the influence of eu vietnam free trade agreement (evfta) on vietnam’s electronics industry what is the right direction for enterprises

UEH UNIVERSITY COLLEGE OF BUSINESS DEPARTMENT OF INTERNATIONAL BUSINESS AND MARKETING ASSIGNMENT SUBJECT: INTERNATIONAL BUSINESS The influence of EU-Vietnam Free Trade Agreement (EVFTA) on Vietnam’s electronics industry What is the right direction for enterprises? NGUYỄN THÚY NGA – KM002 – 31201022059 Abstract: Vietnam’s electronics industry (EI) is one of the fastest-growing and most crucial industries in Vietnam The EU and Vietnam signed a Free Trade Agreement in June 2019 have opened up many opportunities for enterprises to export goods, especially the electronics industry This study focuses on analyzing the positives and challenges of UVFTA in Vietnam's electronics industry using a theoretical framework in international trade policy and data sources produced by GSO, GDS, and others Based on the findings, this study gives some recommendations for Vietnam to make good use of the benefits to promote exports to the EU in the new post-covid-19 period Keywords: Vietnam’s electronics industry, UVFTA, opportunities, challenges 1 The meaning of the research With the explosion of free trade, trade protectionism is also growing gradually Countries use non-tariff barriers to restrict imported goods to protect domestic industry and the economy One of the most commonly – used is the technical barrier, which is said to be very useful Also, Viet Nam is not an exception when exporting textiles and garments to Japan Therefore, the study will show the influence of technical barriers on Vietnam's textile and garments export turnover and give some recommendations that help Vietnam's textile and garments production adapt to strict standards of the Japanese market so that its export turnover can increase sustainably Theoretical framework, trade policy, barriers after EVFTA integration, and the importance of the electronics industry Trade policy is known as a collection of rules and regulations which pertain to trade Things like import and export taxes, tariffs, inspection regulations, and quotas can all be part of a nation's trade policy The EU-Vietnam Free Trade Agreement (EVFTA) is a free trade agreement between Vietnam and the 27 EU member states EVFTA, along with the Trans-Pacific Partnership (TP) Agreement, are two FTAs with the widest range of commitments and the highest level of commitment of Vietnam The main target of EVFTA is to increase opportunities trade for bussinesses by eliminating barriers to trade, such as Tariffs, Quotas, Voluntary Export Restraints (VERs) and by ensuring fair competition For example, after the official entry into force of the free trade agreement, approximately 65 percent of EU exports to Vietnam and around 70 percent of EU imports from Vietnam will be exempted from customs duty immediately Vietnam’s electronics industry has climbed the rank from a modest 47 th place in 2001 to 12th place in 2019 Especially, mobile phone exports were ranked second worldwide, with a value of over US$50 billion in 2019 Therefore, it is very necessary to focus on research to promote the total export turnover of this strategic industry The fluctuation and integration barriers of Vietnam’s electronics industry – Industry analysis 3.1 Overview of the electronics industry in Vietnam The electronics industry is a manufacturing industry with a strategic position in the economy and has a strong spillover effect on other industries Vietnam's computer and electronic industry accounts for 17.8% of the entire industry, mainly manufacturing products such as phones, tablets, motherboards, monitors, televisions, cameras, etc office equipment and optical products… In the 2016-2020 period, Vietnam's electronics industry focused on developing basic electrical and electronic components, printed circuit boards, and microelectronic circuits for mobile phones and electronic devices… In the period of 2020 - 2025, priority will be given to the development of products in such fields as automatic equipment, computers and phones After 2025, priority will be given to software development, digital content, information technology services and medical electronics In the 2016-2020 period, the export turnover of computers, electronic products and components continuously achieved a high growth rate The growth rates in turn are: in 2016 by 21.5%; in 2017 increased by 38.6%; in 2018 increased by 12.5%; in 2019 increased by 22.8%; in 2020 increase 22.8% The average growth rate of the whole period 2016 - 2020 increased by 23.8%, the production index in this period of the electronics, computer, electronic products and components industries reached a higher level than other manufacturing industries at an increase of 13,9% In particular, 2017 reached the highest growth rate of 35.2% Since the second quarter of 2020, the electronics manufacturing sector has been affected by the Covid-19 pandemic due to reduced customer demand in key markets, interrupted