GROUP 7’s REPORT topic VIETNAM JAPAN ECONOMIC PARTNERSHIP AGREEMENT (VJEPA)

UNIVERSITY OF ECONOMICS THE UNIVERSITY OF DA NANG … … INTERNATIONAL ECONOMICS GROUP 7’S REPORT Topic: VIETNAM JAPAN ECONOMIC PARTNERSHIPAGREEMENT (VJEPA) Members : Trần Thị Phương Thảo Lê Nguyễn Phương Uyên Trương Thái Vy Nguyễn Khánh Trang Dương Kim Ánh Class : 46K01.2 Da Nang, 2021 TIEU LUAN MOI download : skknchat@gmail.com Table of Contents i) Overview of the Agreement: History, context, timeline of formation: (1) History and context of VJEP Agreement: (2) Timeline of VJEPA formation: ii) Summary of content, commitments in the agreement, and incentives that Vietnam receives: (1) Summary of content: (2) Commitments in the agreement: (3) Incentives that Vietnam receives: iii) Impacts of the agreement on trade flows between Vietnam and Japan .9 Impacts of the agreement on the capital and labour flow between Vietnam and Japan 12 (1) Japanese commitment on accessing Vietnam labor 12 (2) Attractive ways to reduce taxes between countries: 13 (3) Major benefits of Vietnam's tax reduction commitment 14 iv) v) Opportunities and challenges for Vietnam at the time of signing the VJEPA agreement: 15 (1) Opportunities: 15 (2) Challenges: 16 TIEU LUAN MOI download : skknchat@gmail.com i) Overview of the Agreement: History, context, timeline of formation: (1) History and context of VJEP Agreement: In 2005, Vietnam and Japan intended to establish this agreement Two countries started to hold agreement talks from January of 2007 when Vietnam’s membership of the World Trade Organization After nine times holding official negotiations and many unofficially parleys, two parties came to terms with all fundamentals and officially signed on 25th of December, 2008 (2) - Timeline of VJEPA formation: December of 2005: At the senior meeting Vietnam - Japan in the East Asia Summit, two parties set up a committee for establishing an economic partnership agreement between two countries - February of 2006: The mentioned committee had the first session in Ha Noi - April of 2006: The mentioned committee had the second session in Tokyo - January of 2007: In the first formal negotiation, two countries started to bargain about the contexts of agreement - September of 2008: In the ninth formal negotiation, two countries finished negotiating about the principle of agreement - 25 December of 2008: The signing ceremony of the Agreement was organized in Tokyo between the Ministry of Industry and Trade (Vietnam) Vu Huy Hoang and the Ministry of Foreign Affairs (Japan) Nakasone Hirofumi Agreement must wait for the National Assembly of both countries approving which will take effect.[CITATION Hie \l 1033 ] TIEU LUAN MOI download : skknchat@gmail.com ii)Summary of content, commitments in the agreement, and incentives that Vietnam receives: (1) Summary of content: VJEPA is a comprehensive bilateral agreement between Vietnam and Japan covering many areas such as commercialization, trade in services, investment, business environment improvement, labor transfer, and technical cooperation standard art The Agreement consists of 14 chapters and 129 articles It Includes possible terms about general Provisions, Trade in Goods, Rules of Origin, Customs Procedures, Sanitary and Phytosanitary Measures, Technical Regulations, Standards, and Conformity Assessment Procedures Trade in Services, Movement of Natural Persons, Intellectual Property, Competition, Improvement of the Business Environment, Cooperation, Dispute Settlement and Final Provisions However, because this is a comprehensive economic partnership agreement, not merely a free trade agreement, in addition to goods, services will also be liberalized Investments from one country in another will be protected And there are many other economic cooperation contents (2) Commitments in the agreement: Japan: Japan is committed to reducing taxes on Vietnamese goods in many categories, items, as well as specific reductions, have been presented more clearly in the detailed report According to the commitment of the Japanese side, the average tax rate on Vietnamese goods imported into Japan will be reduced to 2.8% in 2018 Japan TIEU LUAN MOI download : skknchat@gmail.com promised to decrease the tax rate for 95% of total tariff lines, thousands of which will be reduced to 0% If the Agreement is signed and comes into force, at least 86% of Vietnam's agricultural, forestry, and fishery products and 97% of industrial goods exported to Japan will enjoy tax incentive Mineral products will enjoy an import tax of 0% immediately from the date of entry into force of the agreement Shrimp products will be reduced import tax to 1%-2% immediately, processed shrimp products will be reduced to 