GROUP 7’s REPORT topic VIETNAM JAPAN ECONOMIC PARTNERSHIP AGREEMENT (VJEPA)

Table of Contentsi Overview of the Agreement: History, context, timeline of formation:...3 1 History and context of VJEP Agreement:...3 2 Timeline of VJEPA formation:...3 ii Summary of c

UNIVERSITY OF ECONOMICS THE UNIVERSITY OF DA NANG

INTERNATIONAL ECONOMICS

GROUP 7’S REPORT

Topic:

VIETNAM JAPAN ECONOMIC PARTNERSHIPAGREEMENT

(VJEPA)

Lê Nguyễn Phương Uyên Trương Thái Vy

Nguyễn Khánh Trang Dương Kim Ánh

Da Nang, 2021

Table of Contents

i) Overview of the Agreement: History, context, timeline of formation: 3

(1) History and context of VJEP Agreement: 3

(2) Timeline of VJEPA formation: 3

ii) Summary of content, commitments in the agreement, and incentives that Vietnam receives: 4

(1) Summary of content: 4

(2) Commitments in the agreement: 4

(3) Incentives that Vietnam receives: 7

iii) Impacts of the agreement on trade flows between Vietnam and Japan 9

iv) Impacts of the agreement on the capital and labour flow between Vietnam and Japan 12

(1) Japanese commitment on accessing Vietnam labor 12

(2) Attractive ways to reduce taxes between 2 countries: 13

(3) Major benefits of Vietnam's tax reduction commitment 14

v) Opportunities and challenges for Vietnam at the time of signing the VJEPA agreement: 15

(1) Opportunities: 15

(2) Challenges: 16

i) Overview of the Agreement: History, context, timeline of formation:

(1) History and context of VJEP Agreement:

In 2005, Vietnam and Japan intended to establish this agreement Two countries started to hold agreement talks from January of 2007 when Vietnam’s membership of the World Trade Organization After nine times holding official negotiations and many unofficially parleys, two parties came to terms with all fundamentals and officially signed on 25th of December, 2008

(2) Timeline of VJEPA formation:

Summit, two parties set up a committee for establishing an economic partnership agreement between two countries

bargain about the contexts of agreement

negotiating about the principle of agreement

in Tokyo between the Ministry of Industry and Trade (Vietnam) Vu Huy Hoang and the Ministry of Foreign Affairs (Japan) Nakasone Hirofumi Agreement must wait for the National Assembly of both countries approving which will take effect.[CITATION Hie \l 1033 ]

ii)Summary of content, commitments in the agreement, and incentives that Vietnam receives:

VJEPA is a comprehensive bilateral agreement between Vietnam and Japan covering many areas such as commercialization, trade in services, investment, business environment improvement, labor transfer, and technical cooperation standard art The Agreement consists of 14 chapters and 129 articles It Includes possible terms about general Provisions, Trade in Goods, Rules of Origin, Customs Procedures, Sanitary and Phytosanitary Measures, Technical Regulations, Standards, and Conformity Assessment Procedures Trade in Services, Movement of Natural Persons, Intellectual Property, Competition, Improvement of the Business Environment, Cooperation, Dispute Settlement and Final Provisions

However, because this is a comprehensive economic partnership agreement, not merely a free trade agreement, in addition to goods, services will also be liberalized Investments from one country in another will be protected And there are many other economic cooperation contents

(2) Commitments in the agreement:

Japan:

Japan is committed to reducing taxes on Vietnamese goods in many categories, items, as well as specific reductions, have been presented more clearly in the detailed report

According to the commitment of the Japanese side, the average tax rate on Vietnamese goods imported into Japan will be reduced to 2.8% in 2018 Japan

promised to decrease the tax rate for 95% of total tariff lines, thousands of which will be reduced to 0% If the Agreement is signed and comes into force, at least 86% of Vietnam's agricultural, forestry, and fishery products and 97% of industrial goods exported to Japan will enjoy tax incentive Mineral products will enjoy an import tax of 0% immediately from the date of entry into force of the agreement Shrimp products will be reduced import tax to 1%-2% immediately, processed shrimp products will be reduced to 3.2%-5.3% immediately, frozen squid products will be reduced to 3.5% within 5 years

In addition to the commitments under the WTO, the two sides agree to receive business guests and receive nurses if they meet all the conditions required by the law of the receiving country for 3 years and can be extended