supply and export orders were postponed or canceled, but the manufacturing index of the electronic component manufacturing industry in 2020 grew at 6.8% compared to 2019 According to the assessment of the Ministry of Industry and Trade, the group of computers, electronic products and components of Vietnam has well exploited traditional markets and developed new markets Vietnam exports computer products and electronic components to over 100 markets around the world Exporting computer products and electronic components is mainly to the markets of China, the US, ASEAN, Japan, Korea and is exporting strongly to the EU market including the Netherlands, Germany, the Czech Republic, Poland, Finland Notably, exports increased sharply to other EU member countries such as Hungary, Poland, the Czech Republic and Slovakia In particular, focusing on and creating a breakthrough to expand new and potential export markets in Africa, Latin America, the Middle East and India 3.2 The fluctuations in the period of development of EI and the impact of the international trade policy in the EU market Period 2016 – 2019 The export value of this commodity group in December 2016 reached more than 1.86 billion USD, down 1.1% compared to the previous month Thereby, bringing the export turnover of this commodity group in 2016 to USD 18.96 billion, up 21.5% over the previous year, equivalent to an increase of USD 3.35 billion China is the largest importer of this group of goods of Vietnam in the year with 4.1 billion USD, up 47.2%; followed by the EU with 3.73 billion USD, up 16.5%; to the US reached 2.89 billion USD, up 2.05%; to the Netherlands reached 1.75 billion USD, a sharp increase of 53.5% compared to the previous year In 2017, the total export turnover of the electronics industry in the EU market showed signs of increasing (up about 23.6% over the previous year) The main reason for the increase in export turnover to the EU market is the high increase in export value of a number of commodity groups such as computers, electronic products & components by 784 million USD; phones & accessories increased by 719 million USD; machinery, equipment, tools & spare parts increased by 575 million USD; footwear increased by USD 428 million; iron and steel increased by 296 million USD These commodity groups alone contributed 2.8 billion USD, accounting for 65% of the additional turnover of exports to the EU market this year In 2018, the main markets that imported computers, electronic products and components from Vietnam in 2018 were: China: US$8.36 billion, up 21.9%; EU market: USD 5.47 billion, up 18.6%; United States: 2.86 billion USD, down 16.7%… over the previous year In 2019, exports of computers, electronic products and components to China reached US$9.56 billion, up 13.8% over the previous year; to the US market reached 6.05 billion USD, a strong increase of 110.9%; to the EU market (28 countries) reached 5.06 billion USD, down 8.7%; to Hong Kong reached 3.03 billion USD, up 34.4%; to Korea reached 2.88 billion USD, equivalent to 14.7% increase From 2016 – 2018, the export value of electronics continued to increase, but it was still not the industry that accounts for a high proportion of the top key export industries of Vietnam Industries such as textiles, telephones and components still accounted for a higher proportion Vietnam's electronics export turnover to EU from 2016 to 2019 5.47 5.06 4.61 3.73 2016 2017 2018 2019 Source: https://www.customs.gov.vn Period 2020 – 2021 The EVFTA came into effect on August 1, 2020 Key aspects of the EVFTA are the dismantling of customs barriers and the facilitation of European-Vietnamese trade relations For example, after the official entry into force of the free trade agreement, approximately 65 percent of EU exports to Vietnam and around 70 percent of EU imports from Vietnam will be exempted from customs duty immediately The remaining customs obligations are to be abolished in perspective over a path of 10 years (99 percent duty exemption) and 15 years (99.8 percent duty exemption), with the exception of crude oil and coal In 2020, within months after the EVFTA comes into effect, the export turnover of goods to the EU27 market increased due to positive growth in exports of many items compared to before the EVFTA took effect In which, the export turnover of computers, electronic products and components in the months after the Agreement came into force increased by 47.4% over the same period in 2019, a stronger increase than the increase of 15.3 % in the first months of 2020 However, the increase was limited because many items had a decrease in export turnover or even stronger decline before the Agreement entered into force In which, the export turnover of consumer goods such as textiles, footwear, suitcases, bags, hats, umbrellas still decreased compared to the same period in 2019 The export of this group of goods decreased mainly due to consumer demand In the EU market decreased due to the impact of the Covid-19 epidemic Textile