Taking advantage of FTA and Incoterms 2010 An opportunity to develop Vietnam’s import-export and logistics

According to the Ministry of Industry and Commerce, Vietnam has joined 8 Free Trade Agreements (FTA) both bilateral and multilateral. And 6 other FTA’s are under negotiation, especially the Trans Pacific Partnership Agreement (TPP) will be signed at the end of 2013 and the Regional Comprehensive Economic Partnership-RCEP is scheduled to be signed in 2015. If Vietnam fully implements all agreements signed from now up to 2018, Vietnam GDP will have 3 percentage points of GDP increase, and pure profit reaches USD 2.4 billion/year!

However, a prime target that the agreements are aiming to is to liberalize trade and import-export and to facilitate business activities.

It is obvious that most of Vietnam’s import-export enterprises have had a comprehensive vision of the supply chain in order to be active and take advantages of tax incentives, and material origins, time or places of distribution, or to be more active in the process of negotiation for trading method, transport and logistics right. Therefore, taking advantages of FTA is an opportunity to develop import-export and logistics services. Actually, there is a constraint to take advantage of FTA with the use of Incoterms 2010, but this is a best practice to Vietnam’s import-export enterprises and logistics services providers.

FTA: A PUSH TO IMPORT-EXPORT AND LOGISTICS

Ten ASEAN member countries, including Vietnam, are making an effort to build ASEAN Economic Community at the end of 2015. Besides, Vietnam has joined and been implemented Free Trade Agreements with China, Korea, Japan, Australia, New Zealand and India – ASEAN+1 partner countries. These efforts are expected to bring good opportunities to Vietnam’s import-export and investments.

With FTA agreements, most of Vietnam’s imported-exported goods have been enjoyed and will enjoy an incentive import tax of 0%. In 2006-2012, the average export growth of Vietnam to ASEAN+1 countries was over 20%, which is higher than general export growth (around 15%) and higher than the import growth in the same period. Thanks to effects from FTA, there have been a wider range of exported goods to partner countries as ASEAN, India, and Japan. In general, most of main exported goods from Vietnam are eligible to benefit from AEC and FTA ASEAN+’s

Vietnam’s enterprises have been more active in taking advantage of tax incentives from the issuing of Certificate of Origins (C/O) – the most important document in import-export file to guarantee incentive rights in FTA’s. The rate of goods that enjoy incentives from Vietnam has been higher than those of regional partners’ and is always likely to increase over years with orders of increasing value. For example, to Korea, over 90% of Vietnam’s exported goods has enjoyed tax incentives by FTA ASEAn-Korea. In 2012, export to some countries with FTA had a remarkable increase, among which, export to ASEAN region increased around 27.2%, to Japan increased 39%, to Korea increased 18%, making total export reach USD 53.5 billion. It is estimated that export from FTA markets will be much larger, which accounts for 86% total export of the country, when negotiations of TPP and FTA with EU finish.

AEC and ASEAN+ agreements also help stabilize import sources and lower import input price. Due to the fact that import normally accounts for 80% Vietnam’s GDP, stabilizing import sources and lowering import input price is of importance in maintaining economic growth in general and import-export growth in particular.

To reach a target of 2013 – export reaches USD 126.1 billion (increasing 10% compared to that of 2012) in the difficult economic situation, taking advantage of tax incentives by FTAs between Vietnam and other countries is considered one of effective ways to help enterprises increase export to markets.

It is obvious that making good use of FTA’s incentives is an opportunity not only for import-export businesses but also for Vietnam logistics providers.

COMBINING FTA AND INCOTERMS 2010: INCREASING COMPETITIVE ADVANTAGES TO IMPORT-EXPORT AND LOGISTICS ENTERPRISES

Incoterms 2010 is a set of international trade regulation recognized and used worldwide. It was established 75 years ago and has been modified 5 times. It is also considered criterions to create trade advantages worldwide.

