilateral agreements with

Japan and Chile. Almost agreements are those of in East Asia and 6 ASEAN agreements with

external partners.

Table 1: List of FTAs Vietnam as member

FTAs concluded

FTAs in negotiations

FTAs in consideration

ASEAN

ASEAN - India

ASEAN – Australia/New

Zealand

ASEAN – Korea

ASEAN – Japan

ASEAN – China

Vietnam – Japan

Vietnam - Chile

RCEP (ASEAN+6)

ASEAN - EU

TPP

Vietnam – EU

Vietnam – Korea

Vietnam – Custom Union

Vietnam – EFTA

ASEAN - Canada

Source: http://wtocenter.vn/fta

Major partners such as the EU, US, Russia does not have free trade relations. Vietnam

now is negotiating 7 Free Trade Agreements: Trans-Pacific Partnership Agreement (TPP),

Agreement with the European Union, Agreement with the Customs Union, FTA with Korea,

free trade agreement with Switzerland, Norway, Iceland and Liechtenstein.

Besides, Vietnam also negotiates 2 agreements with ASEAN: Regional Comprehensive

Economic Partnership (RCEP), also known as ASEAN + 6 Agreement and the Agreement

between ASEAN and Hong Kong (China).

In particular, there are two nearly completed agreements: free trade agreements with the

Customs Union and South Korea. These agreements are reaching to the official signing. The

agreement with the European Union has achieved some positive results, and will complete

negotiations.

i. EU-Vietnam Free Trade Agreement (EVFTA)

The EU-Vietnam Free Trade Agreement (EVFTA) is an ambitious and comprehensive

document in terms of goods, services, investment and government procurement. Apart from

the removal of tariff and non-tariff barriers, both sides are working to settle other issues

related to trade, legal matters, competition, intellectual property, and geographical indication.

The RTAs membership will increase predictability of economy by imposing "bound

tariffs". It will enhance transparency, reduce corruption and open more opportunities for

14 See: “Impact assessment of free trade agreement on Vietnam’s Economy”. Final Report. Mutrap III.

2010.

http://wtocenter.vn/fta/concluded

http://wtocenter.vn/fta/concluded/asean

http://wtocenter.vn/fta/concluded/asean-india

http://wtocenter.vn/fta/concluded/asean-australia

http://wtocenter.vn/fta/concluded/asean-australia

http://wtocenter.vn/fta/concluded/asean-korea

http://wtocenter.vn/fta/concluded/asean-japan

http://wtocenter.vn/fta/concluded/asean-china

http://wtocenter.vn/fta/concluded/vietnam-japan

http://wtocenter.vn/fta/concluded/vietnam-chile

http://wtocenter.vn/fta/dang-dam-phan/rcep

http://wtocenter.vn/fta/negotiations/asean-eu

http://wtocenter.vn/infocus/tpp

http://wtocenter.vn/infocus/vn-eu-fta

http://wtocenter.vn/fta/negotiations/vietnam-korea

http://wtocenter.vn/fta/negotiations/vietnam-custom-union

http://wtocenter.vn/fta/dang-dam-phan/viet-nam-efta

http://wtocenter.vn/fta/consideration/asean-canada

http://wtocenter.vn/fta





business sector. Finally, the RTAs membership will open foreign markets, support

competition in domestic market and encourage technology transfers on a larger scale.

The legal documents of each RTA are different and diversity: agreements, protocol,

memorandum of understanding, framework agreement…

ii. The legal documents of the Vietnam – Japan FTA

- Agreement between the Government of Japan and the Government of Socialist Republic of

Vietnam on cooperation in science and technology (August 2006);

- Agreement between Japan and the Socialist Republic of Vietnam for the liberalization,

promotion and protection of investment (November 2003);

- Agreement between Japan and the Socialist Republic of Viet Nam for an Economic

Partnership (December 2008);

- Implementing Agreement between the Government of Japan and the Government of the

Socialist Republic of Vietnam pursuant to Article 10 of the Agreement between Japan

and the Socialist Republic of Vietnam for an Economic Partnership.

iii. The legal documents of ASEAN – China FTA

- First Protocol to Amend the Agreement on Trade in Goods of the Framework Agreement on

Comprehensive Economic Co-Operation between the Association of Southeast Asian

Nations and the People's Republic of China;