3.2%-5.3% immediately, frozen squid products will be reduced to 3.5% within years In addition to the commitments under the WTO, the two sides agree to receive business guests and receive nurses if they meet all the conditions required by the law of the receiving country for years and can be extended In addition, Japan also accepts: Provide an ODA loan with the preferential interest rate for Vietnam to train 200-300 Vietnamese nurses in Japan every year and allow nurses trained in Japan to work long-term (up to years) in Japan; Support to build a system of skills assessment for Vietnam, including nursing and midwifery professions; supporting the development of a certification system for nurses and midwives; Within year of signing the EPA, will resume negotiations on labor mobility with Vietnam to improve market access conditions for nurses, midwives, and other professions Thus, in the FTAs that Vietnam participates in, the labor commitments are mainly related to mode 4, moving natural persons (Mode 4) in trade in services The negotiation and level of commitment are generally based on commitments in the WTO with some minor additions The results achieved in the negotiations TIEU LUAN MOI download : skknchat@gmail.com on labor mobility, in general, are still very modest, and the implementation of the commitments that have been achieved still has many challenges ahead Vietnam: - Commitments in tax: Similar to Japan, Vietnam also committed to reducing tariff barriers for Japanese goods in each specific category: The average tax rate on Japanese goods imported into Vietnam will gradually decrease to 7% in 2018 About 88% of the total tax lines imported from Japan into Vietnam will be reduced within 10 years and 93% of the total tariff lines will be reduced within 16 years… Components for the production of flat screens and DVDs will be reduced to 3% import tax within years, digital cameras will be reduced to 10% within years, color televisions will be reduced to 40% within years Import tax rates from Japan to Vietnam for auto parts such as gearboxes will be reduced to 10%-20% within 10 years be reduced to 3%-12% and break to 10% within 10-15 years, screws will be reduced to 5% within years Sheet steel products are also subject to a reduction in import tax rates to 0%-15% within 15 years - Commitments in service trade: In general, the level of detailed commitments Vietnam made in the VJEPA is almost no different from the commitments to join the WTO There is only a difference in the general provisions on service chapters in the whole VJEPA, in which it is worth noting that there are some new points related to definitions and levels of competition protection Several important services, which have a large impact on the economy, are committed with varying degrees of ventilation Notable service subsectors include information services (including express delivery services, TIEU LUAN MOI download : skknchat@gmail.com telecommunications services, audio-visual services); construction services, education, environment; financial services (including insurance, banking, and securities services); medical services, tourism, and transportation However, because this is a comprehensive economic partnership agreement, not merely a free trade agreement, in addition to goods, services will also be liberalized Investments from one country to another are going to be protected And there are many other economic cooperation contents between the two countries in the future (3) Incentives that Vietnam receives: Tax benefits: This is the most transparent and important content in the implementation treaty, whereby, when the agreement comes into force, Japan commits to eliminate tariffs on 88.05% of Vietnam's export turnover of goods to the Japanese market and 7,297 tax lines, using 80.08% of the number of lines tax, consists of: - Preferential tax and tax reduction roadmap for agricultural products: the number of tax lines in Japan is 2020 As soon as the VJEPA comes into effect, 783 tax lines have a tax rate of 0%; the Tax 505 line will have a drop per year, currently accounting for about 24% of export turnover to Japan The roadmap can last from to 15 years depending on the product group - Preferential tax and tax reduction roadmap for seafood products: Japan's seafood products include 330 tax lines Japan committed to cut taxes within 10-15 years for 188 lines Out of 330 tax lines on aquatic products, there are 64 tax lines with commitments to reduce the tax to 0% as soon as the Agreement comes into effect There are fishery tax lines with a 3-year tax TIEU LUAN MOI download : skknchat@gmail.com reduction schedule, accounting for 8% of Vietnam's seafood export turnover, and 96 seafood tax lines with