and garment exports tend to slow down, down only 7.2% in the months after the EVFTA comes into effect compared to a decrease of 15.3% in the first months of 2020 With the high growth rate and large turnover, electronics, computers and components have surpassed textile and garment to become the third - largest export group of Vietnam In months, from August to November 2020, the export turnover of Vietnam's goods to Germany increased mainly due to the export of machinery, equipment, tools and spare parts; computers, electronic products and components increased sharply, while the three largest exports were phones and components; footwear; textile and garment still decreased compared to the same period last year Therefore, along with high demand in the period of covid 19, the policies of the EVFTA have contributed to creating favorable conditions for the export electronics industry to increase rapidly Export value of textiles and electronics, computers and components in the period 2016 – 10/2021 2021 2016 2017 2018 2019 2020 (to Oct) Total export turnover 176 215 243 (billion USD) Textiles Electronics, computers and components 23.8 19.0 26.1 26.3 30.5 29.6 264 282.6 269.77 32.8 29.81 31.17 36.3 44.58 49.03 Source: www.gso.gov.vn Although the epidemic situation is still evolving, the export value of the electronics industry is still on the rise after the EVFTA came into effect Because Vietnam’s electronics industry is not affected by non-tariff barriers such as the "Yellow Card" issue like agricultural and fishery products, etc., it can be said that the development conditions of the electronics industry are quite favorable The proof is that in the 10 months of 2021, the export value of computers, electronic products & components in the month reached 4.22 billion USD, down 11.7% compared to the previous month, bringing the export value import of this commodity group in 10 months of 2021 to 40.85 billion USD, up 12.2% over the same period in 2020 In 10 months of 2021, the export of computers, electronic products and components to the EU market (27 countries) reached 5.27 billion USD, up 5.5% Export turnover of economics industry to the EU market (the first 10 months in 2021) 700 600 Million USD 500 400 300 200 100 10 Source: https://www.customs.gov.vn The EU is one of Vietnam's most important trading partners Therefore, thanks to the EVFTA Agreement, the two-way trade turnover between Vietnam and the EU has grown in a more sustainable direction, both in terms of quality and quantity, with both import and export achieving positive results Moreover, the EVFTA agreement also gives Vietnam the opportunity to reform institutions, make transparency, improve the investment-business environment and transform the structure of goods towards exporting valuable goods, high growth rate, creating a favorable investment environment for companies of both sides 3.3 Industry opportunities and challenges for Vietnam’s electronics industry in the short and long term 3.3.1 Opportunities In Asia, Vietnam is one of the few countries having a Trade Agreement with the EU (after Korea, Japan and Singapore) Therefore, the EU-Vietnam Free Trade Agreement (EVFTA) has opened up opportunities and special import-export advantages for Vietnamese goods Firstly, EVFTA ensures the economic security of Vietnam Overall, the EVFTA will contribute to diversifying markets so as not to be too dependent on one market, thereby helping to ensure Vietnam's economic security As a new generation FTA agreement, EVFTA is like a "Western Highway", connecting Vietnam to a large market space with leading potential in the world in terms of both finance, technology and markets The benefits come from the numbers that can be seen that as soon as this Agreement comes into force, Europe removes 85.6% of tariff lines, helping to increase competitiveness by 70.3% Vietnam's export turnover to this market, Vietnam removed 48.5%, equivalent to 64.5% of import turnover into our country, helping to reduce input costs for manufacturing industries, reducing the price of goods goods and services, opening a new flow of trade Secondly, EVFTA helps recover the Vietnamese economy From the end of 2019 until now, the Covid-19 pandemic has strongly impacted and affected the world’s socio-economic situation, including Vietnam Many economic experts also believe that economic growth in 2020 will not reach the set target In that context, the implementation of the EVFTA is of great significance, helping to offset the decline of the economy during the epidemic period From the business side, the EVFTA provides an opportunity for businesses to expand and diversify markets, regaining the post-epidemic growth momentum Research by the Ministry of Planning and Investment shows that the EVFTA helps Vietnam's export turnover to the EU increases by about 20% by 2020; 42.7% in 2025 and 44.37% in 2030 compared to no Agreement At the same time, import turnover from the EU also increased but at a lower rate than exports, specifically about 