Vietnam’s exports to the US: Achievements, limitations and solutions to challenges

Nội dung text: Vietnam’s exports to the US: Achievements, limitations and solutions to challenges

1. VIETNAM’S EXPORTS TO THE US: ACHIEVEMENTS, LIMITATIONS AND SOLUTIONS TO CHALLENGES Assoc. Prof. Nguyen Thi Thanh Hieu1 Abstract: Vietnam and the U.S. have celebrated the 25th anniversary of the normalization of the two countries’ trade relations (July 11st, 1995 – July 11st, 2020). Vietnam has shown itself to be a stable, prosperous and independent partner in Southeast Asia, contributing to international peace and security. However, only after the Vietnam–US Bilateral Trade Agreement (BTA) went into effect on December 10th, 2001; and especially when the two countries established the comprehensive partnership in July 2013, the trade relations between Vietnam and the U.S. have been strongly developed. The U.S. is one of Vietnam’s largest export markets. The export turnover to this market has increased continuously in recent years. However, Vietnam’s export to this country has had a lot of difficulties because of strict commercial and technical barriers. Besides, the changes in President Donald Trump’s new trade policy have a great influence on Vietnam’s export of key commodities. Therefore, maintaining the current turnover rate or promoting Vietnam’s exports to the U.S. will be not easy. This article analyzes the status and structure of export commodities between Vietnam and the U.S. in the period 2001–2019 with the focus on 2013–2020 to propose solutions to boost Vietnam’s exports to the US market, which are truly commensurate with the comprehensive partnership established by the two sides. Keywords: Trade balance of Vietnam and the U.S., Vietnam’s exports to the U.S., promote Vietnam’s exports, Vietnam’s trade deficit. 1. INTRODUCTION From 2000–2019, Vietnam's trade in goods with the U.S. remarkably increased by 63 times. Economic and trade cooperation between Vietnam and the U.S continued to grow with the turnover of bilateral trade reaching $75,7 billion by 2019 (General Department of Vietnam Customs, 2019). However, due to the fact that the US Government has been adjusting policies and relations with other countries, putting its national interest above all else; in order to boost Vietnam’s exports to the U.S, the author collected secondary data on export commodities between Vietnam and the U.S. from reputable organization such as United States Census Bureau, General Department of Vietnam Customs. Then the author used the statistical analysis method which was combined with data analyzing and processing to assess the current status of export commodities between Vietnam and the U.S in the period 2013–2019 and to propose solutions for the improvement of Vietnam’s exports to this country. 2. LITERATURE REVIEW AND RESEARCH MODEL In the article The effects of the United States granting MFN status to Vietnam by Will Martin and Emiko Fukase (2000), the direct impacts on Vietnam’s trading opportunities of the U.S. granting MFN treatment were first estimated by building up from the resulting level of tariffs applied to individual traded goods. Then, the economic impacts on Vietnam were inferred, using simulations with the Global Trade Analysis model. The results revealed that the increased market access to the United States brings significant welfare gains to Vietnam. By granting MFN status to Vietnam, the United States also gains 1 National Economics University. Email: hieunt@neu.edu.vn. 605
2. from improved resource allocation, although some of the gains are offset by deterioration in its terms of trade. The gains for the United States were estimated to be around $56 million per year. Brian, McCaig (2011), in the article “Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access” posed a question “Can a developing country reduce poverty by gaining increased market access to a large and rich country?”. The 2001 U.S. and Vietnam Bilateral Trade Agreement (BTA) provides an excellent opportunity to examine this question as, unlike other bilateral trade agreements, the U.S. tariff cuts were not influenced by Vietnamese industries. The first significance of this article is that the author analyzed the impact of Vietnam increasing market access to the U.S. on poverty of this country. The second significance is that the 2001 BTA reduced US tariffs. The author examined the different impacts of tariff reductions on Vietnam’s provinces and the impact of the BTA on the structure of Vietnam’s labor force. The result showed that poverty reduction in the provinces experiencing more tariff cuts was faster. In Vietnam, there have been some researches on Vietnam's exports to the U.S.; in particular, Dinh Thi Thu Oanh’s (2012) which presents theories relating to promotion of Vietnam's wood product exports to the US market, studies the status and proposes solutions to boost export of Vietnam’s wood products to this market. Besides, in Vo Thanh Thu’s research (2013), Vietnam's textile and garment products were exported to over 150 countries, but the export to the U.S., EU and Japan