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NEWS UPDATES Asean Affairs        7  February 2011

Free trade challenges Vietnam

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The Free Trade Agreement (FTA) is a double-edged sword as it brings both opportunities and challenges to Vietnamese exports, according to Vietnamese economic experts.

Dr. Nguyen Minh Phong from the Hanoi Institute of Socioeconomic Development said that FTA signing has provided Vietnam with an equal position on all aspects with member countries in the agreement and as a result, the country's exports have seen remarkable improvements in turnover, products and markets year by year, except 2009 when the world suffered an economic crisis.

According to the Ministry of Industry and Trade (MoIT), Viet Nam's total export turnover reached nearly US$63 billion in 2008, doubling the figure of 2005, and increased to over US$71.6 billion in 2010.

The FTA has not only affected Vietnam's export turnovers but also helped create impressive developments in economic cooperation between Vietnam and other countries.

The impacts of the Vietnam-US Bilateral Trade Agreement (BTA), an agreement similar to the FTA, on the two countries' economic relations were cited as an example.

In 1995, two-way trade between Vietnam and the US reached only US$450 million but rose to US$18 billion 15 years later. Vietnam's exports to the US earned over US$12 billion in 2009, 10 times higher than the figure of 2002 when the BTA took effect. At present, the US is Vietnam's largest export market and investor.

After the US, Vietnam's exports to Asean has also remarkably increased with US$11 billion in 2010, up 19 percent over the previous year. The result was attributable to a tax reduction to 0-5 percent for almost all commodities exported to the Asean market as committed in the Asean-China Free Trade Agreement, which became effective in early 2010.

Similarly, commitments on tariff preferences in the Viet Nam-Japan Economic Partnership Agreement, which come into effect in October 2009, helped Vietnam earn US$1.2 billion from garment exports to Japan for the first time in 2010, an increase of 20 percent against the previous year.

Regarding challenges for Vietnam , Phong noted that the first challenge Vietnam is facing is the risk of an increasing trade deficit due to weak competitiveness and restrictions on price, technology and product structure.

In 2008, Vietnam's trade deficit was US$17.5 billion , quadrupling the figure of 2005, and mainly from China , which accounts for over 90 percent of Vietnam's total annual trade deficit since 2005.

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