- Second Protocol to Amend the Agreement on Trade in Goods of the Framework Agreement

on Comprehensive Economic Co-Operation between the Association of Southeast Asian

Nations and the People's Republic of China;

- Memorandum of Understanding between ASEAN and China on Strengthening Cooperation

in the Field of Standards, Technical Regulations and Conformity Assessment;

- Memorandum of Understanding between ASEAN and China on Cooperation in the Field of

Intellectual Property;

- Agreement on Investment of the Framework Agreement on Comprehensive Economic Co-

operation between the Association of Southeast Asian Nations and the People's Republic

of China, Bangkok, 15August 2009;

- Agreement on Trade in Services of the Framework Agreement on Comprehensive Economic

Co-operation between the Association of Southeast Asian Nations and the People’s

Republic of China, Cebu, Philippines, 14 January 2007;

- Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic

Co-operation between the Association of Southeast Asian Nations and the People’s

Republic of China, Vientiane, 29 November 2004;

http://wtocenter.vn/sites/wtocenter.vn/files/VN-Japan%20cooperation%20sciene%20and%20technology%2021Aug2006_0.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/VN-Japan%20cooperation%20sciene%20and%20technology%2021Aug2006_0.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/VN-Japan%20liberalazation%20promotion%20protection%20investment%2014Nov2003_0.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/VN-Japan%20liberalazation%20promotion%20protection%20investment%2014Nov2003_0.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/VN-Japan%20economic%20partnership%2021Dec2008.pdf


http://wtocenter.vn/sites/wtocenter.vn/files/First%20Protocol%20to%20Ammend%20ACFTA%20Trade%20in%20Goods.pdf



http://wtocenter.vn/sites/wtocenter.vn/files/5-%20MoUStrengtheningCooper%20in%20Field-Standards-25Oct2009.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/5-%20MoUStrengtheningCooper%20in%20Field-Standards-25Oct2009.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/6-%20Mou%20ASEAN-China%20Intellectual%20Property.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/6-%20Mou%20ASEAN-China%20Intellectual%20Property.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/7-%20Agreement%20on%20Investment%20of%20Agreement%20on%20CEC%2015Aug2009.pdf



http://wtocenter.vn/sites/wtocenter.vn/files/8-Agreement%20on%20Trade%20in%20Services%20of%20CEC%2014Jan2007.pdf



http://wtocenter.vn/sites/wtocenter.vn/files/20-%20ACFTA%20Trade%20in%20Goods.pdf







- Agreement on Dispute Settlement Mechanism of the Framework Agreement on

Comprehensive Economic Co-Operation Between the Association of Southeast Asian

Nations and the People’s Republic of China, Vientiane, 29 November 2004;

- Protocol to Amend the Framework Agreement on Comprehensive Economic Co-Operation

between the Association of South East Asian Nations and the People's Republic of China,

Bali, 6 October 2003;

- Framework Agreement on Comprehensive Economic Co-Operation between ASEAN and

the People's Republic of China, Phnom Penh, 4 November 2002.

b. Overall impacts of RTAS

In overall, the impacts of RTAs can include:

• Regional tariff preferences, or reducing MFN tariffs to all countries.

• Provides competition for importers but opportunities for exporters.

• The advantages of preferential market access tend to be temporary.

• The trade balance and trade policy.

• Unemployment, or redeployment based on specialisation and trade.

• Dispute settlement mechanisms.

• Foreign Direct Investment (FDI)

• Rules of origin.

RTAs have brought many benefits to Vietnam as a member. The RTAs can benefit the

imported country even if there is trade diversion. The benefits gained from lower prices can

offset losses from trade diversion. More importantly, if there is a certain level of the economy

has not been exploited in a number of industries, the RTAs can generate significant benefits

through reducing the average cost of production and make goods available to consumers. In

addition, there are also affecting in the medium and long term. The trade liberalization leads

to higher growth rates on a regular basis because it encourages investment in new technology,

accumulation of human resources, encourage international specialization and international

technology transfer.

i. ASEAN Framework Agreement on Services (AFAS)

The ASEAN Framework Agreement on Services (AFAS) is interesting example of

overall impacts of RTAs. AFAS was signed in 1995, formalizing ASEAN's goal of

eliminating restriction to trade in services and enhancing intra-ASEAN cooperation in

services. Five packages of commitments have been signed, in December 2006, covering 70

subsectors. The recent ASEAN Economic Ministers (AEM) meeting in August 2007

endorsed a road map to guide the AFAS services liberalization process towards a 2015

end-date, including a modality for the liberalization of mode 3 services by the same date.