accounts for over 70% of Vietnam's garment export turnover, especially, the export to the U.S. accounting for over 50%. The average growth rate of Vietnam’s textile and garment export to the US market in the period of economic crisis was 342.93% per year. On the basis of these figures, the author proposed some solutions for boosting Vietnam’s textile and garment export to the U.S. in 2013. PROMOTE VIETNAM’S EXPORTS TO THE US THE STATUS OF VIETNAM’S EXPORTS IN SOLUTIONS TO PROMOTE 2013-2019 VIETNAM’S EXPORTS TO THE US Ach ievements Limitations: Opportunities and Challenges - Trade relations & - Export growth has export position have been slow; risen; - Domestic enterprises Solutions to promote Vietnam’s export - Export commodities had insufficient & turnover have risen; knowledge of US in 2021-2030 market, focused on - Structure of exports - For the government has been changed; export quantity more than quality. - For ministries/branches/ localities - Quality of exports has been improved. - For domestic enterprises exporting commodities to the U.S. Causes: - Objective causes; - Subjective causes. The literature review above shows that there already exits several researches on Vietnam’s exports to the U.S. for some certain commodities. This article analyzes the status and the structure of export commodities between Vietnam and the U.S. in the period 2001–2019 with the focus on 2013–2019 to 606
3. propose solutions to boost exports to the US market until 2025 and the vision until 2030. The author has chosen the research framework below which corresponds to the content or the article. 3. STATUS AND STRUCTURE OF VIETNAMESE EXPORTS TO THE US MARKET FROM 2013 TO 2019 3.1. Achievements in Vietnam’s exports to the US market Figure 1: Vietnam–US Trade Balance from 1995 to 2019 Value/Turnover (USD Billion) 70,000.00 60,000.00 50,000.00 40,000.00 30,000.00 20,000.00 10,000.00 0.00 Source: Exports – United to Vietnam States Census Bureau and author’s calculations The research shows that Vietnam’s exports to the U.S. in the period 1995–2019 had significant growth: Firstly, since the "normalization of diplomatic relations" between the two countries on July 11, 1995; the Vietnam–US Bilateral Trade Agreement (BTA) going into effect on December 10th, 2001; and especially the establishment of comprehensive partnership in July 2013, the trade relations between Vietnam and the U.S. have been strongly developed. While the two–way trade turnover in 1995 was only $451 million, this figure in 2001 increased to $1.5 billion (after the BTA went into effect) and reached $75,7 billion by the end of 2019, which was 168 times greater than what it was in 1995 (General Department of Vietnam Customs, 2019). According to the United States Census Bureau, after more than 25 years of normalization of relations, Vietnam’s exports in 2019 reached $66.6 billion with a 34% increase in turnover which was equivalent to $10.9 billion. Therefore, Vietnam leaped from 12th to seventh on the list of US suppliers of goods. Accordingly, Vietnam's surplus in trade with the US reached over $55.7 billion in 2019. Secondly, the quantity and value of export commodities, especially the key items such as textiles, footwear, mobile phones and accessories have had a significant growth compared to the previous years. According to the United States Census Bureau, the turnover of Vietnam’s exports to the U.S. in the first 7 months of 2020 has reached $40.5 billion, accounting for 27.4% of the total export turnover of the country. Therefore, the US has become the largest export market of Vietnam. According to the Ministry of Industry and Trade of Vietnam, out of the commodities exported to the U.S. in this period, there are 6 item groups with turnovers of above $1 billion. Among these groups, phones and 607
4. components reach nearly $5 billion, increasing by 2.3% compared to the same period last year. Regarding textiles and garments, the US remains the biggest export market of Vietnam with the turnover of $7.66 billion, decreasing by 9.6% compared to the same period last year. The export turnover of computers, electronic products and components in the first 6 months of 2020 has reached $5.33 billion, increasing 1.8 times. The group of machinery, equipment, tools and other spare parts has reached $4.84 billion, up 1.9 times. Footwear of all kinds has reached $3.43 billion, down 8.6%. Wood and wooden products has reached $3.31 billion, up 22% compared to the same period last year (Vietnam’s Import and Export Report in 2019). Thirdly, the commodity structure has changed significantly. Such commodities as telephones, mobile phones, computers, handbags, purses, suitcases, headgear and umbrellas had export turnover valued at over $1.3 billion (see the Figure 2). Figure 2: Structure of Vietnam’s key export commodities to the US in 2013–2019 Value (USD Billion) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Textiles and garments Foot-wears Telephones, mobile phones and parts thereof Source: General Department of Vietnam Customs, Customs Statistical Yearbook on Imports and Exports of Vietnam. Fourthly, the quality