Overview of the vietnam japan economic partnership agreement (vjepa) and some recommendations for vietnamese seafood exporters

ABSTRACT The VietnamJapan Economic Partnership Agreement (VJEPA) is Vietnams first bilateral FTA. VJEPA has brought Vietnam a lot of preferential tariffs and nontariff, especially in the field of seafood export. By collecting data and analyzing the actual situation, the article has given an overview of the VJEPA agreement, thereby realizing that Vietnam still faces many difficulties in taking advantage of the incentives on tariffs brought about by the agreement. On that basis, some recommendations are made for seafood exporters. Keywords: VJEPA, FTA, seafood export, Japan LITERATURE REVIEW There have been many studies on the impact of AJCEP on the Vietnamese economy. Mai (2014) used secondary data from 1988 to 2013, the author utilized the Engle–Granger cointegration approach to measure the longterm relationship and the error correction model (ECM) to measure the shortterm relationship between variables. The results show that the VJEPA has no impact on fish exports to Japan. However, this method is not optimal and the articles data only stops in 2013, so the results are still limited. The same result with Nguyen (2012) when applying the gravity method. The article did not find any link between VJEPA and seafood export. In contrast to the above studies, Nguyen and Huynh (2020) apply the dynamic general equilibrium model (DCGE) with the data of Vietnams Social Accounting Matrix in 2012 (VSAM2012) to simulate the impact of import tax reduction. exports according to the VJEPA route to the Vietnamese economy. The simulation results show a positive impact of VJEPA on imports and export in the long run. However, the article only studies the impact of tariffs, not mentioning nontariff commitments.

Vũ Huyền Phương

Giảng viên Viện Kinh tế và Kinh doanh quốc tế

Trường Đại học Ngoại thương, Hà Nội, Việt Nam

ABSTRACT

The Vietnam-Japan Economic Partnership Agreement (VJEPA) is Vietnam's first bilateralFTA VJEPA has brought Vietnam a lot of preferential tariffs and non-tariff, especially in thefield of seafood export By collecting data and analyzing the actual situation, the article hasgiven an overview of the VJEPA agreement, thereby realizing that Vietnam still faces manydifficulties in taking advantage of the incentives on tariffs brought about by the agreement Onthat basis, some recommendations are made for seafood exporters

Keywords: VJEPA, FTA, seafood export, Japan

LITERATURE REVIEW

There have been many studies on the impact of AJCEP on the Vietnamese economy

Mai (2014) used secondary data from 1988 to 2013, the author utilized the Engle–Granger

cointegration approach to measure the long-term relationship and the error correction model(ECM) to measure the short-term relationship between variables The results show that theVJEPA has no impact on fish exports to Japan However, this method is not optimal and the

article's data only stops in 2013, so the results are still limited The same result with Nguyen (2012) when applying the gravity method The article did not find any link between VJEPA and

seafood export

In contrast to the above studies, Nguyen and Huynh (2020) apply the dynamic general

equilibrium model (DCGE) with the data of Vietnam's Social Accounting Matrix in 2012(VSAM2012) to simulate the impact of import tax reduction exports according to the VJEPAroute to the Vietnamese economy The simulation results show a positive impact of VJEPA onimports and export in the long run However, the article only studies the impact of tariffs, notmentioning non-tariff commitments

Nguyen, et al (2012), and Pham and Nguyen (2021) take a different approach to this

topic, focusing on analyzing non-tariff barriers such as standards on residues of veterinary drugs,drugs plant protection, antibiotics, and infection levels These studies have all pointed out thelimitations and solutions for Vietnam to make good use of VJEPA

However, there is still no research on the full impact of the agreement, including tariff andnon-tariff commitment, on seafood exports to Japan This is the reason for writers to write thisessay

1 An overview of the VJEPA 1.1 Introduction of VJEPA

The Agreement between Vietnam and Japan for an Economic Partnership (VJEPA) wassigned on December 25th, 2008 and came into force on October 1st, 2009 This is the very firstbilateral FTA of Vietnam, in which both Vietnam and Japan give the other more preferences thanthat agreed under the Agreement for Comprehensive Economic Partnership ASEAN – Japan(AJCEP) However, VJEPA does not replace AJCEP These two FTAs coexist and enterprisescan choose to use the more favorable one

