ASEAN Economic Community 2025: New opportunities and challenges for Vietnam

Joining ASEAN in 1995 is an important step in Vietnam's opening and integration process to implement the policy of the 7th Party Congress on "diversifying and multilateralizing economic relations with all countries", "creating a favorable environment and conditions for foreigners to invest and cooperate in business" and "join other international economic organizations and associations when necessary and conditions exist". Over the past 21 years, Vietnam has actively and proactively participated in ASEAN economic integration and together with ASEAN member countries built an important foundation for the ASEAN Economic Community (AEC) to be officially formed on December 31, 2015.

Up to now, ASEAN has become one of the most important trading partners and an important driving force to help Vietnam maintain economic growth over the past many years.

Regarding trade, statistics from the General Department of Customs show that Vietnam's two-way trade turnover with ASEAN has grown on average 14.5% per year in recent times, from about 3.3 billion USD in 1995 to 42.1 billion USD in 2015 (an increase of nearly 13 times). ASEAN has become Vietnam's second largest trading partner (after China).

Regarding Vietnam's exports to ASEAN, the average growth rate recently reached 17.1%, bringing export turnover from nearly 1 billion USD in 1995 to 18.3 billion USD in 2015 (an increase of more than 18 times). Currently, ASEAN is Vietnam's third largest export market (after the United States and EU). Before 2010, Vietnamese enterprises mainly exported to ASEAN two main commodity groups: crude oil and rice (accounting for over 50% of total turnover). Currently, the structure of export products to ASEAN is much more diverse. In addition to crude oil and rice, Vietnamese enterprises have exported to ASEAN many other products such as phones of all kinds and components; computers, electronic products and components; iron and steel of all kinds; machinery, equipment, tools and spare parts; textiles, footwear, seafood, coffee, rubber, etc.

In the opposite direction, the average growth rate of import turnover from ASEAN recently reached 13.4%, bringing import turnover from 2.3 billion USD in 1995 to 23.8 billion USD in 2015 (an increase of more than 10 times). Currently, ASEAN is the third largest trading partner providing a source of goods for Vietnam, second only to China and South Korea. Over the past many years, accounting for over 60% of import turnover from ASEAN, mainly essential imported goods and input raw materials for domestic production such as: all kinds of petroleum; machinery, equipment, tools & spare parts; computers, electronic products & components; plastic raw materials; paper; wood & wood products; household electrical goods & components; auto components & spare parts; chemicals & chemical products, etc.

In general, in trade relations with ASEAN, Vietnam is a trade deficit country.

In investment relations, ASEAN is an important source of FDI for Vietnam, and is also a bridge for many investments of multinational companies headquartered in ASEAN. ASEAN members with large investments in Vietnam are Singapore, Malaysia and Thailand. Meanwhile, ASEAN is also a traditional market for Vietnamese investors, led by Laos and Cambodia.

Behind the above numbers is Vietnam's continuous efforts to integrate into the ASEAN economy over the past time with an important milestone being the official formation of the AEC. At the time the AEC was established, many important commitments took effect for us:

Regarding trade in goods, according to the ASEAN Trade in Goods Agreement (ATIGA), we have brought the tax rate to 0% for about 90% of tariff lines and will have to eliminate about 97% of tariff lines and eliminate tariff quotas before 2018. In the opposite direction, about 99% of our exports to ASEAN-6 countries have been exempt from import tax since 2010. In addition, ASEAN is promoting the implementation of mechanisms Resolve non-tariff barriers such as consultation and dialogue. Trade facilitation activities are also promoted with many important initiatives such as the ASEAN Single Window Customs Mechanism, Self-Certification of Origin, ASEAN Trade Database... which are being gradually operated. Currently, Vietnam and 6 ASEAN countries including Brunei, Indonesia, Malaysia, Philippines,Singapore and Thailand have implemented all or part of their national single-window mechanisms and are among the leading ASEAN countries in connecting to the ASEAN single-window mechanism. Vietnam has also participated and is implementing a pilot project on self-certification of origin in ASEAN. Thanks to that, trade in goods within ASEAN becomes more favorable, gradually moving towards realizing the goal of establishing a common production base and ASEAN common market within the AEC framework.