of exports to other countries in general and to the U.S. in particular has been improved in a positive way. The structure of Vietnam’s export commodities has changed positively. The proportion of raw materials and primary commodities has been reduced. The proportion of manufactured commodities has increased. In the period of 2007–2016, industrial products accounted for 75–85% of the export commodities, of which products from heavy industry accounted for 30.9%–45.2% and the percentage of minerals decreased from 11.5% in 2010 to 7% in 2014. The most popular types of Vietnamese products in the American market are aquatic products including sutchi catfish, yellowtail catfish, shrimp, tuna; fruits and vegetables; and agricultural products including rice, coffee, pepper, and cashew. It is worth mentioning that in order to export to the US, the products have faced many barriers, and increasingly dense barriers of this country. Once Vietnam's commodities have penetrated the US – a market of many import laws and regulations on technology and quality, the export commodities will have more opportunities to penetrate other fastidious markets in the world. 3.2. Limitations of Vietnam’s export to the US market Firstly, it is obvious that the growth rate of both export and import between Vietnam and the U.S. is tending to slow down if compared with those of previous years. 608
5. Particularly, the growth rate of Vietnam’s exports to the U.S. in 2014 and 2015 had increased by 24% while the figures of 2016 and 2017 increased by 10%. The figure of 2018 only increased by 5.84% compared to 2017. The growth rate of Vietnam’s imports from the U.S in 2019 increased by 12.25% compared to 2018 while this figure of 2017 decreased by 19.45% compared to 2016. (See the Figure 1). Secondly, domestic exporters are concerned about the quantity more than the quality of commodities and efficiency of exports. The large trade surplus with the US market is mainly from the export turnover of processed commodities. The key export commodities of Vietnamese enterprises to the U.S. now are textiles, leather footwear, furniture Despite creating jobs, these items are mainly proceed and assembled products with low added value. Besides, a large number of these items have been produced by FDI enterprises. High value–added products or high–end consumer products, which are directly related to human health, still account for a negligible proportion of the structure of Vietnam’s exports to this fastidious market. Regarding the fishery sector, the U.S. is Vietnam's largest importer of seafood; however Vietnamese fishery products exported to the US market frequently face antidumping cases due to their low price. Thus, Vietnam’s exports to the U.S. only have growth in quantity but not quality and added value. Thirdly, Vietnamese enterprises still have insufficient knowledge and information of the US market, so Vietnamese export commodities have not penetrated deeply their distribution system. An expert of shoe export suggested that shoes and their laces should be put separately when being exported to the U.S. because if the shoes were laced, they would be considered as complete products, then the import tariff would be higher. 3.3. Causes of limitations in Vietnam’s exports to the U.S Objectively, Vietnam is a country with a low starting point, backward technology and facilities. Thus, it is difficult to produce and export high quality products to meet international market demand. Moreover, international economic integration is a new playground with new rules, which have not occurred in the history of country development. Vietnam's exports have to compete with those of countries with more advanced science and technology. Besides, Vietnamese entrepreneurs with agricultural backgrounds have to face experienced global entrepreneurs who know well international laws and trade knowledge. In the global environment with a lot of risks and fluctuations, it is obvious for limitations of Vietnam’s exports to happen. Subjectively, at macro level, the US still considers Vietnam as a non–market economy, causing disadvantages for domestic exporters. The structure of export commodities is backward and has been changed slowly due to retrogressive production structure and economic structure. The core reason is the slow change of cognitive thinking and economic thinking about production and export of the centrally planned mechanism in the market mechanism and international economic integration. The inadequacies in perception, thinking and the limited capacity of the agencies in planning and implementing economic development policies in general and the promotion of exports in particular are main reasons badly affecting Vietnam’s exports. Regarding enterprise level, export to the U.S. still has difficulties due to weak capacity of domestic exporters, high freight rate and long transport time, so export competitiveness of Vietnamese enterprises with those of other countries in the US market is not efficient. Moreover, the majority of Vietnamese exporters are small and medium enterprises which have insufficient experience in dealing with commercial lawsuits, so meeting requirements from the US market will have difficulties. Besides, the lawyer’s fees for prolonged and complicated lawsuits can cause loss for these enterprises. 609
