Enterprises to take advantage of FTAs and beneficial schemes to thrive

Shrimp exports in July 2021 increased by 13% over the same period to USD 441 million, of which both black tiger shrimp and vannamei shrimp increased (19% and 14% respectively over the same period). Photo: Quoc Tuan

Despite the impact of the Covid-19 pandemic, Vietnam’s economy still shows optimistic results, especially from the international trade perspective. According to the General Statistics Office, as of the end of July 2021, Vietnam’s total import and export turnover has reached USD 373.36 billion, up 30.2% compared to the same period in 2020.

For export particularly in the first seven months of 2021, the total turnover hits USD 185.33 billion, achieving a 25.5% increase from the previous year. Notably, a significant portion of the export turnover is attributed to the FDI sector, while the revenue generated from export activities of domestic enterprises accounts for only 26.2%, despite experiencing an increase compared to 2020. This pattern indicates that FDI enterprises have continued to evolve and are likely to expand in the near future. 

Sharing an identical pattern, import activities between Vietnam and other countries and regions also observed a strong growth. In particular, during the first seven months of 2021, according to the Ministry of Industry and Trade, the total import turnover saw a surge of 35.3% from 2020 to USD 188.03 billion. 

Given the current market situation with challenges to struggle, we believe the slump is only temporary, and valuable opportunities still exist in Vietnam that will assist enterprises in accelerating to switch their targets to “surviving” rather than “thriving” in the future. Vietnamese businesses, especially those dealing with cross-border transactions, can take advantage of such opportunities either commercially available or provided in legal frameworks to survive and thrive.

Utilization of FTAs for cost savings and a leaner supply chain. 

Recently Vietnam has managed to sign crucial new-generation of Free Trade Agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), European Union – Vietnam FTA (EVFTA), The United Kingdom and Northern Ireland – Vietnam FTA (UKVFTA) and most recently the Regional Comprehensive Economic Partnership (RCEP). Such FTAs, in conjunction with those previously concluded, play an essential part in the stronger and more sustainable integration of Vietnam into the world economy. 

An illustration is, after one year of implementation, the EVFTA has demonstrated positive impacts on the trading activities of Vietnamese enterprises. According to the Ministry of Industry and Trade, in the first quarter of 2021, business activities of textile and footwear companies with European partners have significantly recovered from the slump in 2020. The export turnover of textile and footwear products to the European market grew by 3.44% and 19.20% respectively, compared to the first quarter of 2020. Additionally, positive results are also observed in the export of principal agricultural and forestry products, namely rubber, rice, and vegetable. Such impressive figures are the results of preferential commitments under the EVFTA, particularly the EU’s reduction and elimination of customs duty for goods with legitimate Vietnamese origin. Since the EU’s tariff rate will be further reduced in later years, the market is anticipated to become increasingly attractive for businesses with current or potential trading activities with European parties. 

For supply chain management and restructuring, the current 14 in-effect FTAs in Vietnam are expected to open a broad network of global partners and explicit opportunities for Vietnamese entities to get involved in global supply chains. Therefore, it is crucial that such agreements are well-acknowledged and utilized for cost-cutting and efficiency increment. 

Mr. Bui Ngoc Tuan, Tax Partner, Global Trade & Customs of Deloitte Vietnam

Adoption of available trade facilitating policies. 

The first and foremost notable regime would be the Authorized Economic Operator (AEO) regime introduced in the SAFE framework (SAFE) of the World Customs Organization. After the piloting period since 2011 in Vietnam, recognizing the effectiveness and benefits of the AEO regime, the Vietnam Government has officially started applying this regime for 03 types of enterprises participating in (i) Goods Import and Export, (ii) Customs brokers, and (iii) key investment projects approved by Prime Minister. 

An enterprise being AEO is granted significant advantages over ordinary entities, such as priority in carrying out customs procedures, reduced frequency of and certainty on post-clearance audits, priority in customs duty treatment, facilitated in transactions with AEO entities from countries that have mutual recognition agreements with Vietnam, etc. In practice, positive feedbacks have been received from many AEOs on the benefits they could gain, which includes but not limit  ed to a significant reduction of processing time for customs clearance, thus minimizing their expenditure on transportation and storage; better and secured supply chain operation, and simultaneously helping raise their voices in dialogues with competent authorities. However, these available great benefits have not been paid sufficient attention by many potentially qualified companies. 

Many other trade facilitating policies such as HS code advanced ruling, Customs valuation advanced ruling, Origin advanced ruling, etc. are also available as a way to ensure certainty during the clearance stage, as well as mitigate time and related risks for enterprises. However, it is our observation that only the advanced ruling for HS code classification has been applied by declarants, and not so often. The lack of attention paid by the business community and the shortage of customs manpower might be some of the reasons. Per our experience, many enterprises face challenges from customs authorities during the clearance process regarding the suspicion of HS code wrong classification, inappropriate customs valuation, origin counterfeiting, which could be avoided or mitigated by using the above procedures.

Participation in the continuously updated legal regulations. 

Besides the resource planning and utilization of beneficial regimes, from Deloitte’s perspective, the adaptability to the changing of Vietnamese policies regarding global trade and customs plays an important role in the survival and development of businesses. The Vietnamese policies on global trade and customs have been continuously updated and reinforced to follow contemporary trends in global trade, international standards, and domestic drivers to make a friendly and facilitating environment for all market players. 

The calendar year 2021 has witnessed the promulgation of various customs-related policies, both newly issued regulations, and amendments to existing ones. Coming into the second half of 2021, other crucial new or revised policies and regulations are expected to be enacted by the Government. To name some, there would be Decrees guiding on customs procedures; on e-commerce activities; on the implementation of the Vietnam national single window, and a Customs development strategy until 2030. Therefore, it is essential that enterprises doing business in Vietnam closely follow and update on the latest regulations to ensure full compliance with prevailing regulations, the timely harvest of available benefits, and risk minimization.

In such an export-based economy and under increasing integration into the global economy, with a lot of potentials like Vietnam, businesses, during this interval time, should review their status quo and take advantage of the favorable conditions to conquer the current difficulties and plan for future revival. It is also time for them to raise a stronger voice in making comments to policies of the government as a way to keep being in the circle and relevant.