http://wtocenter.vn/sites/wtocenter.vn/files/24-%20Dispute%20Settlement%20Mechanism%20comprehensive%20Economic%20Cooperation.pdf



http://wtocenter.vn/sites/wtocenter.vn/files/25-%20Protocol%20Amend%20Framework%20Agreement.zip



http://wtocenter.vn/sites/wtocenter.vn/files/26-%20Framework%20Agreement%20on%20Comprehensive%20Economic%20Cooperation%20ASEAN-China.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/26-%20Framework%20Agreement%20on%20Comprehensive%20Economic%20Cooperation%20ASEAN-China.pdf





c. Impacts on tariff and tariff reduction

Through multilateral agreements, tariffs for industrial goods in developing countries

reduced to less than 5%. However, there are still a limited number of tariffs and RTAs

contribute to the reduction of the highest tax rates. The trade agreements identify non-tariff

barriers, such as technical barriers to trade. The diversity of RTAs reflects differences in the

objectives of the RTAs and in the approach to regional integration. There is no single reason

for the formation of RTAs. The formation of RTAs is due to a combination of several factors:

development and economic efficiency, historical issues, political stability, power balances,

safety of market integration...

Except in all but the rarest of instances, tariffs hurt Vietnam that imposes them, as their

costs outweigh their benefits. Tariff is a boon to domestic producers who now face reduced

competition in their home market. The reduced competition causes prices to rise. The sales of

domestic producers should also rise, all else being equal. The increased production and price

causes domestic producers to hire more employees, and causes consumers spend to rise. The

tariffs also increase government revenues that can be used to the benefit of the economy.

By reducing the tariff below the WTO tariff, RTAs sets exemption for MFN – the

bedrock principle of WTO. The following table below is example:

Table 1: Lists of MFN Treatment Exemptions under Vietnam – Japan FTA15

Sectors or

subsectors

Description of

measures

Countries to

which the

measures applied

Intended

duration

Conditions

creating the need

for the

exemption

All sectors:

Commercial

presence

Measures

extending

preferential

treatment pursuant

to BIT

All countries that

have signed BIT

with Viet Nam

Indefinite Foster investment

in Viet Nam.

Audiovisual

services -

Production,

distribution and

projection of

television programs

and

cinematographic

works

Measures based

upon coproduction

agreements of

audiovisual works,

which confer NT to

audiovisual works

covered by such

agreements

WTO Members

with which such

bilateral or

plurilateral

agreements are in

force, now or in the

future

Indefinite

The aim of these

agreements is to

promote cultural

links between the

countries

concerned

Audiovisual

services -

Production and

distribution of

television programs

and

cinematographic

works

Measures granting

the benefit of

support programs

to audiovisual

works, and

suppliers of such

works meeting

origin criteria

WTO Members

with which

bilateral and

plurilateral

agreements have

been signed in the

area of cultural

cooperation

Indefinite These programs

aim at preserving

and promoting the

cultural identity of

countries with

which Viet Nam

has longstanding

cultural links

15 See: http://www.mofa.go.jp/region/asia-paci/vietnam/epa0812/annex6.pdf: Lists of Most-Favored-

Nation Treatment Exemptions in relation to Article 63. Agreement between Japan and the Socialist

Republic of Viet Nam for an Economic Partnership (December 2008).

http://useconomy.about.com/od/glossary/g/consumer_spending.htm







Audiovisual

services -

Production and

distribution of

audiovisual works

through

broadcasting

transmission to the

public

Measures which

extend National

Treatment to

audiovisual works

which meet certain

origin criteria

regarding access to

broadcasting

transmission

WTO Members

with which

bilateral or

plurilateral

agreements have

been concluded in

the area of cultural

cooperation

Indefinite These measures

aim, within the

sector, to promote

cultural values

both within Viet

Nam, and with

other countries,

including in the

region

Maritime transport Measures based

upon agreements

covering the

normal business

operations of fully

owned subsidiaries

of foreign shipping

companies

All WTO Members

with whom

maritime transport

cooperation may be

desirable

By 11

January

2012

Bilateral

Agreements

Sea-transport

services: Internal

road freight

transportation by

lorry; cargo storage

and warehousing;

and container yard

The three sub-

sectors are subject

to preferential

treatment under

Vietnam-Singapore

Maritime

Agreement

Singapore By 11

January

2017

Bilateral

Agreement

The tariff reduction is the main factor of the RTAs such as ASEAN Free Trade Area

(AFTA).

i. ASEAN Free Trade Area Common Effective Preferential Tariff (CEPT)

The ASEAN Free Trade Area Common Effective Preferential Tariff (CEPT) scheme was

signed in 1992 and was conducted in 10 years (from January 1, 1993 to January 1, 2003),

with a schedule for tariff reduction/elimination regarding intra-ASEAN trade in goods.