6. 4. OPPORTUNITIES AND CHALLENGES FOR VIETNAM’S EXPORTS TO THE U.S 4.1. Opportunities for Vietnam’s exports Firstly, the geopolitical position of Vietnam on the global front is suitable with the U.S. pivot strategy from the Middle East to the Asia–Pacific region. National geopolitical position is determined by political, economic, military, population, and intellectual potentialities. It is also influenced by ocean borders; the development level of the transport system; the presence and condition of natural resources; the length of the land, air and sea borders; climatic conditions; environmental hydrology and the level of international relations. Vietnam is a gateway to do trade with the regional maritime economies and also a gateway to land transport systems of Southeast Asian and Asian countries. Having long, narrow land and sea borders; Vietnam is truly a commercial and economic center in the South East Asia with easy access to the East China Sea and the Far East of Russia. The political leadership of the country is stable, until now there are no permanent risks threatening the stability of the domestic political environment. Vietnam has been known as a bright spot in trade and investment for foreign businesses in recent years. Secondly, the U.S. is the largest importer of the world with dense population and high average income. Besides, people have shopping habits with diverse preference because of the multiethnic culture. In 2014, the U.S. is a market with import capacity of more than $ 2.7 trillion. The proportion of Vietnam's exports only accounted for 1.3% of total US imports this year. Therefore, Vietnam has more opportunities to develop exports to this market. Thirdly, the U.S. tends to import typical agricultural products such as tropical fruits, textiles, footwear, or electronic machinery and equipment. These products of Vietnam have competitive advantage due to favorable natural conditions and labor advantages. However, there still exits great challenges for Vietnam’s exports. 4.2. Challenges for Vietnam’s exports to the U.S. Firstly, the US legal system will impose stricter administrative regulations and technical barriers on imports, following the trend of fair exchange in the new economic order. This is a big challenge for Vietnamese exporters. In addition to the federal law, each state has different rules and regulations. Vietnamese enterprises which want to export their products to any particular state of the U.S. must look into the laws and regulations of that state as well as the related federal law. The protection tendency through the issuance of new, complicated regulations and standards on food quality, safety and origin of products, especially for agro–forestry–fishery products are also increasingly applied by the US. Vietnam must anticipate that the protection for US domestic production is very high. Trade and technical barriers of this country are increasingly stricter. Whenever there is an evidence of harm to their domestic production, they will immediately add new laws and regulations to deal with. According to the statistics from the Trade Remedies Authority of Vietnam (Ministry of Industry and Trade), by the end of 2019, over 160 trade remedy cases have been initiated regarding investigations into Vietnamese exports. The investigated commodities will be more and more diverse from agricultural and aquatic products to products of processing and manufacturing industries. Therefore, Vietnam always faces the risk of being sued. For consumer products, the US laws require regulations on food quality and safety including labels, packages, pesticides, nutrient and impurity content. In order to avoid commercial fraud, the US market always requires exporters to provide documentation such as shipping and financial documents, identification standards, and measurement standards Regarding fishery products, to export shrimps 610
7. or fish to this market, the enterprises must follow two steps. The first step is directly or through exporters sending control programs on food processing to the U.S. Food and Drug Administration (FDA) for review and license. Next, the enterprises will be recognized at the national level by signing a memorandum of understanding between the FDA and the competent state authority on hygiene control in the export country. Once the documentation above is sufficient, the enterprises can export their products to this market. Secondly, the policies of trade deficit reduction, domestic product protection and the imposition of high anti–dumping tax on imports by President Donald Trump will increase. It is obvious that President Donald Trump has taken drastic steps to clarify the cause of the U.S. trade deficit and redefine the policy that he calls "fair trade". Accordingly, trade protection measures have been gradually revealed. On April 2nd, 2017, Donald Trump signed two executive orders on trade. The