VietNamNet Bridge - Trade, investment, labor ... liberalization is seen as a big opportunity for Vietnam when the ASEAN Economic Community (AEC) is established, but it also a great challenge because of Vietnam’s level of integration.

Member states of the Association of Southeast Asian Nations (ASEAN) last week signed a declaration establishing the AEC, officially marking the process of enhancing trade, investment, service and infrastructure connection and the opening of the labor market.

"This event will force countries to speed up the implementation of commitments, initiatives, action programs and action plans that they had built towards the formation of AEC, which also marks the deeper integration of Vietnam,"an expert of the Vietnam Chamber of Commerce and Industry of Vietnam said on VNE newswire.

ASEAN is considered a dynamic market with over 640 million people, total GDP of about $2.48 trillion and a total trade volume of $2.53 trillion in 2014.

"AEC is a major initiative of the leaders of Southeast Asia with ambition to turn the region into a single market, a single manufacturing base in which goods, services, investment, capital and skilled labor are free to circulate in 2015," said Tran Duc Minh, Deputy General Secretary of the Vietnam Economics Association.

He also said a unified ASEAN will help the region cope with the new challenges in the world, especially the rise of China, India ...

As a member of AEC, Vietnam will approach the vast market with nearly 100% of the goods are free to circulate inside the block, will have the opportunity to attract foreign investment thanks to the transparent and equal economic environment, and make use of the free trade agreements of partners of ASEAN.

According to the Ministry of Industry and Trade, the member countries of ASEAN are the second largest supplier of goods to Vietnam (just behind China) and the third largest export market of Vietnam (after the US and the European Union).

The total trade turnover between Vietnam and ASEAN countries reached $42.1 billion in 2014, up 57% compared to 2010. A report of the Foreign Investment Department also showed that by the end of October 2015, the ASEAN countries invested more than $56.8 billion in Vietnam.

For Vietnamese enterprises, the AEC will not only create business opportunities but also pressure, forcing them to reform themselves, to improve their competitiveness in order to survive and grow.

Nguyen Xuan Phu - President of Sunhouse Corporation – said that when the AEC is formed, Vietnam will have to face a more competitive game and have to think differently. Currently, many businesses are only familiar with the domestic market and they do not understand regional markets. They do not have specific analysis of the competitiveness of their products compared with competitors in the region, but this will have to change.

Tran Minh Duc said that the establishment of the AEC is very easy, just through a statement, but how to make it works in fact is still a big question.

"We are facing with the cruel reality that economic development level of ASEAN countries are very different. Political, social and cultural background is also very diverse. Turning these differences into opportunities for development and prosperity is not easy. Therefore, business and managers have to look at the facts to foresee the cost and benefits that we will encounter on the road to the expected paradise," Duc commented.

In the past five years, Vietnam has implemented many commitments of ASEAN in various field but intra-regional trade and investment is still far lower than that with partners outside the region. Vietnam’s trade turnover with ASEAN accounted for 15% of total import-export turnover, and it is about 20% for investment.

The reasons pointed out by the Vietnam Economics Association are the low level of preference of trade and investment agreements in the region, lack of transparency, lack of seriousness in the application of rules of origin, dispute settlement mechanisms, and licensing procedures and non-tariff barriers remain high ...

The internal weaknesses are also challenges for Vietnam when the AEC is formally established in late 2015, and the biggest obstacle is the pressure from intra-regional goods.

The WTO Center of VCCI said that with the similar structure of goods in all 10 ASEAN countries and the similarities in consumption culture, the opening of the market at the end of this year will create great pressure of competitiveness on Vietnamese enterprises, particularly those with weak competitiveness in highly protected sectors. The typical example is the flooding of consumption goods from Thailand, Malaysia and Indonesia in Vietnam.

In the future, when the AEC objectives are completed, the pressure from the other aspects will appear; for example the services sector will be put into a more intense competitive environment because it will be no longer protected. Vietnam is also facing challenges in controlling capital flows because of the barrier to protect local businesses from the withdrawal or contributions of capital or partner.

Therefore, the center recommended Vietnamese enterprises to actively explore the contentand commitment of valid agreements in the AEC to prepare and make use of the opportunities and restrict the challenges from the implementations of these agreements. According to a recent survey, 76% of local businesses still did not know anything about the AEC and 70% said that the establishment of this community did not affect them.

The overall plan to form the AEC was conceived in 1997 and formally adopted at the 14th ASEAN Summit in Thailand in 2009. Since then, the countries in the region have implemented agreements within the framework of AEC, towards building a unified community and a competitive economic region.

However, the AEC is not the only goal of integration of Vietnam and it also has many other FTAs with important partners. Therefore, Vietnamese businesses need to focus all efforts to improve competitiveness in order to survive and develop when Vietnam integrates more deeply into the world economy.

"Establishing the AEC is the first step only. There are plenty of opportunities and challenges ahead," said Tran Duc Minh.

According to the ATIGA Preferential Tariff Agreement, the ASEAN-6 member states (including Singapore, Thailand, Malaysia, Indonesia, Brunei, and the Philippines) had to remove nearly 100% of tariff lines from 2010, except for certain products exempted permanently for reasons of national security, morality and health.

Vietnam is in the CLMV group with Cambodia, Laos, Myanmar and it is allowed to delay this route until the end of 2015 and can retain 7% of the tax lines until 2018, including cars and component parts, iron and steel, motorcycle component parts, machinery, equipments, bicycles and spare parts, beer and alcohol, plastic products, and paper of all kinds. By 2018, Vietnam will be allowed to maintain import duty at the rate of up to 5% to around 3% of tariff lines, including most of the sensitive agricultural commodities (raw poultry, chicken, eggs, citrus fruits, rice, brown rice, processed meat, and sugar).

Nam Nguyen