Implementation has resulted in average tariff rates for intra-ASEAN trade progressively

decreasing over the years to enhance the movement of goods in the region. The average tariff

for the ASEAN-6 (founding members)16, is 1.74% down from 12.76% in 2003.17

The CEPT divides products on different tracks based on the sensitivity of the single

products in order to grant policy space to the governments. The agreement divides products

between those in the general exclusion list, the temporary exclusion list and the sensitive list.

From 2010 all the applied tariffs for the ASEAN-6 are reduced to 0, while Vietnam,

Cambodia, Laos, and Myanmar are expected to reach that target by 2015.

Currently, almost 99.8% of tariff lines in the Inclusion List of the ASEAN-6 are in the 0-

5% tariff band, and over 65% are at 0%. Singapore's applied tariff is 0% for all goods traded

within ASEAN; it does not have products in the Sensitive or Highly Sensitive Lists or in the

General Exclusion List. With the CEPT scheme on track, the focus of AFTA has expanded

beyond tariff reductions to include trade facilitation measures, such as efforts to eliminate

non-tariff barriers; the harmonization of customs nomenclature, valuation, and procedures;

16 Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, and Thailand. 17 Figures in this section were provided by the Singapore authorities.





the development of common product certification standards; and the development of national

single windows as a step towards an ASEAN single window. ASEAN is also working at

developing a comprehensive Trade in Goods Agreement to encompass the AFTA CEPT

scheme and other related aspects of AFTA (18).

Under CEPT, it should be considered CEPT concessions based on the principle of

reciprocity. This principle requires a product when exported to ASEAN countries want to be

entitled to preferential tariff treatment under the CEPT to satisfy three requirements (19):

(i) The products wholly produced or obtained in the exporting Member State as defined in

Rule 2 of the Rules of Origin; or

(ii) The products worked on and processed as a result of which the total value of the

materials, parts or produce originating from non-ASEAN countries or of undetermined

origin used does not exceed 60% of the FOB value of the product produced or obtained

and the final process of the manufacture is performed within territory of the exporting

Member State.

(iii) Products which comply with origin requirements provided for in Rule I of the CEPT

Rules of Origin and which are used in a Member State as inputs for a finished product

eligible for preferential treatment in another Member State/ States shall be considered as a

product originating in the Member State where working or processing of the finished

product has taken place provided that the aggregate ASEAN content of the final product

is not less than 40%.

Based on the commitments under ASEAN FTA, Vietnam eliminated duties on all

products in 2015 with flexibility of 7% of tariff lines up to 2018.

ii. ASEAN Trade in Goods Agreement (ATIGA)

Under ATIGA, Viet Nam is given some flexibility to maintain duties at 1 – 5 per cent on

over tariff lines each or collectively accounting for 2.7 per cent of the total ASEAN tariff

lines. The duties on these products will be eliminated on 1 January 2018.

iii. Vietnam – EU FTA Agreement

In particular, if only reviews the FTA between Vietnam and EU, the reduction in tariff

barriers alone may increase Viet Nam’s exports to the EU by 30 to 40 per cent over and above

the growth in exports that can occur in the absence of the agreement. The sectors most likely

to benefit include textiles, clothing and footwear and processed foods. Services are expected

to expand quite significantly as a result of a negotiated agreement and would lead to major

18 See: Trade Policy Regime: Framework and Objectives. Trade Policy Review. WT/TPR/S/202. Page

26. 19 See: Operational Certification Procedures for the Rules of Origin of the ASEAN Common Effective

Preferential Tariff Scheme for ASEAN Free Trade Area.





gains in efficiency throughout the economy. The negative environmental impact would be

negligible and the FTA is expected to have a positive impact on reduce poverty levels.

