Group Assignment The Determinants Of International Trade In Vietnam.pdf

VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY INTERNATIONAL UNIVERSITY

DEPARTMENT BUSINESS ADMINISTRATION

Course: International Economics

Ho Chi Minh City, 12" May 2024

ECONOMIC DEVELOPMENT, AND CURRENT POLICIES: -5 -< 3 1 The role ofinternational trade in Vietnam: 3 2 Current policies for international trade in Yiefnam: .s 55555 << s<<ess« 4 2.1 Simplified procedures towards document customs in 2(22: 4

2.3 FDI attraction for export policy: 4 HH DETERMINANTS OF INTERNATIONAL TRADE IN VIETNAM: 5

1 THE DATA OF INTERNATIONAL TRADE IN VIETNAM IN THE PERIOD OF 2000 TO 2022:

VIETNAM TRADE BALANCE IN THE PERIOD OF 2000 TO 2020

200 180 160 1 120

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ek os VẤN vẽ Ss & SS S eK 8 sẽ Sẻ s iS và về về x SO se se? +> oO

IL THE ROLE OF INTERNATIONAL TRADE IN VIETNAM’S SOCIO- ECONOMIC DEVELOPMENT, AND CURRENT POLICIES:

1 The role of international trade in Vietnam:

International trade plays a pivotal role in Vietnam’s socio-economic growth First, in terms of society's aspect, international trade helps Vietnamese people raise their living standards by generating additional work opportunities, raising incomes, and allowing the acquisition of new knowledge Employment rates have been rising, especially in labor-intensive, high-value export

industries including agriculture, fishery, aquaculture, textiles, and clothing According to Le Thi

Hang, Deputy General Director of Detech Coffee Joint Stock Company, she said: “Currently, our company is looking for experienced experts in FTAs to advise the staff on risk management measures, especially FTAs relating to regulations on labor, environment and intellectual property” This is obvious evidence to show that international trade is widening countless job opportunities for talented people Vietnam may now access the global labor allocation system thanks to its WTO membership, which paves the way for expanding its labor market and giving workers access to modern technology and skills Therefore, it will help domestic citizens open their job prospects and

raise their income, leading to the citizens’ cost of living improvement in the short to medium run What is more, WTO membership-related investments also aid in the fight against poverty by generating employment and enhancing living circumstances in underprivileged communities Then, Vietnamese customers now have more options for priced, superior goods and services due to the open economy

Besides some social merits that international trade brings to Vietnam, it also assists to in boosting

robust economic growth in this nation Firstly, for Vietnam, international trade serves as the concrete

pillar of growing its exports and reaching new markets This is because as one of WTO members,

Vietnam pledges to abolish non-tariff barriers, lower tariff rates, and open its markets for goods and

services from other countries Additionally, Vietnam also must pledge to implement market-opening policies, which promote foreign investment and, therefore, encourage Vietnam's economy to flourish even more In fact, when joining in WTO, Vietnam gained more than its loss At this moment, not only Vietnam's economy always grows positively with skyrocketing export turnover, but this nation also has become a trustworthy partner of the international community and attracted large sources of FDI According to Tapchicongsan, Vietnam attracted 34,642 valid projects with total registered capital, and signed 415.6 billion USD as of January 20, 2022, thanks to “welcoming” FDI As a result, it can be seen that international trade can increase Vietnam’s comparative advantages typically cheap labor workforce and lower production costs, to boost exports and attract foreign investment

2 Current policies for international trade in Vietnam:

H1 Simplified procedures towards document customs in 2022:

According to the directive, the Director General of the General Department of Customs requested units to focus on implementing key contents: Building an advanced and modern Customs information technology system, towards a digital customs model, smart customs with a high level of digitization and automation meets the requirement that customs procedures be carried out completely in a digital (paperless) environment, anytime, anywhere and on any means; Automatically manage customs operations in the digital environment throughout the entire process of implementing customs procedures, both before, during and after customs clearance Thanks to IT application, this policy assists businesses cut down on several administrative processes, shorten working hours, save money

on human resources for management firms, and save costs

TI.2 Tax reduction policy:

According to the Center for WTO and Integration, Vietnam has currently signed several outstanding agreements with tax reduction policies for the import and export industry One of which is the EU- Vietnam Free Trade Agreement (EVFTA) Vietnam and the EU have committed to eliminating import taxes on 99% of tariff lines within a period of 7 years for the EU and 10 years for Vietnam Regarding export taxes, Vietnam commits to eliminating most taxes on exporting goods to the EU with a roadmap of up to 15 years Via tax reduction policy, import-export turnover to partner countries has been increasing, strengthening traditional markets, and opening up many potential markets based on promoting relations with important economic strategic partners

I1.3 FDI attraction for export policy:

This policy has announced some main tasks and solutions to strongly improve the business environment and enhance the country's position in international rankings related to business environment and competitiveness in general Specifically, these include implementing specific objectives and targets set out in previous resolutions, addressing coordination issues among agencies, focusing on digital transformation and administrative reform, developing medium- and long-term strategies for sustainable development, and providing support for the recovery of production and business because of the COVID-19 pandemic All of them must be undertaken by ministries, branches, and People's Committees in centrally-run cities and provinces with an aim to adapt contemporary trends of development of the Fourth Industrial Revolution Thanks to this policy, Vietnam has increased the number of newly established businesses, boosted sustainable export development; promoted its comparative advantages, and minimized input costs and unofficial expenses for businesses and individuals

I DETERMINANTS OF INTERNATIONAL TRADE IN VIETNAM: 1 Government policies:

Vietnam's international economic integration process has reached a significant milestone with its official membership in the World Trade Organization (WTO) in January 2007 This pivotal step forward has paved the way for Vietnam to accomplish remarkable achievements, positioning the country favorably to address challenges and capitalize on opportunities in narrowing the disparities between Vietnam's domestic commercial law and international commercial law

The improvement of the legal and policy system of the Government has had a positive impact on Vietnam’s economy According to the Theoretical Information Agency of the Ministry of Industry and Trade Vietnam, the Vietnamese government has implemented a comprehensive set of laws, decrees, and related documents to regulate free trade in the country Currently, there are 12 Laws and nearly 200 Decrees in place to govern trade activities This indicates a strong commitment to creating a conducive environment for trade and investment

These efforts have enhanced the country's attractiveness in attracting foreign direct investment (FDI) and have contributed to export growth, particularly in FDI]-related sectors The contribution of FDI to Vietnam's GDP and export turnover has been noteworthy, accounting for approximately 65% of the total Overall, Vietnam's system of legal documents related to trade investment and free trade policies is considered comprehensive These strengths position Vietnam as an attractive destination for trade and investment, enabling the country to actively participate in the global economy However, there are two shortcomings of legal regulations First, numerous new commercial activities lack specific governing regulations, and some regulations are outdated to the practice The Commercial Law 2005 is one example It is the general law that creates the foundation for trader’s commercial activities, but some regulations have become outdated and do not align with current business practices This can create confusion and obstacles for businesses, hindering their operations To address these weaknesses, it is crucial for the Vietnamese government to expedite the process of amending and promulgating an updated Commercial Law This swift action will help resolve shortcomings, ensure compatibility with current business practices, and create an environment that facilitates investment and contributes to economic stability

Second, many subjects engaging in regular and continuous commercial activities, such as traders,

intermediaries, brokers, and consultants, are not subject to the Commercial Law This exclusion

limits the legal protection and oversight provided to these actors, potentially leading to inefficiencies

and irregularities in their operations For instance, during the implementation of Decree No 14/2018/ND-CP, challenges have emerged in border trade activities Despite the growth of trade in the border area, it remains suboptimal, with limited scale and a lack of diversified import and export products Congestion at border gates, particularly in northern border areas, continues to occur during peak harvest periods and holidays To address these issues, it is recommended to develop a decree that amends and supplements key articles of Decree No 14/2018/ND-CP This revision will enhance the legal basis and ensure consistency within the legal system, improving the effectiveness and efficiency of state management in border trade activities

Overall, while the Commercial Law in Vietnam provides a solid foundation for commercial activities, it requires improvements to address outdated regulations, enhance coverage of commercial activities, and ensure consistent application and enforcement for the benefit of businesses and the economy

2 Exchange rate:

The exchange rate plays a critical role in shaping international trade dynamics, profoundly impacting export competitiveness and import patterns In Vietnam, the State Bank manages the exchange rate through a floating system, directly influencing export costs and import attractiveness

Defined as the value of the Vietnamese Dong (VND) relative to other currencies, the exchange rate

serves as a key economic metric, influencing trade, investment, and overall economic stability When

the exchange rate is high, indicating a weaker domestic currency, Vietnamese goods become more affordable in foreign markets compared to products from other nations This competitive pricing advantage enhances the potential for expanding and bolstering export activities

Otherwise, a low exchange rate, reflecting a stronger domestic currency, can make Vietnamese exports comparatively more expensive, potentially dampening demand abroad Moreover, fluctuations in the exchange rate can impact import dynamics, affecting the cost of imported goods and the attractiveness of foreign products in the domestic market

When understanding exchange rates and their pivotal role in international trade, let us delve deeper into how these determinants affect to international trade in Vietnam The beneficial influence of the exchange rate on international trade is evident in Vietnam's management of currency depreciation and the maintenance of stability Despite the Vietnamese Dong being labeled as "the second-weakest currency in the world" it experiences comparatively minimal devaluation (Protska, 2024) This resilience is attributed to the government's proactive control, ensuring that currency volatility remains at a minimum level For example, according to Vietnam Briefing, in 2022, the maximum depreciation of the VND was only 3%, a modest figure compared to regional counterparts Moreover, the stability of the exchange rate is maintained through consistent management policies aligned with market developments The State Bank of Vietnam (SBV) has effectively curbed currency volatility since 2012 In 2022, while the VND experienced a slight depreciation against the US dollar, it remained relatively stable compared to other regional currencies like Thailand, Malaysia, and the Philippines Moreover, from the data of VietstockFinance, throughout 2023, the central exchange rate between the USD and VND exhibited only a modest fluctuation of approximately 2.26% Such stability provides foreign investors with predictability, particularly in key export sectors such as textiles and garments This conducive environment has led to a surge in trade surplus since 2016 and substantial export gains, as evidenced by the $371.85 billion generated in exports in 2022 alone