15.28% in 2020; 33.06% in 2025 and 36.7% in 2030 Macroscopically, EVFTA contributes to Vietnam's GDP increase by an average of 2.18% - 3.25% (in 2019 - 2023) ); 4.57% - 5.30% (2024 - 2028) and 7.07% - 7.72% (2029 - 2033) Besides, in terms of imports, Vietnamese enterprises will also benefit from the source of imported goods and materials with good and stable quality at a more reasonable price from the EU Thirdly, EVFTA affects Vietnamese employment, social security According to the Ministry of Planning and Investment, the EVFTA is expected to add about 146,000 jobs per year, focusing on labor-intensive industries with high export rates to the EU market However, some industries are affected by job reduction such as forestry, mining, and rice production with a decrease of 0.26 to 0.36% per year The EVFTA will not only bring benefits in terms of the number of jobs, but also have the ability to increase workers' wages through efficient market operations, and spillover effects on wages from FDI enterprises Fourthly, EVFTA helps strengthen the position of Vietnamese enterprises in the world market As for Vietnam's exports, as soon as the EVFTA comes into effect, the EU will eliminate import taxes on about 85.6% of tariff lines, equivalent to 70.3% of Vietnam's export turnover to the EU After years from the date of entry into force of the Agreement, the EU will eliminate import tax on 99.2% of tariff lines, equivalent to 99.7% of Vietnam's export turnover For the remaining 0.3% of export turnover, the EU committed to giving Vietnam a tariff quota with an import tax within the quota of 0% Thus, nearly 100% of Vietnam's exports to the EU will be eliminated after a short roadmap This benefit is especially meaningful when the EU is continuously one of the two largest export markets of Vietnam This also helps many Vietnamese products and goods gradually gain their position and affirm their position 3.3.2 Challenges Although Vietnam's opportunity in implementing the EVFTA is great, in order to make effective use of the commitments in the EVFTA, businesses are also facing a series of difficulties and challenges Firstly, requirements on the origin of goods Because the EU has a high per capita income, this market is extremely difficult, requiring Vietnamese exports to meet the standards of EU countries can take advantage of the opportunity of EVFTA Normally, for goods to enjoy preferential tariffs, raw materials must meet a certain percentage of internal content This is a big challenge for Vietnamese enterprises because raw materials for export production are currently mainly imported from China or other ASEAN countries Second, requirements on quality, food hygiene and safety, labeling: According to the Vietnam Chamber of Commerce and Industry (VCCI), currently, the Vietnamese business community's understanding of EVFTA is not much Moreover, the ability to change to adapt to the EVFTA is still quite limited when up to 40% of enterprises find it difficult to improve working conditions; 55% of enterprises find it difficult to invest in new technologies; 59% of enterprises find it difficult to meet localization requirements… However, the competitive pressure brought by the EVFTA is considered a healthy competitive pressure, selectively and according to an appropriate roadmap Therefore, the EVFTA is also an opportunity and a reasonable pressure for Vietnamese enterprises to adjust and change their business methods and improve their competitiveness Third, product quality improving, link into product supply chains: Many businesses are still developing in breadth, increasing in revenue, number of products, number of employees, capital However, has not focused on improving product quality as well as depth in management Vietnamese goods not have many famous brands to attract customers and have not met the quality standards of international markets Fourth, there are more regulatory and more complex legal institutions: The EVFTA includes strict regulations and rules on investment procedures, customs, trade facilitation, technical standards, measures to quarantine animals and plants, intellectual property require Vietnamese enterprises to understand and apply flexibly and honestly according to regulations Enterprises themselves have not yet fully grasped information about FTAs, so it is difficult to determine the direct impacts of FTAs on their production and business activities The lack of understanding of the necessary information makes businesses not have the best preparation in the integration process 3.4 Specific solutions for exporters in the economics industry Participating in new generation FTAs like the EVFTA means that Vietnam enters a big playing field, accepting to face new difficulties and challenges to compete with big countries In this implementation plan, it is necessary to focus on main groups of solutions including: i About the propaganda and dissemination of information about the EVFTA and the markets of EU countries: Strengthening the dissemination