Proceedings of the Second Asia-Pacific Conference on Global Business, Economics, Finance
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Danang, Vietnam, 10-12 July 2015 Paper ID: V525
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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
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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.
Proceedings of the Second Asia-Pacific Conference on Global Business, Economics, Finance
and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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”. Page 323. 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.
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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).
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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).
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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.
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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.
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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;
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- 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.
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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).
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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.
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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.
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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.
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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.
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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.
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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- 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;
- Circular No. 167/2014/TT-BTC dated 11/14/2014 of the Minister of Finance on the issuance
of import tariff to implement trade agreements ASEAN-Korea from 2015 to 2018;
- Circular No. 168/2014/TT-BTC dated 11/14/2014 of the Minister of Finance on the issuance
of preferential import tariff of Vietnam to implement the ASEAN Trade in Goods
Agreement with Australia- New Zealand from 2015 to 2018;
- Circular No. 169/2014/TT-BTC dated 11/14/2014 of the Minister of Finance on the issuance
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.
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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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
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and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6
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