first order was against unfair trade; and the second one was about anti–dumping. The two orders required the U.S. trade officials to accelerate the collection of anti–dumping tariff. Thus, high tariff has been imposed on subsidized foreign products. Many countries have export products getting noticed by the U.S. for this kind of tariff such as China, Japan, Germany, Mexico, Ireland, Vietnam, Italy, South Korea, Malaysia, India, Thailand, France, Switzerland, Indonesia and Canada. Also in 2017, the U.S. decided to extend the duration of imposing anti–dumping tariff on Vietnam's pangasius to five years although Vietnam's side claimed that that was unreasonable. The long–lasting "war" for catfish between Vietnam and the U.S. has been still unfinished. In early November 2017, the U.S. officially announced their imposition of anti–dumping duty on tool chests and cabinets imported from Vietnam with the tax rate up to 230%, even higher than the rate of 90.4– 168.93% which Chinese enterprises suffered. Moreover, by the end of 2017, the U.S. continued to impose anti–dumping and countervailing duties on color coated steel and cold rolled coil imported from Vietnam because these products had Chinese origin. Accordingly, color coated steel would be imposed anti–dumping and countervailing duties which was 199.43% and 39.05%, respectively, while these two tariffs imposed on cold rolled coil are 256.79% and 256.44%, respectively. Thirdly, Vietnam still heavily depend on raw materials and goods imported from China to produce, process and export to the US market; easily becoming the target of anti–dumping lawsuits and trade remedy measures. In 2017, the U.S. also started two trade remedy lawsuits against washing machines and solar panels imported to this country. At the beginning of 2018, the U.S. officially applied trade remedy tariffs on these two commodities. Vietnam is also a related party impacted considerably by these cases. Such trade defense battles have occurred continually, thus it is obvious that Vietnam's exports will be affected badly because actually, the majority of raw materials for production of textiles, steel materials are imported from China. The U.S. has completed its Trade Policy Agenda in 2018. Accordingly, this country will accelerate the application of anti–dumping and countervailing sanctions; issue executive orders to impose a very high tax rate on steel and aluminum imported from countries around the world. Vietnamese enterprises said that more and more Vietnam’s exports to the U.S. were taxed for anti– dumping or got difficulties due to increased technical barriers. Not only are the major export sectors sued, but small items such as shrimps, fish, textile fibers, steel nails are also in this trend. Any enterprises may confront anti–dumping petition against products exported to the U.S. From the imposition of a border tax system to higher tax rates, the restart of U.S. trade relations is pushing many of Vietnam's businesses into trouble as their revenue come from exports to the U.S. Numbers originate in the United States. Higher tax rates on exports to this market will have more negative impact on Vietnam than any other Asian country. This could reduce Vietnam’s GDP by almost 0.9%. 611
8. 5. SOLUTIONS TO CHALLENGES 5.1. Solutions for the Government It is necessary to develop and ratify Vietnam's trade development strategy in general and the strategy for Vietnam’s exports to the U.S. market in particular in the direction of economic, social sustainability; preservation of cultural values of the nation and environmental protection. Recently, Vietnam exports about 60,000 tons of shrimp to the U.S. each year, accounting for only about 10% of the U.S. shrimp imports, while Vietnamese enterprises can have double capacity compared to the current level. Vietnam is considered a non–market economy, which is detrimental to exporters. Therefore, the two governments need a proper care to improve this. Trade remedy lawsuits of the fishery industry are to ensure the quality, safety and hygiene of food for consumers. Thus, the long–term solution to overcome the challenge of protectionism is to increase the effectiveness of food safety management so that export products are safe and reach high quality. The Vietnamese government also needs further reforms in administrative procedures, services and infrastructure to shorten the transit time of enterprises. Besides, it is vital to strengthen the state management to avoid the evasion of trade remedy measures, and actively discuss with relevant U.S. agencies about this mechanism for exported products and make recommendations for the two sides to review and track the problem more closely. 