VIETNAM JAPAN ECONOMIC PARTNERSHIP AGREEMENT – VJEPA2.Summary of content, commitments in the agreement, and incentives that Vietnam receives...22.1Summary of content, commitment in the a
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Table of Content
Table of Content 0
1 Overview of Vietnam-Japan Economic Partnership Agreement (VJEPA) 1
1.1 Introduction 1
1.2 Timeline of Formation 1
2 Summary of content, commitments in the agreement, and incentives that Vietnam receives 2
2.1 Summary of content, commitment in the agreement 2
2.1.1 Commitments on Trade in Goods 2
2.1.2 Commitment on Rules of Origin 3
2.1.3 Commitments on Trade in services 3
2.1.4 Commitments in the labor field 4
2.2 Incentives that Vietnam receives under VJEPA 4
2.2.1 The benefits on customs duties 4
2.2.2 Benefits besides customs duties 5
3 The impact of the VJEPA agreement on trade flows between Viet Nam and Japan: 6
3.1 Merchandises flows from Vietnam to Japan: 6
3.1.1 General export situation from Vietnam to Japan : 6
3.1.2 Export situation of main merchandises from Vietnam to Japan : 7
3.2 Merchandises flows from Japan to Vietnam: 9
3.2.1 General export situation from Japan to Vietnam : 9
3.2.2 Export situation of main merchandises from Japan to Vietnam : 10
3.3 Conclusion: 10
4 The impacts of the agreement on the capital and labour flow between Vietnam and Japan 11
4.1 Capital flow from Japan to Vietnam 11
4.2 Labor flow 14
5 Opportunities and challenges for Vietnam at the time of signing the agreement 17
5.1 Opportunities 17
5.2 Challenges 18
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1 Overview of Vietnam-Japan Economic Partnership Agreement (VJEPA)
Among the major and close trading partners with Vietnam, it is impossible not
to mention Japan – a partner with a strong relationship and a major export market in the top 4 of Vietnam for many years In addition to the ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEP), Vietnam also signed with Japan the Vietnam-Japan Economic Partnership Agreement (VJEPA) with more incentives for each other The Vietnam-Japan Economic Partnership Agreement (VJEPA) is a bilateral free trade agreement It covers numerous aspects of economic cooperation, including trade in goods and services, investment, intellectual property rights, and government procurement The agreement is a remarkable milestone in the economic relations between Vietnam and Japan, pushing for extended bilateral trade and investment flows between the 2 entities [CITATION MOF09 \l 1066 ]
The VJEPA was negotiated between 2006 and 2008 following the success of theJapan-Singapore Economic Partnership Agreement (JSEPA), which was signed in
2002 Motivated by the need for an increase in foreign trade from both countries, the negotiations were initiated, further driven by the desire of both countries to promote investment flows and economic cooperation in various fields VJEPA was Japan's first free trade agreement with an ASEAN country, in turn, it held a significant value as it has served as a model for future agreements with other ASEAN members
The negotiations for the VJEPA first began in 2006 The talks continued over the next two years, with several rounds of negotiations held in both Vietnam and Japan The final round of negotiations was held in Tokyo in November 2008, and the agreement was signed on December 25, 2008 [ CITATION MOF091 \l 1066 ]The VJEPA was put into effect on October 1, 2009, after both countries completed their own required domestic procedures for ratification The agreement was implemented in stages, while some clauses are implemented immediately, others were phased in over a period of several years [ CITATION MOF092 \l 1066 ]
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2 Summary of content, commitments in the agreement, and incentives that Vietnam receives
The Vietnam-Japan Economic Partnership Agreement (VJEPA) includes 14 chapters Chapter 1 offers several general provisions such as the objectives of VJEPA, relation of the VJEPA to other agreement, and general definitions Chapter 14 offers final provisions such as annexes and notes, amendment, and termination Chapters from 2 to 13 hold the main content of this agreement, which includes agreements of both parties on 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; and dispute settlement
Among 12 chapters above, chapters mentioning of trade in goods; rules of origin; trade in services; and movement of natural persons are considered to be the most important Outstanding details in these chapters are indicated below
2.1.1 Commitments on Trade in Goods
Under the VJEPA, for goods in the tariff elimination list, Vietnam commited to liberalize approximately 87.66% of trade turnover while Japan vowed to liberalize 94.53% within a decade of implementing the Agreement Following the tax reduction roadmap, Vietnam promised to liberalize 92.95% of trade turnover at the conclusion ofthe Agreement's 16-year implementation period Goods in the sensitive list, exclusion list, and CKD Automobile list have their own commitment rate, which are stated in thetable below.[ CITATION VCC13 \l 1033 ]
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Table 1: Statistics on Vietnam's list of commitments in the VJEPA
Classification Rate of turnover
Taxes are reduced to 5% in 2023 0,5
Taxes are reduced to 5% in 2026 1,8
Taxes are reduced to 50% in 2024 0,1
The tax rate remains the base tax rate 3,2
The tax rate remains the base tax rate and is renegotiated after 5 years 0,0
Exclusion list No commitments 1,5
CKD Automobile list No commitments 0,0
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The relative commitments on trade in goods that Japan made are analyzed in the section regarding incentives that Vietnam receives under VJEPA.[ CITATION VCC13 \l 1033 ]
2.1.2 Commitment on Rules of Origin
