In recent times truly extraordinary events have been seen in Vietnam and around the world, with the global financial crisis shaking both developed and developing economies to their core. While the Vietnamese Government has taken some forward looking and unprecedented steps to address the effect of the international economic slowdown, it is vital for Vietnam to beef up its competitiveness in EU markets.
According to Mr Nguyen Chi Tam, General Director of the European Department under the Ministry of Industry and Trade, the EU still accounts for the lion’s share of trade relations between Vietnam and Europe, standing at 74.7 per cent of such trade between the two sides.
Figures from the Department show that in 2008 total two-way trade between Vietnam and the EU is estimated to have reached $15.8 billion, equal to the target set for 2010 under the master plan and action plan of the government for developing relations between Vietnam and the EU from 2006 to 2010 and towards 2015.
In 2008 Vietnam’s exports to the EU were estimated at $10.5 billion, an increase of 15 per cent over 2007, while imports from the EU were about $5.3 billion, or 3 per cent higher than in 2007. Exports to the EU recording high growth rates in 2008 remain the traditional items: footwear, textiles and garments, coffee, furniture, and seafood, accounting for 80 per cent of the total. Other exports of small value but recording high growth rates of 20-30 per cent were rubber, plastics, computer and electronic products, toys, coal, pepper, and cashew nuts. Germany, the UK and the Netherlands were still the leading destinations, with annual growth rates of 20-30 per cent.
Vietnam imports from all member states of the EU, of which those from Germany were the largest in 2008, reaching $1.5 billion, followed by France and Italy with $730 million and $600 million respectively, according to Mr Tam. Major imports from the EU were machinery and equipment, technology, materials for the textile and footwear sector, pharmaceuticals, chemicals and chemical products, and automobiles.
According to Mr Tam, in 2009, against a background of shared difficulties around the world due to the global economic downturn, Vietnam’s exports to the EU will face particular problems due to their unique characteristics. “The risk from trade proceedings against Vietnamese products will not be high in the context of a decline in production and consumption in particular and economic downturn in the EU in general,” said Mr Tam. “However, the EU will push up the application of technical barriers and will link environmental protection with trade to protect domestic production, so some groups of commodities may experience measures being applied by the EU for reasons of environmental protection, such as fish, wooden products, fruit and vegetable, and other foodstuffs.”
He added that the EU would continue to impose anti-dumping tariffs on some types of commodities from Vietnam and would not grant Generalised System of Preferences (GSP) for commodities under Section XII belonging to Vietnam. Thus, footwear exports will face many difficulties from the dual impact of the withdrawal of GSP and the imposition of anti-dumping tariffs.
In the context of the current economic decline, improving competitive capacity is one of the key elements for Vietnam in maintaining its economic and trade growth.
Mr Antonio Berenguer, Trade Counsellor and member of the Delegation of the European Commission to Vietnam, suggested that in an export-oriented, FDI-dependent economy such as Vietnam, improving the country’s competitiveness would involve greater compliance with WTO and EU standards, better negotiated regulatory regimes, and accelerating domestic reform to further investment.
EuroCham recently issued its first Trade Issues and Recommendations publication regarding Vietnam, with the Chamber and its members firmly convinced that the best course for Vietnam in the present climate is to accelerate structural changes within the economy so as to enhance productivity and maximise the country’s retention of its growth potential.
According to Mr Alain Cany, Chairman of EuroCham, foreign investors’ confidence in Vietnam has been underlined throughout 2008 with strong portfolio investment inflows and FDI hitting record levels of over $60 billion. Inflation has declined significantly in recent months, underlining the successful fiscal and monetary policies imposed in the second quarter of the year. The trade deficit has slowed and foreign currency reserves are strong; encouraging factors in terms of Vietnam’s ability to maintain both growth and stability in the face of significant concerns elsewhere in the world. “But with export slowdowns expected due to the impact of the global crisis on the country’s major markets, with falling prices for key commodities and local market sentiment still being fragile, we cannot pretend there is not the possibility of hard times ahead and it is crucial that the government act to mitigate any further negative effects of the crisis on the domestic economy,” Mr Cany said.
EuroCham supports the government’s downward revision of its growth targets and tightening of policy to constrain inflation, as these have been vital to maintaining and enhancing macroeconomic stability. “However, with likely falls in exports, FDI inflows and remittances it is now crucial that the government work to control the trade deficit and thus the current account deficit, in order to retain and build upon investor confidence and avoid the potential of a crisis of ‘predicted deficits’ as was seen in early 2008,” said Mr Cany.
To help ensure the trade deficit is maintained at acceptable levels, according to EuroCham, Vietnamese enterprises must receive the assistance they need to maintain their competitiveness in a climate of reduced global demand for consumer products. Exporters must continue to have access to adequate credit at an appropriate price, and the Chamber also encourages the State Bank of Vietnam to institute an appropriate scheme to ensure this remains possible.