5.2. Solutions for ministries, branches and localities The new policies of the Donald Trump’s government will undoubtedly affect Vietnam's exports. Therefore, ministries and branches need to assess the impact of the new U.S. tax law on our economy at the request of the Government. Currently, the Trump administration has many policies to address China’s unfair trade. If that continues to happen, Vietnam's exports, which depend heavily on materials imported from China, will be affected badly. Particularly, the exports of Vietnam to the U.S. made from the majority of raw materials from China will be easily taxed for anti–dumping. Accordingly, the commodities which bring large export turnover such as seafood, textiles, leather shoes, steel will be affected much. Thus, the ministries and branches have to review Vietnam’s exports to the US, especially the products with the content of raw materials and components imported from China to warn and recommend enterprises when the U.S. applies anti–dumping tax on these products. In addition, Vietnam must be independent from China for the raw materials. The Vietnamese government has negotiated and entered into free trade agreements and customs agreements with Japan, Australia, South Korea, and EU. That is the legal basis which enables Vietnamese product penetrating these markets. Localities, enterprises and associations should study the preferential terms offered by the FTA to take advantage of opportunities. So, Vietnam does not deeply depended on a market. 5.3. Solutions for exporters The most important thing is to register A–D–U–N–S number to avoid the rejection and trade barriers for products exported to the U.S. market. Actually, the registration of this code is simple and free. This is used to prove the existence of an enterprise and the origin of their products. Besides, it helps global partners know that the enterprise is a reliable business, so it will be easy for the products to be exported to the U.S. market. In addition, Vietnamese enterprises should have an active mutual cooperation in building a supply chain for exports to the U.S., bringing a lot of added value for Vietnamese products. 612
9. Moreover, Vietnamese enterprises should have market researches on quality, price, seasonality and transit time. In particular, it is necessary to calculate the exact time for the transportation of products from Vietnam to the U.S. to reduce the cost in an optimum way. In order to confront trade barriers, when having preparation for exports to the U.S. market, the enterprises should carefully check out and have a good relationship with U.S. partners to get the information early. If the enterprises have to deal with petitions and their products are taxed at high rate, the whole industry and they will get huge loss. In case the enterprises are sued, the first thing they have to do is to cooperate closely with the U.S. government as well as with associations and other businesses of the industry and the management agency which is the Ministry of Industry and Trade of Vietnam to find the solutions for overcoming barriers. In the long term, enterprises need aim to develop product diversification and export market multilateralization strategies to spread risks out. They should avoid focusing on massive exports to one market because this can create the basis for other countries to sue them or to apply measures of trade remedies in case exports from Vietnam increase suddenly. These enterprises must also regularly raise awareness about the risk of being sued and investigated; about commodity groups often dealing with anti–dumping lawsuits in order to have a plan to proactively prevent and handle lawsuits of trade remedies when developing export strategies. Finally, Vietnamese enterprises need to invest and import advanced technology from other countries to develop supporting industries and to diversify raw materials to have self–supply in input materials and to produce commodities that meet the requirements of such difficult markets as the U.S. 6. CONCLUSION On the basis of the assessment of the current status of export commodities between Vietnam and the U.S, the article identifies opportunities and challenges for Vietnam’s exports to the U.S. to suggest solutions for the Government, ministries, branches, localities and exporters to boost Vietnam’s exports to this market. The author of this article hopes to receive comments and recommendations from the researchers to make these solutions more perfect. REFERENCES 1. General Department of Vietnam Customs, Customs Statistical Yearbook on Imports and Exports of Vietnam 2019; Finance Publishing House. 2. Will Martin and Emiko Fukase (2000), The effects of the United States granting MFN status to Vietnam, Review of World Economics, Weltwirtschaftliches Archiv, September 2000, Volume 136, Number 3, Page 539–559. 3. Brian, McCaig (2011), "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access, Journal of International Economics, Elsevier, September 2011, vol. 85(1), Page 102–113. 4. Dinh Thi Thu Oanh (2012), PhD Thesis on Solutions to boost export of Vietnamese wooden products to the US market, University of Economics – Ho Chi Minh City. 5. Vo Thanh Thu (2013), Measures to promote textile and garment export to the US market after the economic crisis, Journal of Economic Development No. 1, Page 45–53. 6. – United States Census Bureau 7. Vietnam’s Ministry of Industry and Trade (2018), Vietnam Import–Export Report 2018, Industry and Trade Publishing House, Hanoi, Page 105–106. 613