Friday, 31 March, 2023

Vietnam will be a key beneficiary of RCEP: DBS

Vietnam will be a key beneficiary of RCEP: DBS

HANOI: Vietnam is likely to be a key beneficiary of the Regional Economic Comprehensive Partnership (RCEP) among 15 Asia Pacific countries through tariff reductions and foreign direct investment, said DBS in a report on Monday.

This comes as the agreement goes into effect for 11 of the 15 countries, with the most recent entrant being South Korea on Feb 1. RCEP took effect for Vietnam on Jan 1, along with 9 other countries including Singapore, report agencies.

While the partnership is considered a big win for North Asia, Vietnam is expected to see significant gains within ASEAN, said DBS economist Chua Han Teng.

He noted that Vietnam boasts multiple advantages to attract foreign labour investors, such as competitive labour costs, proximity to China, political stability and its government’s plan to grow the manufacturing sector in coming years.

This will benefit from RCEP’s streamlined and single rule of origins for goods traded across member economies, which in turn has led to increasing foreign direct investment in the region. Chua observed that Vietnam is number 3 among 6 Asean nations that have received rising inflows, which in total rivals that of China.

Chua views China’s growing importance for the region as beneficial to Vietnam, due to the country shipping a rising share of Chinese imports, which reached a high of 33 per cent of the total in 2021.

Vietnamese products made from Chinese inputs are likely to increase trade, particularly in the textile, garment and footwear, and electronics sectors, said Chua.

In the area of textile, garment and footwear, Vietnam has become major alternative to China, although it still depends heavily on the larger country for more than 50 per cent of its inputs, said Chua.

Vietnam also relies heavily on China for machinery and transport equipment, importing above 40 per cent of total imports, up from 28 per cent a decade ago, while the South-east Asia country’s electronics imports from China are also its highest at 35 per cent.

Meanwhile, China imports 20 per cent of textile, garment and footwear from Vietnam, up from 3.4 per cent in 2010. It also began to import electronics from Vietnam after it increased its imported electronics dependency considerably to 9 per cent in 2021.

As for Vietnam’s goods tariffs, Chua believes the country will receive moderate benefit from RCEP due to its high trade openness, despite existing bilateral trade agreements and already very low tariffs for intra-RCEP trade.

Should Vietnamese firms gain access to cheaper inputs and adapt to increased competition, Chua sees their participation in RCEP resulting in opportunities to raise their exports and be more active in regional value chains, despite the share of Vietnamese companies exporting products overseas trending lower to 27 per cent.