1.2 Main contents of VJEPA

VJEPA includes an Agreement between Japan and Vietnam for an Economic Partnership(Main Agreement) and an Implementing Agreement This structure allows the flexibleadjustments of the implementation process without affecting the content of the commitments inthe Main Agreement

VJEPA includes 14 chapters, 129 articles and seven annexes, covering a wide range ofthe issues concerning economic integration, especially trade liberalization between the two

countries Vietnam committed to the reduction/elimination of 8873 tariff lines to the end of the roadmap (2026), while Japan committed the reduction/elimination of 6302 tariff lines.

2 Vietnam and Japan’s commitment in VJEPA regarding seafood export 2.1 Commitment on Tariff

Japan committed to eliminate tariffs for 96.45% of the total tariff lines for Vietnamesegoods by the end of the schedule (in 2026), in which:

For seafood: Commitment to cut the tariff immediately (in 2009) for 19% of fishery taxlines, after 15 years, it will reduce a total of 57% of tariff line for fishery (188/330 lines); 33% oftariff line to fishery (59/330 lines) apply import quotas

The tax rates that Japan applies to Vietnamese seafood are divided into 3 groups:

Group 1: is a group of products entitled to 0% tax (including 64/330 items) as soon as the

Agreement comes into effect (accounting for 71% of Vietnam's seafood exports to Japan) Out ofthese 64 tax lines, except for 28 items with MFN tax rate of 0% and 8 items with GSP tax rate of0%, 28 tax lines are essentially 0% However, these 28 tax lines on seafood products mean greattrade significance for seafood exporters of Vietnam The seafood export value of these 28products accounted for 71% of Vietnam's exports to Japan, most notably black tiger shrimp,processed shrimp, crabs and crabs

1 030613000 Frozen shrimps and black tiger shrimp 1%

2 160520029 Prepared or preserved pangasius shrimp and prawns 5.3%

3 160520011 Pandan shrimp and prawns (simple cooked with water or

brine, cooled or frozen after boiling with water or pickle)

4.8% 3.2%

5 030623200 Dried, salted or brine Shrimps

and Prawns

6 030490030 Frozen filet of other fish 2%

7 030375000 Frozen horn sharks and other sharks (except filet and other

fish meat, liver, and roe)

2.5%

8 030619010 Ika sea shrimp (Ebi) including fine powder, coarse

powder, and granules, is suitable for human consumption

2%

9 030614090 Frozen other crab species, except king crab (Paralithodes

spp.), snow crab (chionoecetes spp.), crab (Portunus spp.)and horsehair crab

4%

10 160520019 Shrimps and Prawns (smoked in brine, cooled or dried

after being boiled with water or soaked in brine)

4.8% 3.2%

11 030379031 Frozen seabeam (except for filet and other fish meat, liver

and roe)

2%

12 030379039 Frozen Barracouta fish (Sphyraenidae and Gempylidae)

and South African mink and other fish meat, liver, and roe

2%

13 030621100 Rock lobster and other marine shrimp, raw, fresh or

chilled

1%

14 030265000 Fresh or chilled horn shark and other sharks (except for

filet and other fish meat, liver, and roe)

2.5%

15 030269021 Fresh or chilled sea bream (except for filet and other fish

meat , liver, and roe)

2%

16 030269029 Fresh or chilled Barracouta fish (Sphyraenidae and

Gempylidae) and South African mink fish (except for filetand other fish meat, liver, and roe)

2%

17 030379040 Frozen Shishamo fish (except for filet and other fish meat, 2.8%

liver, and roe)

18 030410220 Frozen liver and roe (except for Nishin and Tara) 2%

19 030410230 Frozen liver and roe (except for Nishin and Tara) 2.5%

22 030611000 Frozen rock lobster and other marine shrimps (Palinurus

spp., Panulirus spp., Jasus spp.)

