RCEP brings both challenges and opportunities

There are many advantages for fiber when RCEP comes into effect

RCEP, a free trade agreement (FTA), gathers 10 ASEAN (Association of Southeast Asian Nations) members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and China, Japan, the Republic of Korea (RoK), Australia and New Zealand, making up the world’s largest free trade area with 2.2 billion people and a US$26-trillion market. RCEP will eliminate up to 90 percent of tariffs on goods traded among the signatories within 20 years, starting from the agreement’s entry into force.

A representative of the Ministry of Industry and Trade’s Multilateral Trade Policy Department said that soon after RCEP takes effect, members will begin to honor their commitments on tariffs. Vietnam and its partners will remove tariffs on at least 64 percent of tariff lines. After 15 to 20 years, Vietnam will have removed 89.6 percent of tariff lines for partner countries which, in return, will have removed up to 92 percent of tariff lines for Vietnam. Other ASEAN members will remove 85.9 percent of all tariffs for Vietnam.

The RCEP has created a harmonized set of rules of origin applicable to trade between ASEAN and its five partners. Specifically, Vietnamese businesses can use input materials from all RCEP countries to produce goods for export to any of these markets, enjoying preferential tariffs when meeting the rules of origin. The agreement is expected to help Vietnam strengthen its trade position, boost exports and have better access to large consumer markets such as China, Japan, the Republic of Korea, and Indonesia, and at the same time help manufacturers in Vietnam reduce costs and access supply chains throughout the Asia-Pacific region.

However, the RCEP can cause competitive pressures on Vietnamese goods and services, especially in a context where Vietnamese businesses still rely heavily on imported raw materials and accessories. According to Nguyen Thi Thu Trang, Director of the Center for WTO and Integration, Vietnam Chamber of Commerce and Industry (VCCI), RCEP causes a competitive pressure on Vietnamese goods, as many RCEP partners have product structures similar to Vietnam’s, and goods from those partner countries are more competitive and have higher added value than Vietnamese ones.

RCEP and other free trade agreements are expected to open a larger market for Vietnamese footwear - photo: VNA

Vietnamese businesses need to take the initiative in making them adaptable to the new circumstance and turn challenges into opportunities. The Multilateral Trade Policy Department said that Vietnam has issued a governmental-level plan for RCEP implementation, and kicked off programs and action plans at the ministerial, sectoral and local levels to build and improve laws and institutions, strengthen the RCEP information dissemination, improve competitiveness, and efficiently take advantage of the RCEP.

According to Trang, “RCEP’s main benefits relate to the harmonization of rules of origin and tariffs. To make the most of the deal, businesses must study the rules of origin. The deal will create stronger competition in the domestic market and in the RCEP market. For example, China and Japan haven’t signed an FTA yet, but through the RCEP they will enjoy free trade, so our competition in the Japanese market will increase. Our direct competitors will include China, so Vietnamese businesses must increase their competitiveness in order to prosper.”

The RCEP will pressure Vietnamese exporters to compete with other Southeast Asian exporters, some of whom are strong in similar product categories, but it will create opportunities for Vietnam businesses to improve their competitiveness, products, and supply chains.