iv. ASEAN-China Framework Agreement

The ASEAN-China Framework Agreement provides for an “early harvest” program of

rapid tariff elimination on specified non-processed agricultural goods, a gradual reduction of

tariffs on products on a “normal track” of tariff reduction, the possibility of specifying some

products as sensitive, and the elimination or reduction of some non-tariff barriers. The

program does not provide for early tariff reduction on tea, coffee, spices, cereals, cocoa or

processed agricultural products. Tariff reductions on products in the early harvest program are

significant.

v. ASEAN-India Framework Agreement

The ASEAN-India Framework Agreement was drawn up on the same model as the

ASEAN-China Framework Agreement, covering the same issues. Tariff elimination on the

early harvest products is planned for October 2007 (for ASEAN-6 and India) and October

2010 (for ASEAN-4). It is planned that the normal track products will enter India and

ASEAN-6 (with the exception of the Philippines) duty free by 2011. Duty free reciprocal

access is to be accorded between India and ASEAN-4 (plus the Philippines) by 2016.

d. Impacts on dispute settlement mechanisms

The RTAs also created several formal mechanisms for the resolution of trade disputes.

For example, under Agreement on Dispute Settlement Mechanism between ASEAN and

Korea, if e consultations fail to settle a dispute within 60 days after the date of receipt of the

request for consultations or within 20 days after such date in cases of urgency including those

which concern perishable goods, the complaining party may make a written request to the

party complained against to establish an arbitral panel. A copy of this request shall also be

communicated to the rest of the Parties (20). Or according to Agreement on Dispute

Settlement Mechanism under the Framework Agreement on Comprehensive Economic

between ASEAN and India, the parties to a dispute shall make every effort in good faith to

reach a mutually satisfactory resolution of any matter through consultations under this Article.

To this end, the parties to the dispute shall: (a) provide sufficient information as may be

reasonably available to enable a full examination of how the measure might affect the

operation of the covered agreement; and (b) treat as confidential any information exchanged

in the course of consultations which the other party to the dispute has designated as

confidential (21).

20 See: Agreement on Dispute Settlement Mechanism under the Framework Agreement on

Comprehensive Economic Cooperation Among the Governments of the Member Countries of the

Association of Southeast Asian Nations and the Republic of Korea Kuala Lumpur, 13 December 2005. 21 See: Agreement on Dispute Settlement Mechanism between ASEAN and India.

http://wtocenter.vn/sites/wtocenter.vn/files/4-Dispute%20Settlement%20Mechanism%20under%20Framwork%20CEC%20ASEAN%20-%20India%2013Aug2009.pdf

http://wtocenter.vn/sites/wtocenter.vn/files/4-Dispute%20Settlement%20Mechanism%20under%20Framwork%20CEC%20ASEAN%20-%20India%2013Aug2009.pdf





i. ASEAN Trade in Goods Agreement (ATIGA)

The impacts of integration in dispute settlement mechanism received a further

acceleration at the 14th ASEAN Summit in 2009 when the ASEAN leaders signed a new

ASEAN Trade in Goods Agreement (ATIGA) (22). The ATIGA contains a number of key

features that are expected to enhance transparency, certainty and predictability within the

ASEAN legal framework, including dispute settlement.

e. Impacts on foreign direct investment (FDI)

Foreign investment has traditionally been welcomed in Vietnam and has accounted for a

significant share of total investment in the economy. Through foreign investment, Vietnam

has evolved into a base for multinational companies to engage in high-end manufacturing and

product development, and to coordinate regional procurement, production, marketing, and

distribution operations. Reflecting the important contribution of foreign investment to the

development of the economy, there are few restrictions on inward foreign investment, and the

restrictions that exist are mainly in broadcasting, the domestic news media, retail banking,

property ownership…

As is well known, FTA is made to reduce trade cost. That is, when two countries agree to

form FTA, trade cost would fall or diminish between them. As a result, firms with vertical

FDI will benefit from this and hence have more incentive to increase vertical FDI. On the

other hand, there will be less tariff-jumping incentive for horizontal FDI.

The effects of regional integration are not uniform across the region. RTA members with

stronger locational advantages than others attract most of the FDI. In the case of the Vietnam,

in 2014, Vietnam is the most common destination for FDI from the South Korea with 37.72

billion USD, accounted for 14.9%, and followings are Japan, Singapore and Taiwan (23).