different tax reduction routes, from 5-10 years - Preferential taxes and tax reduction roadmap for industrial products: Japan does not enforce a tariff protection policy for most industrial products The average tax rate in this field is less than 5%, that is, the tax is only "collective and offsets" for control and administrative activities of the customs authority and this tax is considered as a meaningless tax effective protection About 95% of industrial goods tax lines, accounting for nearly 95% of Vietnam's industrial goods export turnover to Japan, will enjoy a preferential import tax rate of 0% If including products that will reduce and eliminate taxes in the 10-year roadmap, this figure is 97% of the tax lines and 98% of the export value of our country will enjoy a preferential import tax of 0% Other Incentives besides tariff ones: - Trade in services: Japan gives Vietnam a very open commitment in the service sector, going much further than Japan's commitments in the WTO In the majority of service industries/subsectors, Vietnamese service providers enjoy an “unrestricted” commitment; - Investment incentives: Japan encourages and protects the investment activities of Vietnamese enterprises in the Japanese market, equally and fairly, and fully protects the interests of investors Japan is committed to increasing transparency, striving to improve the business environment in accordance with Japanese laws and regulations to make it easier for Vietnamese investors to invest in Japan TIEU LUAN MOI download : skknchat@gmail.com iii) Impacts of the agreement on trade flows between Vietnam and Japan Values of two-way trade between Japan and Vietnam were twice as much as that before signing the agreement (25.3% in 2013 versus 13.8 % in 2009) Two-way trade between Vietnam and Japan Export volumes from Vietnam in 2012 and in 2013 to Japan were doubled compared to those years before the agreement, Vietnam’s trade balance was improved [ CITATION tra14 \l 1033 ] Import and export turnover and trade balance between Vietnam and Japan TIEU LUAN MOI download : skknchat@gmail.com Japan became one of the most important and potential partners of the Vietnamese market at that time, as the trade values between the two countries ranked 4th among the markets from which Vietnam imported products and to which Vietnam exported products - In detail, the import volumes ranked 2nd and the export volumes ranked 3rd Because the import tariff was reduced, the prices of imported products fell which led to the decrease of the cost of export products Therefore, the export competitiveness of Vietnamese products went up Moreover, as Japan also cut out on its import tariff, there was an increase in import volumes applied to Japan There was also a jump in the import volumes of Japanese products in Vietnam owing to the fact that Vietnam had cut out on its import tariff The import and export turnover change in Vietnam On the other hand, there were drops in Vietnamese imports turnover in short terms However, when the market’s condition improved, import volumes TIEU LUAN MOI download : skknchat@gmail.com increased and continued to rise in the long term In contrast, export volumes rose sharply at first but started to decline in the long term As a result, the trade balance will be lost in the long term As being affected by cutting out on import tariffs between Vietnam and Japan, there were significant changes in the turnover of exported and imported products Vietnamese exported products were mainly leather, raw oil, equipment and accessories whereas the export turnover of the fields that Vietnam was famous for such as forestry and clothing surprisingly decreased [CITATION Man20 \l 1033 ] Ratings of changing export turnover of some careers in long term iv) Impacts of the agreement on the capital and labor flow between Vietnam and Japan (1) Japanese commitment on accessing Vietnam labor Receiving Vietnamese workers is very important in the VJEPA agreement According to the agreement, a labor group consisting of highly qualified engineers and lawyers will not be restricted in terms of recruitment, as long as TIEU LUAN MOI download : skknchat@gmail.com they have contracts with businesses and companies in Japan, they can work In addition, this group of workers must meet the minimum criteria set forth in Japanese law The Agreement also agrees that the group of workers who are nurses and aides of Vietnam must meet the following two conditions to be able to work in Japan: - Vietnamese nurses and aides must sign contracts with medical facilities in Japan - Must have a practicing certificate in Japan to be able to work here If those conditions are met, the group of Vietnamese nurses and aides will be licensed