Today, Vietnam has become a member of several economic as well as strategic alliances. This includes being a signatory to 15 free trade agreements via trading blocs and individual agreements. Moreover, through greater participation in regional and international institutions and agreements such as the Asia-Pacific Economic Cooperation (APEC ) forum, the Association of Southeast Asian Nations (ASEAN), and the World Trade Organisation (WTO), Vietnam is now one of the fastest-growing economies and continues to remain resilient even during the pandemic. It is poised to receive a further boost from upcoming alliances with its high-income East Asian counterparts like China and Japan. At such a juncture in its economic history, its membership in the Regional Comprehensive Economic Partnership (RCEP) agreement is of crucial importance.
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What is the RCEP agreement?
Signed at a virtual ASEAN Summit hosted by Vietnam in November 2019, the Regional Comprehensive Economic Partnership (RCEP) is a pact between the member states of the Association of Southeast Asian Nations (ASEAN) and its free trade agreement (FTA) partners comprising China, Japan, South Korea, Australia, and New Zealand. The agreement includes negotiations focused on areas such as trade in goods and services, intellectual property, investment, dispute settlement, e-commerce, small and medium enterprises, and economic cooperation. In the coming years, such a partnership will progressively permit lower tariffs across different regions thereby allowing open and fair multilateral trading. RCEP is a historical breakthrough as it foresees the creation of an economic epicenter that has brought the rival East Asian powers China, Japan, and South Korea onto a common platform.
Moreover, the treaty is also an endeavor to contribute to the expedition in the post-pandemic economic recovery as it takes into account 30% of the global economy, 30% of the global population, and reaches 2.2 billion consumers, according to a report by Reuters.
Why is it important to the region?
Besides providing an organizational framework for trade to flourish in the East Asian region without any hindrances, RCEP reduces the dependence of its member states on overseas markets and technology. Having the largest share of global GDP, trade volume, FDI, and population, this non-binding treaty will transform the region into a powerful trade bloc, and a manufacturing hub, thus creating opportunities for new markets to open. Increased interdependence infused with a sense of economic integration would yield economic security as a significant payoff. During these unprecedented times, the RCEP agreement is of strategic significance offering powerful pushback to several threats that loom over multilateral arrangements. Since the institutional practices of ASEAN are to a certain extent aligned with RCEP, it will also help in bolstering political trust and aid in resolving geopolitical conflicts. This will eventually reduce global poverty, especially in lower-income countries thereby encouraging economic cooperation and sustainable development.
Vietnam’s participation in RCEP?
Since the implementation of RCEP, there has been a surge in trade and investment opportunities. Vietnamese enterprises are taking giant leaps to tap into the market potential. For instance, the most favorable change has been the simplification of export procedures as the exporters do not need a hard copy of the Certificate of Origin(CO), instead, they can procure it digitally, a time-efficient as well as effort saving method.
Apart from lucrative tariffs, business owners have more appealing incentives which decrease the selling prices of the products. For instance, goods from countries like Vietnam can be bought at a cheaper price for the customers in China. Knowing that there is a reasonable demand for fresh fruits in the Chinese market, Vietnamese enterprises would export more fresh and processed fruits to China, especially after RCEP was ratified eventually leading to a spike in its export turnover, an average of 30% each year.
Vietnam, one of the biggest winners of RCEP
Vietnam emerges as one of the biggest beneficiaries of RCEP. According to the baseline evaluation constructed by the World Bank, there is an incredible hike in the real income in Vietnam, a projected growth of more than 112% between the years 2020 and 2035 as a result of trade within the RCEP network, according to Vietnamplus. The metrics of baseline involved mapping regular and RCEP tariff schedules. The tariffs imposed by Vietnam have reduced from 0.8% to 0.2% whereas the ones faced by it have gone down from 0.6% to 0.1%. This type of concession in tariffs indicates the win-win consequences of RCEP for Vietnam.
What does RCEP mean for Vietnamese businesses?
In order to benefit from RCEP, the largest business companies in the Asia-Pacific region will have to create a vast ecosystem to offer a wide range of products and services to consumers across borders. The three key players to benefit from the pact are as follows:
i) FinTech: As per the agreement, the member nations will completely open at least 65% of the services sector and safeguard transparency of regulations. Such changes will encourage cost savings in technical and regulatory processes and facilitate easier transnational market entry and expansion for FinTech players in the region.
ii) MSME : Micro, Small & Medium Enterprises, which have not been able to ameliorate their condition in spite of ASEAN’s developmental policies and various other FTAs, can certainly look forward to gain immensely from RCEP agreement as it involves a perfect blend of high-income economies with a mature investor base, as well as upper-middle-income and lower-middle-income economies offering a synergistic ecosystem for MSMEs to prosper.
iii) Internet economy and payment: According to a report conducted by the European Parliament, as a large population of the country uses the internet, cashless transactions using digital payment could boost the low-income country’s light manufacturing products output especially when there isn’t any customs duty imposed on electronic transactions as mandated by RCEP.