1%

24 030622100 Raw, fresh or chilled lobster (Homarus spp.) 1%

25 030623111 Raw shrimps and prawns, used as fish breeding or release

bred in captivity into the ocean

1%

27 030623190 Fresh or chilled shrimps and prawns 1%

28 030629110 Raw, fresh or chilled Ika sea shrimps (Ebi) 2%

Figure 2.1.1 28 fishery tax lines with high benefits and 0% import tax as soon as

the Agreement comes into force Source: “Những điều doanh nghiệp cần biết về hiệp định đối tác kinh tế VN-NB”

Group 2: is a group of items with a 3-year tax reduction roadmap, with 8 popular tax lines

at 3.5 - 7.2%

1 030379099 Other frozen fish (except for filet and other fish meat,

liver, and roe)

3.5%

2 030410299 Frozen iver and roe (except for Nishin and Tara) 3.5%

3 030420099 Fresh or chilled other fish meat, except for filet 3.5%

5 160530020 Prepared or preserved lobster, other than smoked, boiled

with water or in brine, chilled, frozen, salted, or driedafter boiling with water or in brine

5%

6 160540011 Others (smoked, boiled with water or brine, cooled,

frozen, salted, or dried after boiling with water or inbrine)

4.8% 3.2%

7 160540012 Other types of fish, prepared or preserved 5%

8 160590294 Prepared or preserved molluscs and other aquatic

1 030549090 Other types of fish, including filet and smoked 10%

2 030559090 Other types of fish, dried, smokeless drying 10.5%

5 030799141 Frozen clams, including fine powder, coarse powder,

and granules, suitable for human food

3.5%

6 160419090 Other types of fish, prepared or preserved, in whole or 9.6% 7.2%

sliced not minced

7 160420012 Nishin roe, not canned, processed or preserved 11%

9 160420020 Other types of fish, prepared or preserved, not in whole

or sliced

9.6% 7.2%

11 160590295 Smoked-free, prepared or preserved scallops 9.6% 7.2%

12 160411010 Salmon (except for canned) prepared or preserved in

whole or sliced, not minced

Vietnam commits to eliminate tariffs for Japanese goods according to the following schedule:

- From 2018, 41.78% of tariff lines in the Tariff will be eliminated

- By 2026 (the last year of the tax reduction schedule), eliminate 90.64% of the tax lines

2.2 Commitment on Non-Tariff Measures 2.2.1 Technical measures

Japan's TBT, SPS are set very strictly, the standards are higher than all other countries in the world, and banned chemicals and antibiotics are frequently added Over the time, Japan has

added 100 more banned substances and restricted the use of seafood products, causing manydifficulties for Vietnamese exporters.

Residues of plant protection drug Trifluralin: In 2009, the US and EU warned that

Vietnamese pangasius shipments were contaminated with Trifluralin, by early 2010 Japanwarned 02 shipments of Vietnamese pangasius contaminated with Trifluralin exceeding thepermissible threshold 10(ng/g) In the middle of September 2010, Japan again warnedVietnamese shrimp to be infected with Trifluralin According to seafood export statistics of theAgro-Forestry-Fisheries Quality Management Department in 2010, we found 18 samples: 11samples of pangasius, 04 samples of tilapia, 02 samples of black tiger shrimp, and 01 sample ofsnakehead fish Trifluralin antibiotics exceeded the permitted level for export

Causes of Trifluralin contamination in aquatic products: breeding stock, use of fungicides,improvement of ponds; However, Vietnamese seafood products contaminated with the aboveantibiotic are from the field, with very high levels of Trifluralin, which farmers mix into seedrice to inhibit the germination of weeds, then the water in the field is discharged and led into therice field In ponds, cross-contamination is difficult to control, and fragmented farming nearfields makes it much more difficult to control pond water quality