to work in Japan for to years and will be extended for up to years With high requirements and being able to work for a long time in Japan, this group of workers is required to have expertise and extensive experience That shows that, Vietnamese nurses and midwives have to study and practice for a long time at Japanese schools and training institutes With current costs and conditions, Vietnam can hardly meet these two requirements Understanding that difficulty, Japan committed in the VJEPA that: - Every year, there will be 200 to 300 students in Vietnam who want to study nurses and midwives will be supported by an ODA program with low interest from Japan to have more opportunities to study and work according to their dreams - Japan will study carefully and thoroughly the quality of training for nurses and aides in Vietnam, and recognize the certificates granted by our country as a basis that can be directly accepted in Japan From there, Japan will support building a certification system for this group of workers TIEU LUAN MOI download : skknchat@gmail.com - Japan will ease labor movement with Vietnam to improve conditions for nurses and midwives to have the opportunity to access new conditions and knowledge of the Japanese market within year from the date of signing Agreement.[ CITATION tra14 \l 1033 ] (2) Attractive ways to reduce taxes between countries: As we all know, if Vietnam wants to penetrate the Japanese market, it needs to pay many different taxes There are many high taxes that have become barriers that prevent our country from integrating with Japan Therefore, Japan has offered a lot of tax incentives for the agricultural industry, creating opportunities for business and development between the two countries (3) Major benefits of Vietnam's tax reduction commitment In the VJEPA Agreement, Vietnam has committed to reduce 8,873/9,390 tax lines for Japan Such a tax reduction will stimulate investment from Japan; besides, our country can reduce capital inflows while still meeting development needs and fulfilling the requirements of the Agreement Japan also offers attractive agricultural tax reductions, creating opportunities for our country to invest in agriculture in Japan In fact, the VJEPA Agreement has brought a lot of excitement to businesses of both countries thanks to tax incentives Mr Huynh Khanh Hiep, deputy director of Ho Chi Minh City Department of Industry and Trade, said that there are 2568 taxes on pharmaceuticals, machinery, etc., which is 0% of our country's tax for Japan Thanks to this, Japan can invest in factories and industrial parks, and open up the flow of FDI into Vietnam From there, our country can experience new and modern production methods right at home TIEU LUAN MOI download : skknchat@gmail.com Pursuant to Article 111 of the VJEPA: Japan and Vietnam will strengthen cooperation in order to liberalize and facilitate trade and investment facilitation between the two countries Areas that are encouraged to cooperate include: (a) agriculture, forestry and fishery; (b) promote trade and investment; (c) small and medium enterprises; (d) human resource management and development; (e) tourism; (f) information technology and telecommunications; (g) environment; (h) transportation; (i) other fields as mutually agreed upon by the two Parties This will more or less create the advantage of creating more jobs, reducing unemployment and reducing the amount of capital needed v) Opportunities and challenges for Vietnam at the time of signing the VJEPA agreement: (1) Opportunities: Signing VJEPA facilitates Vietnam’s agricultural export to Japan’s market According to tax classifications of Japan in 2007 (HS 2007), there were 2020 tariff lines of agricultural products Right after VJEPA comes into force, 783 tariff lines out of 2020 ones will be eliminated to 0%; 505 tariff lines which account for approximately 24% of export turnover to Japan will have the TIEU LUAN MOI download : skknchat@gmail.com roadmap of tariff reduction by years of implementation of the Agreement The roadmap may last from to 15 years by product sector In particular, Japan also commits to zero rate tariffs either immediately or within a 10-year phase in period on 23 of 30 highest value good exports of Vietnam, of which most important agricultural commodities include honey, ginger, durian, coffee and green tea and so on One of the most special commitments to the agriculture sector is about honey - a significant advantage of Vietnam Japan agreed to set tariff quotas on honey products, which is an exclusive agreement to Vietnam According to this commitment, 100 tons of honey can enjoy the tax incentives at 12,8% annually that is much lower than 25,5% of MFN tariffs The