of EVFTA to stakeholders through the media, websites, and printed publications , television, in order to raise awareness and understanding of the contents of the commitments as well as the tasks that need to be implemented to effectively implement the EVFTA; establish and strengthen the focal link for EVFTA implementation at ministries, branches and localities, etc ii About legal and institutional development: Carry out a legal review during the implementation of the agreement and report to the Government on amendments and supplements to legal documents and submit them to competent authorities for approval approval and promulgation in accordance with the prescribed roadmap of EVFTA; develop and complete necessary institutions for the implementation of the Agreement iii About competitiveness improvement and human resource development: Develop support programs, improve competitiveness, promote technology application for industries and businesses, especially medium-sized enterprises , small and micro, farmers, in line with international commitments; at the same time, prepare solutions to respond and support for industries and goods that are directly affected by the implementation of the agreement iv About guidelines and policies for trade unions and workers' organizations at enterprise establishments: Continue to perfect the legal system to regulate labor relations and labor standards in accordance with the provisions of law international standards, commitments and conventions to which Vietnam has joined; join the remaining fundamental Conventions of the ILO, etc v About social security, environmental protection and sustainable development policies: Develop and promulgate synchronously social policies, environmental protection and sustainable development In addition, the Government will also direct the ministries, branches and localities, based on these large workgroups, to urgently develop implementation plans of their units and localities as well as strengthen the supervision of implementation implemented to ensure that Vietnam's implementation is complete, effective and synchronous Conclusion This study provides an overview of opportunities as well as challenges that Vietnam's electronics industry faces after signing the EVFTA agreement Before the EVFTA agreement, Vietnam's exports of electronic goods increased but not significantly After the EVFTA agreement, although there are still many problems due to its new application, the agreement has created favorable conditions for the export of Vietnam's electronic products Enterprises are also gradually modifying the structure, product quality, origin of goods, etc to be able to adapt to the requirements of the EVFTA, thereby helping to develop trade between Vietnam and the EU The Government also has policies and measures to support enterprises in trading with the EU in particular as well as other trading partners in general In addition, the Ministry of Industry and Trade will continue to improve mechanisms and policies to support enterprises to improve their capacity, access information and preferential policies, innovate production methods towards sustainability, etc strengthen the provision of market information, plan to coordinate to promote the national brand image, support businesses to meet the rules of origin of FTAs, including EVFTA Challenges, opportunities Yes, but we cannot deny the benefits that the EVFTA has been, is and will bring to Vietnam's export turnover References Huyền Vy, Xuất máy móc, thiết bị, dụng cụ, phụ tùng sang châu Âu tăng cao, accessed on 19/11/2021, from https://vneconomy.vn/ Huyền Vy, Ngành điện tử nhiều hội tăng trưởng, accessed on 19/01/2021, from https://vneconomy.vn Lukas Lindemann, Do Thanh Ha, EVFTA: How will European and Vietnamese investors Benefit?, from https://www.vietnam-briefing.com Trinh Nguyen, Vietnam’s Electronics Industry: A Guide to Emerging Opportunities, accessed on 17/11/2021, from https://www.vietnam-briefing.com M.S Nguyễn Thị Huyền Trang, M.S Ngô Thị Hường, Cơ hội thách thức từ EVFTA doanh nghiệp Việt Nam, accessed on 19/11/2021, from https://tapchitaichinh.vn/ Data from General Statistics Office https://www.gso.gov.vn/ Data from the General Department of Customs https://hqhcm.gov.vn/ Trade Policy definition https://www.thebalance.com/ An Bình, Điện tử - điểm sáng sản xuất công nghiệp Việt Nam, accessed on 17/11/2021, from https://moit.gov.vn ... nation's trade policy The EU- Vietnam Free Trade Agreement (EVFTA) is a free trade agreement between Vietnam and the 27 EU member states EVFTA, along with the Trans-Pacific Partnership (TP) Agreement, ... electronics industry – Industry analysis 3.1 Overview of the electronics industry in Vietnam The electronics industry is a manufacturing industry with a strategic position in the economy and has a strong... to focus on main groups of solutions including: i About the propaganda and dissemination of information about the EVFTA and the markets of EU countries: Strengthening the dissemination of EVFTA