Goods will be recognized as having VJEPA origin, hence earning preferential treatment under VJEPA if they are entirely produced or manufactured within a Member State, or if the goods meet extra criterias stated in chapter 3
Moreover, the C/O form VJ serves as the Certificate of Origin for VJEPA, and it
is currently only issued in paper format This certificate can be issued before, during,
or after the goods' exportation Notably, VJEPA does not provide for the Certification of Origin
Self-2.1.3 Commitments on Trade in services
The commitments made by Vietnam in VJEPA are nearly identical to those made during its accession to the WTO The only distinction lies in the general provisions of the service chapter within the VJEPA Agreement These provisions include some novel aspects related to definitions and the level of competitive protection in specific services such as telecommunications.[ CITATION MOI \l 1033 ]Furthermore, Japan has provided Vietnam with more extensive access to its service market than it did under WTO commitments, particularly with regards to specialized services such as legal services, tax advisory, computer services, technical analysis and testing, information services, construction, distribution, education, environment, finance, health care, and tourism.[ CITATION MOI \l 1033 ]
2.1.4 Commitments in the labor field
Aside from their commitments under the WTO, the two parties have agreed to permit the entry of business guests and the acceptance of nurses, as long as they meet the host country's legal requirements, for an initial period of 3 years, which can be extended
Moreover, Japan has made the following additional pledges:
(1) Providing Vietnam with preferential interest rate ODA loans to train
200-300 Vietnamese nurses annually in Japan and allowing Japanese nurses to work for up
to 7 years in Japan
(2) Assisting in the development of a skills accreditation system for Vietnam, specifically for nurses and midwives, as well as supporting the establishment of a certification system for these professions
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(3) Resuming negotiations on labor movement within 1 year of signing the EPA
to improve market access conditions for nurses, midwives, and other professions.[ CITATION Nurse \l 1033 ]
2.2.1 The benefits on customs duties
In the VJEPA Agreement, the most important content affecting Vietnam's exportactivities to Japan is the commitment to reduce tariffs that Japan gives to Vietnamese exports This is also the consistent content in the implementation of the Agreement Assoon as the Agreement takes effect, Japan would commits to abolishing import duties for 88.05% of Vietnamese exports to the Japanese market and 7,297 tax lines, accounting for 80.08% of the number of tax lines[CITATION Tác16 \l 1033 ] Detailedtax incentives and roadmap for reducing tariffs for different types of products are indicated below
Tax incentives and roadmap for reducing tariffs for agricultural products:
o According to Japan's Tariff Schedule of 2007 (HS 2007), the number of Japanese agricultural tax lines is 2020 As soon as the VJEPA Agreementtakes effect, 783 tax lines will have a 0% tax rate; 505 tax lines will have
a reduction roadmap year by year, currently accounting for about 24% ofexports to Japan The roadmap can last from 3 to 15 years depending on each product group.[ CITATION Tác16 \l 1033 ]
Tax incentives and roadmap for reducing tariffs for aquatic products:
o Japan's aquatic products include 330 tax lines Japan commits to reducing tariffs for 188 lines within 10-15 years Of the 330 tax lines for aquatic products, 64 tax lines have a commitment to reduce tariffs to 0%
as soon as the Agreement takes effect There are 8 tax lines for aquatic products with a reduction roadmap of 3 years, accounting for 8% of Vietnam's aquatic export turnover 96 tax lines for aquatic products have different tariff reduction roadmaps, from 5-10 years.[ CITATION Tác16 \l 1033 ]
Tax incentives and roadmap for reducing tariffs for industrial products:
o Japan does not implement protectionist policies through customs duties for most industrial products The average tariff rate in this area is below
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5%, which is only a "cost-recovery" tax rate for customs control and administration activities According to the commonly accepted understanding, this tariff rate is considered to be an ineffective protectivetariff About 95% of the number of tax lines for industrial goods, accounting for nearly 95% of Vietnam's industrial exports to Japan, will
be entitled to a preferential import tax rate of 0% If including products that will have their tariffs reduced and eliminated in the 10-year roadmap, this figure will be 97% of the number of tax lines and 98% of the export value of Vietnam, which will be entitled to a 0% import tax incentive.[ CITATION Tác16 \l 1033 ]
2.2.2 Benefits besides customs duties
In terms of trade in services benefits, the commitment made by Japan to Vietnam went far beyond Japan's commitments in the WTO In most service sectors/sub-sectors, Vietnamese service providers are entitled to "no restrictions".Furthermore, under VJEPA, Japan committed to encourage and protect the investment activities of Vietnamese enterprises into the Japanese market according to the principles of national treatment, equal and fair treatment, as well as fully protect the interests of Vietnamese investors Moreover, Japan committed to increase transparency and strive to improve the business environment in accordance with Japanese laws and regulations to make it easier for Vietnamese investors to invest in Japan.[ CITATION source \l 1033 ]
3 The impact of the VJEPA agreement on trade flows between Viet Nam and Japan:
In this section, the report focuses only on the flow of trade in merchandises between Vietnam and Japan to analyze the impact of the VJEPA on trade flows between two parties (overlooking the flow of services due to insufficient data)