amount of money eligible for preferential tariff quotas will gradually increase to 150 tons [CITATION tra14 \l 1033 ] Moreover, Vietnam’s exports of fish and fish products can derive substantial benefits from tax incentives committed by Japan in the VJEPA To illustrate, fishery products of Japan comprise 330 tariff lines and Japan commits to cutting down duty rate of 188 tariff lines in the period of 10 to 15 years 64 tariff lines will be particularly eliminated to 0% right after the Agreement takes effect Although except for 28 commodities with MFN tax rate at 0% and items with GSP tax rate at 0%, there are 28 items exported to Japan at zero duty rate, these 28 tariff lines of fishery products play a pivotal role in terms of trade to domestic seafood export businesses[ CITATION tra14 \l 1033 ] Export value of these 28 seafood items remarkably makes up 71% of Vietnam’s export turnover to Japan, especially shrimps, processed shrimps and crabs In other words, enterprises in the aquaculture industry can make full use of this preferential treatment to develop their own companies and achieve Vietnam’ export growth target TIEU LUAN MOI download : skknchat@gmail.com Last but not least, the VJEPA agreement helps organizations of the two countries access capital resources, technologies, materials and other products effectively It is the fact that Japan is one of Asian industrial powerhouses and that’s why through economic cooperation between two nations, Vietnam can not only learn a colossal amount of knowledge and experiences about how to make breakthrough improvements in economy and scientific research but domestic companies can transform their manufacturing systems (2) Challenges: Given that the VJEPA Agreement is going to create more opportunities for Vietnamese exporters, it might not simply promise any great chance in penetrating Japan's market Japan is widely known as a demanding market with many strict requirements on rules of origin, food safety and hygiene, which constitute formidable challenges for Vietnamese export companies While most Vietnamese businesses abide by international rules and standards, Japanese Industrial Standards (JIS) have many differences from these rules, which makes it harder for Vietnamese firms to fulfill JIS's demands Production costs of commodities exported to Japan are also higher for two main causes The first rationale is that Japanese consumers in general have higher expectations about the product's quality, durability and post-sale services The other reason is Japan's greater requirements in production stages, including design, technique, preservation and transportation Finally, the distribution system in Japan is complex In fact, items are transported through intermediate parties before reaching final consumers, so their prices are often beyond the imported prices As a result, Japanese enterprises are besieged to satisfy the importer's requirements that push most of the merchandise costs higher [ CITATION IBi \l 1033 ] TIEU LUAN MOI download : skknchat@gmail.com Finally, Vietnamese enterprises haven't taken full advantage of the VJEPA Agreement The major reason is that Vietnamese organizations, especially small and medium companies still have not got a good grasp of information and knowledge about doing business with the Japanese and thus, they still struggle to approach and study Japan's market References Hiep dinh doi tac kinh te Viet Nam - Nhat Ban (n.d.) Retrieved from Wikipedia: https://vi.wikipedia.org/wiki/Hi%E1%BB%87p_%C4%91%E1%BB %8Bnh_%C4%91%E1%BB%91i_t%C3%A1c_kinh_t%E1%BA%BF_Vi %E1%BB%87t_Nam_-_Nh%E1%BA%ADt_B%E1%BA%A3n Manh Toan Nguyen, T D (2020, April 4) Effects of Viet Nam - Japan Economic Partnership Agreement on Vietnam' Economy Viet Nam Science and Technology Magazine, pp 12-17 Ministry of industry and trade (2014) Nhung dieu doanh nghiep can biet ve hiep dinh doi tac kinh te Viet Nam - Nhat Ban Ha Noi: Hong Duc Vietnam - Japan FTA (n.d.) Retrieved from IBinVietnam: https://sites.google.com/view/ibinvietnam/ftas-in-vietnam/vietnam-japan-fta TIEU LUAN MOI download : skknchat@gmail.com TIEU LUAN MOI download : skknchat@gmail.com ... between Vietnam and Japan (1) Japanese commitment on accessing Vietnam labor Receiving Vietnamese workers is very important in the VJEPA agreement According to the agreement, a labor group consisting... iii) Impacts of the agreement on trade flows between Vietnam and Japan .9 Impacts of the agreement on the capital and labour flow between Vietnam and Japan 12 (1) Japanese commitment... Viet Nam - Nhat Ban Ha Noi: Hong Duc Vietnam - Japan FTA (n.d.) Retrieved from IBinVietnam: https://sites.google.com/view/ibinvietnam/ftas-in -vietnam/ vietnam -japan- fta TIEU LUAN MOI download :