Regarding trade in services, within the framework of the ASEAN Framework Agreement on Services (AFAS), we and ASEAN countries have made commitments under 9 Commitment Packages Agreement on general trade in services, 6 PackagesCommitments on financial services, 9 packages of commitments on air transport services, in accordance with our service industry development strategy and current law. ASEAN is also making efforts to complete the next Commitment Packages and negotiate to upgrade the AFAS Agreement into the ASEAN Trade in Services Agreement in the future. The commitment of Vietnam as well as ASEAN countries on services to implement AEC is higher than our commitment to join the WTO (WTO+), so it will increase intra-regional service trade flows, especially in priority areas of integration such as air transport, information technology, healthcare, tourism and logistics.

In order to facilitate the movement of skilled labor in the region, we and ASEAN signed the ASEAN Movement of Natural Persons Agreement in 2012 and 8 mutual recognition agreements (MRAs) within the ASEAN framework on professional services such as technical services (2005), nursing services (2006), architectural services (2007), survey supervision certificates (2007), medical practitioners (2009), dental practitioners (2009), framework agreement on accounting (2009) and later inherited by the MRA on accounting (2014), tourism profession (2012). These commitments are only intended to facilitate the movement of skilled labor within ASEAN, and do not apply to unskilled labor.

Regarding investment, we and ASEAN signed the ASEAN Comprehensive Investment Agreement (ACIA) in 2009 and are continuing to review and eliminate investment restrictions. This effort will help increase intra-bloc investment, directly impacting the economic growth and employment of ASEAN countries, including Vietnam, and indirectly impacting the attraction of foreign investment from outside the bloc to ASEAN, indirectly impacting the increase in trade flows between ASEAN countries and the need to improve the investment environment of each country. The National Assembly's adoption of the revised Investment Law and the 2014 revised Enterprise Law is an important step for Vietnam in preparing to strengthen integration in the investment sector and welcome the trend of increased investment within the AEC framework. In the fieldc promoting and liberalizing investment, Vietnam and ASEAN countries have achieved certain results such as publishing investment guidebooks for businesses and annual ASEAN investment reports; organize seminars and forums on investment promotion; build an ASEAN information page on investment, etc.

In general, the implementation of commitments to build the AEC has brought many benefits to the ASEAN government, businesses and consumers. However, it should be noted that regional economic integration will not end in 2015. Aiming towards the goal of deeper integration, ASEAN Leaders have approved the AEC Master Plan until 2025 with 5 characteristics: (i) A highly integrated and cohesive economy; (ii) A competitive, innovative and dynamic ASEAN; (iii) Enhance specialized connections and cooperation; (iv) An ASEAN with resilience, comprehensive development, people-oriented and people-centered; (v) A global ASEAN.

The recent Resolution of the 12th Party Congress also affirmed the policy of "fully implementing commitments in the ASEAN community and the WTO, participating in new generation free trade agreements, integrating internationally with a much deeper scope than in the previous period", "proactively and actively integrating internationally to develop the country", "expanding and deepening foreign relations; taking advantage of opportunities, overcoming challenges, effectively implementing international integration in terms of new events, continuing to enhance the country's position and reputation in the international arena."

Deeper integration into AEC in the coming period will open up many new opportunities and challenges for Vietnam.