Vietnam’s chief advantages, versus other ASEAN members, are a large home market, low

factor costs, and Korea firms’ extensive experience there from earlier investments.

f. Labour issues and labour standards

RTAs also impacts on the labour issues. From one analyst, the textiles and clothing sector

is relatively labour-intensive, generating income for 33 per cent of industrial workers in

Vietnam in 2011. Most of the labour skills required are low to medium, often female, which

help to create employment for a large section of the population, especially for the rural

workforce, and thereby facilitating a shift from farm to non-farm activities. High labor

intensity together with strong export orientation of the sector makes exports extremely

22 The ASEAN Trade in Goods Agreement (ATIGA) was signed in February 2009 and subsequently

entered-into-force on 17 May 2010. 23 See: http://fia.mpi.gov.vn/chuyenmuc/14/Tinh-hinh-dau-tu.





important for employment creation (24). VITAS estimates that every $1 billion increase in

textile and apparel exports create about 150,000-200,000 jobs (25)

In particular, ASEAN Community and the ASEAN Socio-Cultural Community (ASCC)

refer to the labour components of the ASEAN Socio-Cultural Community (ASCC) intertwine

with and complement the AEC’s labour ramifications. These components include supporting

decent work principles, ensuring adequate protection for migrant workers, and promoting

investment in human resource and skills upgrading, particularly of vulnerable groups (26).

ASEAN has adopted regional Declarations in a series of labour market:

- Bandar Seri Begawan Declaration on Youth Entrepreneurship and Employment;

- Declaration on the Protection and Promotion of the Rights of Migrant Workers;

- Declaration on Strengthening Social Protection;

- Statement on Human Resources and Skills Development for Economic Recovery and

Sustainable Growth.

g. Impacts on trade policy

RTAs also affect trade policy in Vietnam. RTAs aim to promote greater transparency and

predictability, reduce corruption and open more opportunities for business sector in terms of

trade policy.

In particular, take the ASEAN Free Trade Area (AFTA) for instance, the ASEAN

Agreement requires member states to adjust their trade policies, such as the ASEAN

Agreement on Customs requires states shall ensure consistency (customs laws and

regulations, administrative procedures and decisions within member’s territory), the ability to

access (ensure accessibility of the traders on customs regulations in ASEAN; simplicity

(ensure simplified procedures customs and requirements of ASEAN), transparency (perform

publicly, timely, transparent and accessible all laws, regulations, procedures…)...

i. Agreement on Trade in Goods ASEAN (ATIGA)

The ASEAN member countries recently signed the Agreement on Trade in Goods

ASEAN (ATIGA). This Agreement focus on the commitments and obligations of trade in

goods and trade in services and put these commitments and obligations into a single tool.

ATIGA includes several chapters providing details a range of topics such as customs, trade

facilitation, sanitary measures, animal and plant quarantine, standards and technical

regulations and trade remedies...

To fulfill commitments on tariffs of Vietnam under the FTA from 2015 to 2018, the

Ministry of Finance issued 05 Circulars of the import tariff:

24 David Vanzetti and Pham Lan Huong:’ Rules of origin, labour standards and the TPP”. 17th Annual

Conference on Global Economic Analysis June 18-20, 2014 Dakar. Page 9. 25 VITAS (2013) Vietnam Textile and Apparel Association. 26 See: ASEAN Community 2015: Managing integration for better jobs and shared prosperity. ADB

and ILO. Page 11.





- Circular No. 165/2014/TT-BTC dated 14/11/2014 of the Minister of Finance issued

preferential import tariff of Vietnam to implement the Agreement ASEAN Trade in

Goods from 2015 to 2018;

- Circular No. 166/2014/TT-BTC dated 11/14/2014 of the Minister of Finance on the issuance

of import tariff from Vietnam to implement trade agreements ASEAN-China from 2015

to 2018;


of import tariff to implement trade agreements ASEAN-Korea from 2015 to 2018;


of preferential import tariff of Vietnam to implement the ASEAN Trade in Goods

Agreement with Australia- New Zealand from 2015 to 2018;


of import tariff of Vietnam to implement trade agreements ASEAN-India from 2015 to

2018.

ii. Trans-Pacific Partnership Agreement (TPP)

TPP is an ambitious trade agreement which is expected to realize the vision of a free trade

area of Asia-Pacific region. TPP brings great opportunities to Vietnam, unlocking the markets

and connecting the Vietnam’s economy to other members. In theory, Vietnam would be the

largest beneficiary on the TPP agreement in at least five factors: (1) strong trade with the

United States; (2) high protection abroad against apparel and footwear; (3) strong competitive

positions; (4) high initial domestic protection; and (5) powerful scale effects in Vietnam's

principal production clusters. However, there are a number of challenges that Vietnam needs

to face in terms of trade policy, including transparency, equal treatment for state–owned-

enterprises and private sectors, etc.