In addition, Japan also accepts:

200-300 Vietnamese nurses in Japan every year and allow nurses trained in Japan to work long-term (up to 7 years) in Japan;

and midwifery professions; supporting the development of a certification system for nurses and midwives;

with Vietnam to improve market access conditions for nurses, midwives, and other professions

Thus, in the FTAs that Vietnam participates in, the labor commitments are mainly related to mode 4, moving natural persons (Mode 4) in trade in services The negotiation and level of commitment are generally based on commitments in the WTO with some minor additions The results achieved in the negotiations

on labor mobility, in general, are still very modest, and the implementation of the commitments that have been achieved still has many challenges ahead

Vietnam:

tariff barriers for Japanese goods in each specific category:

The average tax rate on Japanese goods imported into Vietnam will gradually decrease to 7% in 2018 About 88% of the total tax lines imported from Japan into Vietnam will be reduced within 10 years and 93% of the total tariff lines will be reduced within 16 years… Components for the

production of flat screens and DVDs will be reduced to 3% import tax within

2 years, digital cameras will be reduced to 10% within 4 years, color televisions will be reduced to 40% within 8 years Import tax rates from Japan

to Vietnam for auto parts such as gearboxes will be reduced to 10%-20% within 10 years be reduced to 3%-12% and break to 10% within 10-15 years, screws will be reduced to 5% within 2 years Sheet steel products are also subject to a reduction in import tax rates to 0%-15% within 15 years

- Commitments in service trade:

In general, the level of detailed commitments Vietnam made in the VJEPA is almost no different from the commitments to join the WTO There is only a difference in the general provisions on service chapters in the whole VJEPA,

in which it is worth noting that there are some new points related to definitions and levels of competition protection

Several important services, which have a large impact on the economy, are committed with varying degrees of ventilation Notable service subsectors include information services (including express delivery services,

telecommunications services, audio-visual services); construction services, education, environment; financial services (including insurance, banking, and securities services); medical services, tourism, and transportation

However, because this is a comprehensive economic partnership agreement, not merely a free trade agreement, in addition to goods, services will also be liberalized Investments from one country to another are going to be protected And there are many other economic cooperation contents between the two countries in the future

(3) Incentives that Vietnam receives:

Tax benefits:

This is the most transparent and important content in the implementation treaty, whereby, when the agreement comes into force, Japan commits to eliminate tariffs on 88.05% of Vietnam's export turnover of goods to the Japanese market and 7,297 tax lines, using 80.08% of the number of lines tax, consists of:

number of tax lines in Japan is 2020 As soon as the VJEPA comes into effect, 783 tax lines have a tax rate of 0%; the Tax 505 line will have a drop per year, currently accounting for about 24% of export turnover to Japan The roadmap can last from 3 to

15 years depending on the product group

seafood products include 330 tax lines Japan committed to cut taxes within 10-15 years for 188 lines Out of 330 tax lines on aquatic products, there are 64 tax lines with commitments to reduce the tax to 0% as soon as the Agreement comes into effect There are 8 fishery tax lines with a 3-year tax

reduction schedule, accounting for 8% of Vietnam's seafood export turnover, and 96 seafood tax lines with different tax reduction routes, from 5-10 years

does not enforce a tariff protection policy for most industrial products The average tax rate in this field is less than 5%, that is, the tax is only "collective and offsets" for control and administrative activities of the customs authority and this tax is considered

as a meaningless tax effective protection About 95% of industrial goods tax lines, accounting for nearly 95% of Vietnam's industrial goods export turnover to Japan, will enjoy a preferential import tax rate of 0% If including products that will reduce and eliminate taxes in the 10-year roadmap, this figure is 97% of the tax lines and 98% of the export value of our country will enjoy a preferential import tax of 0%

Other Incentives besides tariff ones:

sector, going much further than Japan's commitments in the WTO In the majority of service industries/subsectors, Vietnamese service providers enjoy an “unrestricted” commitment;

of Vietnamese enterprises in the Japanese market, equally and fairly, and fully protects the interests of investors Japan is committed to increasing transparency, striving to improve the business environment in accordance with Japanese laws and regulations to make it easier for Vietnamese investors to invest in Japan

iii) Impacts of the agreement on trade flows between Vietnam and Japan

Values of two-way trade between Japan and Vietnam were twice as much as that before signing the agreement (25.3% in 2013 versus 13.8 % in 2009)