In terms of opportunities, tariff barriers are eliminated, non-tariff barriers are reduced, creating conditions for Vietnamese goods, services, capital, and skilled labor to flow more easily in the ASEAN region. Not only does it open up opportunities to access and expand the intra-regional market with about 625 million people and an annual GDP of nearly 3,000 billion USD, ASEAN is the intersection area of ​​many bilateral trade agreements between ASEAN and external partners and with other regions in the world. Therefore, businesses can access markets outside the bloc with large economic scale such as China, Korea, Japan, Australia, New Zealand, India, and Hong Kong through the existing ASEAN+ 1 FTAs ​​and the ASEAN-Hong Kong Agreement and the Regional Comprehensive Economic Partnership (RCEP) Agreement in the future.

Deeper integration of services will help promote the development of the domestic service market, improve the competitiveness of domestic service businesses, especially service industries with potential advantages of our country such as tourism services, air transport, and logistics. This will contribute positively to the process of transforming our economic structure.

Vietnam will also have more opportunities to attract foreign direct investment from ASEAN and non-ASEAN partners through improving and increasing market attractiveness. At the same time, capable domestic enterprises also have the opportunity to promote investment in ASEAN countries.

Strengthening the AEC means strengthening Vietnam's position in relations with countries in Southeast Asia and around the world, helping to transform the economy and gradually participate in regional and global supply chains, contributing to realizing the goal of economic restructuring and industrialization and modernization of the country.

Through AEC, Vietnam will take advantage of opportunities to exploit infrastructure development projects, serve economic development and strengthen connections with ASEAN countries and partners.

Regarding challenges, the biggest challenge is competitive pressure coming from liberalization and market opening, especially in the context that ASEAN countries have comparative advantages quite similar to Vietnam. If competitiveness is weak, Vietnamese businesses will face difficulties in the domestic market and will have difficulty reaching out and dominating the markets of other ASEAN member countries. Enterprises with poor capacity will not be chosen to participate in highly profitable stages of the supply chain, so they will mainly participate in processing stages. Low-skilled workers will have difficulty rising to management positions or becoming high-salary experts, moving freely and taking advantage of opportunities opened up under regional economic integration commitments. However, looking at it from a cumulative perspectiveThis pressure will create motivation for domestic businesses to improve their competitiveness and domestic workers to improve their qualifications to participate in ASEAN markets and other markets in the region.

The implementation of commitments in ASEAN also requires Vietnam to review and improve the legal system, but at the same time, it also has a positive impact of increasing transparency, improving the business and investment environment, helping the economy operate more effectively.

To take advantage of opportunities and overcome challenges, the AEC integration process needs to go hand in hand with promoting internal resources and enhancing national competitiveness. The most important solution is to build the long-term capacity of Vietnamese businesses and workers in the context of comprehensive economic integration.

To implement this solution, the Government needs to promote administrative reform focusing on trade facilitation such as smoothly operating the National Single Window and continuing to connect with countries to form the ASEAN Single Window and overcome shortcomings in areas where Vietnam is underrated compared to other countries: policy transparency, tax and customs procedures. The Government needs to promote information and propaganda work, raise awareness and social consensus towards the goal of building AEC; Research to innovate content and diversify forms of propaganda information to improve the effectiveness of these activities with society, especially businesses; Increase the participation of news and media agencies in promoting information about the associationinternational economic integration to all subjects. At the same time, the Government needs to research and reorganize vocational training facilities and develop educational programs to better meet regional and international integration requirements to improve the professional capacity, foreign languages, life skills, physical fitness... of domestic workers to effectively participate in the division of labor in the ASEAN region. In addition, Vietnam also needs to focus on attracting support and investment in terms of capital, techniques and experts from more developed countries within the bloc to accelerate the process of technology transfer, improve the quality of Vietnam's goods and services, creating momentum for Vietnam to develop more balancedly than other countries in the region.

On the side of businesses and people, each business and each person needs to be proactive in finding information, prepare themselves for regional and international competition, have creative thinking, innovation and business acumen, have plans to build capacity, especially in terms of brand or reputation and quality for large-scale and long-term business in the future.

Source: Ministry of Industry and Trade