The combination Incoterms 2010 to the progress of taking advantage from FTAs will be the best practice in the current time. Effects from combining the good use of FTAs and Incoterms 2010 to the negotiation of foreign trade contracts will double, and Incoterms 2010 itself is necessary guidance in risk management, goods and services cost cut, and increasing competition advantages in supply chains of import-export enterprises.

To logistics service provider, an active choice of trade methods according to Incoterms 2010 of import-export enterprises will be premises and opportunities to approach and provide transport-logistics services that import-export enterprises expect with the target of “right cost, right place and right time”, which is different from previous selling and buying methods (buying in CIF, and selling in FOB) and which is also different from practices of assigning everything to partners, and not checking transport outsourcing progress which sometimes cause damages, risks or increase cost to import-export enterprises.

Actually the practice of buying in CIF and selling in FOB of Vietnam’s import-export enterprises has last for a long time despite warnings of decreasing import-export of the country, and losing jobs in some sectors as sea transport, insurance…

There have been some signals of change but they are not so obvious. The use of Incoterms 2012 should be combined with the professional wish of thriving from import-export enterprises and should be put in a free trade environment with many commercial advantages but no less harsh competition in regional and worldwide scale. The combination of making good use of FTA and choosing Incoterms 2010 to gain transport-logistics right to import-export enterprises and logistics providers is also a wise practice.

WHAT TO DO TO MAKE GOOD USE OF FTAS’ INCENTIVES AND INCOTERMS 2010’S EFFECTS

The time to establish AEC and to complete FTA agreements is coming near. There are ideas that Vietnam’s enterprises do not fully understand FTA so they have difficulties in applying FTA. And they have not been fully updated about annual tax-cutting commitments from FTA’s partners to Vietnam. Besides, most enterprises have not been fully updated about technical barriers and animals and plants inspection. Or they have not been carefully study rules of origin, tax cut before making business plans or they have had vague understanding about Incoterms 2010 and supply chains or they have lacked opportunities to be consulted by transport enterprises, logistics service providers, banks or insurance agencies…

There should be some solutions:

Import-export enterprises should improve abilities of sales, marketing, branding and customer services…, understand clearly their own supply chains with more attention to logistics managements, control outsourcing and logistics-transport, and make good use of Incoterms 2010 in trade contracts.

Import-export enterprises should be more active in catching opportunities and overcoming challenges from FTA, study carefully rules of origin, tax-cut level and technical barriers for effective trade contract negotiation. Small-sized import-export enterprises of the same business type with trustful relationship should cooperate in trade exchanges, or gather capital for carrying out affairs of “buying in FOB, selling in CIF” (that is, changing traditional practice to another method in accordance to Incoterms 2010 for active logistics management and reducing risks).

Vietnam enterprises of sea transport and logistics services (including those of insurance and banking…) should gather and side with import-export ones, provide them with best and trustful solutions, guarantee an effective supply chains, improve competitive features of Vietnam’s goods and services. There should be improvements of foreign language, knowledge or international trade and professional skills to effectively assist import-export enterprises in the process of “buying in FOB and selling in CIF”. This is an important step of preparation to consolidate and increase market shares of logistics and sea-transport to Vietnam imported-exported goods when implementing bilateral and multilateral FTAs and implementing the door-open of the market in accordance to WTO commitments in 2014.

The Government, Ministries and Sectors should study policies that create trade and logistics advantages for enterprises (import-export procedures, C/O, customs, trans-border transport, tax incentives…). For example, there have been some action plans implementing import-export strategy in 2011-2020 , with orientation to 2030 or project of improving market share ability for Vietnam sea transport enterprises…

The government, Vietnam Chamber of Commerce and Industry (VCCI) and associations should inform widely FTA contents, both of negotiation process and of current TPP, RCEP agreements.

Every matter is two-sided. Besides advantages from FTA incentives, we will have to face with challenges and technical barriers from FTAs. Choosing incentives with tax advantages in FTA agreements and making good use of Incoterms 2010 is the key to Vietnam’s import-export in current time, increasing competitive feature of Vietnam supply chain and contributing to the development of import-export and logistics and pushing them to a new height.