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3.1.1 General export situation from Vietnam to Japan :
Figure 1: Vietnam export value to Japan from 2003 to 2021
Source: ITC Trade Map
Base on this chart, it can be said that since the Vietnam-Japan Economic Partnership Agreement (VJEPA) was signed (12/2008) and came into effect in October
2009, there has been a rapid and significant change in the flow of merchandises from Vietnam to Japan Typically, compared to the export value from Vietnam to Japan in
2003 only reached 2.9 billion USD, by 2019, this value has increased nearly 7 times with more than 20.4 billion USD
Before the agreement came into effect (2003 to 2008), the export value of goods from Vietnam to Japan increased year by year but the value never exceeded 9 billion USD In the period from 2003-2008, the average export value from Vietnam to Japan is only modest with 5.1 billion USD Despite of coming into effect in October
2009, after a period of steady increase, this value suddenly declined in 2009 due to the impact of the worldwide financial crisis, so VJEPA agreement also did not have much impact in promoting the flow of goods from Vietnam to Japan in this year
After the worldwide financial crisis (2009), the impact of the agreement on merchandises flow was very clear between two countries In 2010, the export value to Japan increased again from 6.33 billion USD (2009) to 7.73 billion USD - more than the average export value to Japan in term 2003-2008 That showed a positive change in
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trade flows from Vietnam to Japan After 2010, the export value to Japan tended to increase continuously and quite stable
In the period 2009-2014, the average export value to Japan was 11.1 billion USD; nearly 2.2 times more than period from 2003 to 2008 with only 5.1 billion USD.Particularly, in 2019 and 2020, the export value from Vietnam to Japan has increased impressively to exceed 20 billion US dollars – the highest in the history of export value to Japan
3.1.2 Export situation of main merchandises from Vietnam to Japan :
Table 2: List of key export products of Vietnam to Japan ( US Dollar thousand)
Source:Calculated by gross trade value 2003-2014 base on ITC Trademap data.
Vietnam's strengths in manufacturing include machinery, electrical equipment, and their components; agricultural products; aquatic products; textiles; wood products;footwear; and those are also the main products that Vietnam exports a lot to Japan According to ITC Trade Map data (2022), the Total value of these main merchandises account for 78,17% compares to the Total value of Vietnam’s exports to Japan with in period 2009-2014 This suggests that these main merchandise exports played a significant role in Vietnam's trade relationship with Japan
Compared to the period before the agreement came into force (2003-2008), the absolute value of these major exports has more than doubled, reaching nearly 54 billion USD in the period 2009-2014 Despite of increasing in absolute value, the proportion of these main merchandises compared to the total export value from Vietnam to Japan decreased from 82.1% to 78.17% That proved the growth rate of the
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main exports tended to be slower than the growth rate of the total export volume to Japan, or in other words, besides the main items, the total value of the remaining minority goods also increases rapidly
Through the table of data, it can be seen that items such as electronic machineryand equipment, articles of apparel, furnitures, plastics , increased in both value and density However, some commodities accounted for a large proportion of export value before signing the agreement like mineral fuels, oil, fish and crustaceans, significantly reduced in the proportion of total export value to Japan after the agreement came into effect
3.2.1 General export situation from Japan to Vietnam :
Figure 2: Japan export value to Vietnam from 2003 to 2021
Source: ITC Trade Map
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Similar to the value of Vietnamese goods exported to Japan, in the period from
2003 to 2008, the export value of Japan to Vietnam increased steadily over the years Despite of increasing , the average export value in the period 2003-2008 was humble with only 4.5 billion USD
After 2009- the year VJEPA came into effect, in general, the value of exports to Vietnam increased rapidly with impressive figures That is shown by the very steep line chart In the period 2009-2014, the average figure reached nearly 9.6 billion USD, 2.1 times higher than the period before the signing of the agreement (2003-2008) In addition, from 2012 to 2021, there was no year in which the export value from Japan
to Vietnam was less than 10 billion USD
According to the schedule of removing tax barriers of the agreement, by 2018 Vietnam would eliminate tariff barriers for 87.66% of trade turnover within 10 years ofthe agreement's implementation Therefore, in 2018, the export value from Japan to Vietnam increased significantly compared to previous years with more than 16 billion USD Particularly, in 2021 this figure reached nearly 19 billion USD, 7.2 times higher than in 2003 (2.62 billion USD)
3.2.2 Export situation of main merchandises from Japan to Vietnam :
Table 3 List of key export products of Japan to Vietnam (US Dollar thousand)
Source: Calculated by gross trade value 2003-2014 base on ITC Trademap
Exports from Japan are strongly promoted in industrial products with high technology content such as electronic equipment, chemicals, iron and steel, equipments for measuring, checking, medical or surgical purposes These are the primary Japanese exports to Vietnam that are being encouraged by VJEPA incentives,
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