Quinolone antibiotic residues: Quinolone is one of five groups of antibiotics restricted for

use in food, the allowable level of total Enro/Cipro in most import markets such as the US, EU,Canada, is 50 (ng/g) Particularly, the Japanese market is more demanding, Japan raised theallowable level of this group to 10(ng/g), five times higher than the common level of othercountries In 2010, Japan warned 28/678 shrimp shipments imported into Japan with levels ofQuinolone antibiotics exceeding the allowable limit, in the first 6 months of 2011 alone, Japanwarned 81/286 shrimp shipments imported into this country However, they are all below thethreshold of 50 (ng/g) This is a very bad situation for Vietnam's key export products to theJapanese market The position of Vietnamese shrimp has gradually lost its dominance after thesetwo incidents

2.2.2 Non-Technical measures

The import of seafood products into Japan is subject to the following import restrictionregulations: import quotas; import approval; import confirmation (before or at the time ofcustoms clearance)

Tariff Rate Quotas (TRQs)

Japan maintains a tariff-quota system that charges a lower tax rate (primary tax rate) ongoods imported in certain quantities, but a higher tax rate (secondary tax rate) on products ofwhich quantities exceed the quantity This system protects domestic producers of similar goodsbut also benefits consumers with the lowest possible tariffs Tariff quota volumes for eachallocation can be applied in one of two ways (in the order in which the request was received or

by prior allocations) Japan usually uses the pre-allocation method The tariff-rate quota systemdoes not restrict direct imports, as imports can be made without a tariff-quota certificate, as long

as a high rate of duty is paid

According to the provisions of the Foreign Exchange and Foreign Trade Law, seafoodproducts: herring (nishin), cod (tara), yellowtail, mackerel, sardines, horse mackerel, scallops,scallop eyes, squid (live, fresh, chilled, frozen, fileted or dried) is considered a product subject

to import quotas, and importers must obtain import permits and approvals from the Ministry ofEconomic Affairs , Japan Trade and Industry (METI)

Import Approval

Applications for import certification of entities and organizations shall be submitted toMETI (through the Department of Economic Cooperation and Trade and the Department ofTrade Control) After receiving the officially stamped application back, the importer can beginthe import clearance process

Regarding pre-import certification: In order to be able to import tuna (excluding Albacore,

bluefin, southern bluefin and bigeye), some documents are required to be submitted to apply forimport certification After receiving the confirmation notice issued by METI, the exporting unitcan carry out the import procedures as prescribed For imports of fresh or chilled bluefin tunaand swordfish (excluding those listed above), an import approval certificate must be submitted tothe customs office in order to receive import confirmation export

Regarding the import certification at the time of customs clearance: According to the

provisions of the Law on Customs Business, the import declaration must be made by theimporter himself or authorized for individuals with expertise in customs practice registration(including customs brokerage) In order for a consignment from abroad to be imported intoJapan, a customs declaration must be submitted to the customs office in charge of the unloadingarea Goods that want to be cleared must first go through inspection and quarantine procedures,then the importer must pay enough customs fees as well as domestic consumption taxes toreceive an import permit

In addition, Vietnam is committed to taking measures to combat illegal, unreported andunregulated (IUU) fishing such as supporting compliance monitoring systems, including theimplementation of measures to prevent Vietnamese-flagged fishing vessels from engaging inIUU fishing activities and to deal with the transfer of marine products that have been caught byIUU fishing Vietnam's anti-IUU fishing problem is being implemented through 3 main tools:

(1) Equipment, information to observe fishing vessels;

(2) Fisheries control forces, specialized fisheries inspectors, marine police, border guardsand navy;

(3) Management of fishing ports, anchorage areas to avoid storms In addition, foreignfishing vessels operating in Vietnam's waters may also be controlled by supervisorsappointed by Vietnamese state agencies on board

3 VJEPA and Vietnam’s export of seafood products to Japan 3.1 Overview

3.1.1 Overview of Vietnam’s seafood export industry

Vietnam's seafood export industry has grown strongly in recent years Seafood products forexport in Vietnam are increasingly diversified Seafood products such as shrimp, tuna, squid,octopus, bivalve molluscs, crabs and surimi currently have increasing export sales (VASEP)Over the past 5 years, Vietnamese seafood products have been exported to more than 150markets around the world In which, Japan, the US, ASEAN, Korea, EU and China are the mainseafood import markets of Vietnam, always accounting for over 80% of the total seafood exportvolume