5. Conclusion and Recommendations

RTAs can complement the multilateral trading system, help to build and strengthen it. But

by their very nature RTAs are discriminatory: they are a departure from the MFN principle, a

cornerstone of the multilateral trading system. In the case of Vietnam, RTA’s effects based on

many factors such as regional tariff preferences, competition, trade balance, trade policy,

unemployment, dispute settlement mechanisms, foreign direct investment… RTAs

commitments can play an important role in defusing potential distortions, both at the regional

and at the global level. As a result, studying the advantages and disadvantages of Vietnam in

RTAs and analyzing the impacts of RTAs on the economy is an essential preparation for

Vietnam businesses to engage in RTAs proactively and efficiently.





References

Agreement on Dispute Settlement Mechanism between ASEAN and India.

Agreement on Dispute Settlement Mechanism under the Framework Agreement on

Comprehensive Economic Cooperation Among the Governments of the Member Countries of

the Association of Southeast Asian Nations and the Republic of Korea Kuala Lumpur, 13

December 2005. Community 2015: Managing integration for better jobs and shared

prosperity. ADB and ILO.

David Vanzetti and Pham Lan Huong:’ Rules of origin, labour standards and the TPP”. 17th

Annual Conference on Global Economic Analysis June 18-20, 2014 Dakar.

Course on International Trade and the WTO Agreement. September 28-October 17, 1999.

School of Public Policy and Global Management, KDI and Korea International Cooperation

Agency (KOICA).

Ganjar Nugroho: “An Overview on the Trend of Regional Trade Agreement (RTAs)”.

Geethanjali Nataraj: “Regional Trade Agreements in the Doha Round: Good for India?”.

2007.

“Impact assessment of free trade agreement on Vietnam’s Economy”. Final Report. Mutrap

III. 2010.

Ian F. Fergusson, Bruce Vaughn: “The Trans-Pacific Partnership Agreement”. June 25, 2010.

Oli Brown, Faisal Haq Shaheen, Shaheen Rafi Khan, Moeed Yusuf: “Regional Trade

Agreements: Promoting conflict or building peace?”. 2005.

Operational Certification Procedures for the Rules of Origin of the ASEAN Common

Effective Preferential Tariff Scheme for ASEAN Free Trade Area.

The ASEAN Trade in Goods Agreement (ATIGA) was signed in February 2009, entered-

into-force on 17 May 2010.

The Singapore authorities.

Trade Policy Regime: Framework and Objectives. Trade Policy Review. WT/TPR/S/202.

VITAS (2013) Vietnam Textile and Apparel Association.

Yong Joon Jang: “The Impact of Free Trade Agreements on Foreign Direct Investment”.

Indiana University. Department of Economics. Apr 6, 2007.


http://www.meti.go.jp/english/report/data/g400011e.html: Part I, Chapter I: “Most-Favoured-

Nation Treament Principle”.

http://fia.mpi.gov.vn/chuyenmuc/14/Tinh-hinh-dau-tu.

https://www.wto.org/english/tratop_e/region_e/region_e.htm. List of all RTAs in force, by

type of Agreement.

http://wtocenter.vn/fta: List of FTAs Vietnam as member.


http://www.meti.go.jp/english/report/data/g400011e.html


http://wtocenter.vn/fta





http://www.mofa.go.jp/region/asia-paci/vietnam/epa0812/annex6.pdf: Lists of Most-Favored-

Nation Treatment Exemptions in relation to Article 63. Agreement between Japan and the

Socialist Republic of Viet Nam for an Economic Partnership (December 2008).

http://www.ehow.com/facts_6850611_definition-regional-trade-agreements.html.

http://www.networkideas.org/feathm/may2004/survey_paper_rta.pdf. Parthapratim Pal:

“Regional Trade Agreements in a Multilateral Trade Regime: An Overview”.



http://www.ehow.com/facts_6850611_definition-regional-trade-agreements.html

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