And so, Vietnam's exchange rate policies have bolstered international trade by fostering confidence among foreign investors and enhancing the competitiveness of Vietnamese exports, ultimately contributing to the country's economic growth and stability

On the other hand, some vulnerabilities could hinder Vietnam's economic stability and trade competitiveness One significant drawback is the susceptibility to lower import levels resulting from currency depreciation While depreciation benefits exports by making them cheaper for foreign buyers, it simultaneously raises the cost of imports, potentially leading to a reduction in import volumes Consequently, the State Bank of Vietnam (SBV) faces the challenge of carefully managing the exchange rate to balance these competing interests Another weakness lies in the currency's vulnerability to external factors Vietnam's managed float system, designed to provide stability, can leave the Vietnamese Dong (VND) exposed to sudden shifts in global economic conditions Such external shocks could trigger fluctuations in the exchange rate, necessitating swift and responsive measures from the SBV to mitigate their adverse effects on trade and the overall economy Addressing the weaknesses of the exchange rate system in Vietnam can be done through some specific strategies The first is to enhance policy responsiveness, by establishing a flexible mechanism so that the Vietnamese State can intervene quickly and effectively in the market Next, it 1s necessary to enhance pricing and forecasting capabilities by improving the central bank's ability to assess factors affecting exchange rates Diversifying funding sources and enhancing transparency and communication are also important strategies to reduce speculative pressure and increase market confidence However, a potential future drawback of the exchange rate system in Vietnam is unforeseen changes in the global economic environment and local factors, which may require flexibility and adjustment room to deal with potential challenges

3 Income:

Vietnamese consumer income plays a crucial role in driving both domestic consumption and exports, contributing to the competitiveness and diversification of the global market Rising income levels among Vietnamese individuals have led to increased domestic consumption, while higher incomes abroad have stimulated export demand According to VietNam General Statictis Office, in the fourth quarter of 2023, the average monthly work income climbed to 7.3 million VND, up 180,000 VND from the third quarter of 2023 Simultaneously, merchandise export turnover in October 2023 increased by 5.3%, reaching 32.31 billion USD, compared to the previous month

The foremost advantage of Vietnam's income is its capacity to increase domestic consumption Rising salaries among Vietnamese people have led to a rise in domestic consumption, especially among the country's expanding middle class The need for a greater range of items has increased due to this increase in purchasing power, which has diversified the market both domestically and globally More individuals can purchase consumer goods and services that were previously regarded

as luxury items, such as smartphones, vehicles, and entertainment, if incomes keep rising Both

market expansion and economic growth are fueled by this trend On the other hand, income is also a predictive factor that enterprises can consider when making investment or production decisions, thereby increasing export capacity and worldwide competitiveness, and promoting export growth Due to the wealth difference, Vietnamese export enterprises may need to increase product quality and diversify their portfolios to match the demands of high-income clients

However, besides the positive aspects, the income level in Vietnam also reveals some shortcomings itself First, it can lead to increased disparities in people’s consumption patterns People with high

incomes can consume high-end products and services, many of which may be imported This may increase the need to import products from high-quality countries and brands Thus, differences in income can exacerbate differences in how individuals consume High-end goods and services, many of which may be imported, are accessible to those with large incomes This might make importing goods from nations with premium brands and quality more necessary The potential to improve low- income populations' quality of life and educational opportunities may be hampered by income inequities Long-term effects on labor and human resources may result in decreased global competitiveness

Moreover, the situation that laborers who work in key industries still have low incomes is another drawback of this factor The fact is several industries in Vietnam that produce export goods and bring large annual profits such as textile and garment, frequently rely on a huge workforce which has made paying salaries for laborers become a big problem Hence, to save production costs, many manufacturers focus solely on reducing labor costs which leads to a decline in labor productivity This has affected both output and product quality, making it difficult for Vietnam's exported products

to compete with other countries In addition, the laborers who have low income cannot handle their

cost of living which adversely reduces the total domestic consumption and then makes the import turnover reduce

In conclusion, Vietnam should leverage its income strengths by enhancing domestic consumption Organizing promotional events, discounts, and incentive programs are some of our suggested strategies The Vietnamese Government should also implement preferential tax policies for domestic products to reduce prices and increase competitiveness Furthermore, it is crucial for policies to address income inequality and create opportunities for all segments of society By prioritizing inclusive growth, Vietnam can work towards a more equitable economic landscape This necessitates measures to enhance education and job opportunities, ensuring that the benefits of economic development reach all individuals and communities

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