1 Two-way trade between Vietnam and Japan

Export volumes from Vietnam in 2012 and in 2013 to Japan were doubled compared to those years before the agreement, Vietnam’s trade balance was improved [ CITATION tra14 \l 1033 ]

2 Import and export turnover and trade balance between Vietnam and Japan

Japan became one of the most important and potential partners of the Vietnamese market at that time, as the trade values between the two countries ranked 4th among the markets from which Vietnam imported products and to which Vietnam exported products

Because the import tariff was reduced, the prices of imported products fell which led to the decrease of the cost of export products Therefore, the export competitiveness of Vietnamese products went up Moreover, as Japan also cut out on its import tariff, there was an increase in import volumes applied to Japan

There was also a jump in the import volumes of Japanese products in Vietnam owing to the fact that Vietnam had cut out on its import tariff

3 The import and export turnover change in Vietnam

On the other hand, there were drops in Vietnamese imports turnover in short terms However, when the market’s condition improved, import volumes

increased and continued to rise in the long term In contrast, export volumes rose sharply at first but started to decline in the long term As a result, the trade balance will be lost in the long term

As being affected by cutting out on import tariffs between Vietnam and Japan, there were significant changes in the turnover of exported and imported products Vietnamese exported products were mainly leather, raw oil, equipment and accessories whereas the export turnover of the fields that Vietnam was famous for such as forestry and clothing surprisingly decreased [CITATION Man20 \l

1033 ]

4 Ratings of changing export turnover of some careers in long term

iv) Impacts of the agreement on the capital and labor flow between Vietnam and Japan

(1) Japanese commitment on accessing Vietnam labor

Receiving Vietnamese workers is very important in the VJEPA agreement According to the agreement, a labor group consisting of highly qualified engineers and lawyers will not be restricted in terms of recruitment, as long as

they have contracts with businesses and companies in Japan, they can work In addition, this group of workers must meet the minimum criteria set forth in Japanese law

The Agreement also agrees that the group of workers who are nurses and aides of Vietnam must meet the following two conditions to be able to work in Japan:

Japan

If those conditions are met, the group of Vietnamese nurses and aides will be licensed to work in Japan for 1 to 3 years and will be extended for up to 7 years With high requirements and being able to work for a long time in Japan, this group of workers is required to have expertise and extensive experience That shows that, Vietnamese nurses and midwives have to study and practice for a long time at Japanese schools and training institutes With current costs and conditions, Vietnam can hardly meet these two requirements Understanding that difficulty, Japan committed in the VJEPA that:

nurses and midwives will be supported by an ODA program with low interest from Japan to have more opportunities to study and work according to their dreams

and aides in Vietnam, and recognize the certificates granted by our country as a basis that can be directly accepted in Japan From there, Japan will support building a certification system for this group of workers

- Japan will ease labor movement with Vietnam to improve conditions for nurses and midwives to have the opportunity to access new conditions and knowledge

of the Japanese market within 1 year from the date of signing Agreement.[ CITATION tra14 \l 1033 ]

(2) Attractive ways to reduce taxes between 2 countries:

As we all know, if Vietnam wants to penetrate the Japanese market, it needs to pay many different taxes There are many high taxes that have become barriers that prevent our country from integrating with Japan Therefore, Japan has offered

a lot of tax incentives for the agricultural industry, creating opportunities for business and development between the two countries

(3) Major benefits of Vietnam's tax reduction commitment

In the VJEPA Agreement, Vietnam has committed to reduce 8,873/9,390 tax lines for Japan Such a tax reduction will stimulate investment from Japan; besides, our country can reduce capital inflows while still meeting development needs and fulfilling the requirements of the Agreement

Japan also offers attractive agricultural tax reductions, creating opportunities for our country to invest in agriculture in Japan

In fact, the VJEPA Agreement has brought a lot of excitement to businesses of both countries thanks to tax incentives Mr Huynh Khanh Hiep, deputy director

of Ho Chi Minh City Department of Industry and Trade, said that there are 2568 taxes on pharmaceuticals, machinery, etc., which is 0% of our country's tax for Japan Thanks to this, Japan can invest in factories and industrial parks, and open

up the flow of FDI into Vietnam From there, our country can experience new and modern production methods right at home