Opportunities and challenges for vietnamese plastic exporters with the agreement of evfta

Tóm tắt Hiệp định Thương mại Tự do Việt Nam EU (EVFTA) là một FTA thế hệ mới được đàm phán giữa Việt Nam và 27 quốc gia thành viên Liên minh Châu Âu. EVFTA dự báo sẽ có tác động đáng kể đến toàn bộ hệ thống kinh tế Việt Nam và hoạt động thương mại của các doanh nghiệp Việt Nam. Trong đó, sản xuất, gia công nhựa là một trong những ngành kinh tế được dự báo sẽ hưởng lợi lớn từ EVFTA với những cơ hội, đột phá mới cho cả xuất nhập khẩu và thu hút đầu tư. Trong bài nghiên cứu này, nhóm tác giả đã sử dụng thiết kế nghiên cứu định tính để thu thập, tổng hợp và phân tích dữ liệu thứ cấp từ các nguồn đáng tin cậy (Trademap, VCCI, MoIT, VPA). Bài viết này được thực hiện nhằm (i) đánh giá tác động của EVFTA đối với tăng trưởng xuất khẩu sản phẩm nhựa của Việt Nam sang thị trường EU, (ii) chỉ ra cơ hội cũng như thách thức mà EVFTA mang lại cho thị trường xuất khẩu nhựa Việt Nam, và (iii) đề xuất một số kiến nghị sẽ được đưa ra nhằm nâng cao hiệu quả kinh tế của ngành nhựa và thúc đẩy xuất khẩu nhựa của Việt Nam sang EU trong thời gian tới. Từ khóa: EVFTA, ngành nhựa Việt Nam, xuất khẩu

EXPORTERS WITH THE AGREEMENT OF EVFTA

Vũ Huyền Phương

Giảng viên Viện Kinh tế và Kinh doanh quốc tế

Trường Đại học Ngoại thương, Hà Nội, Việt Nam

Tóm tắt

Hiệp định Thương mại Tự do Việt Nam - EU (EVFTA) là một FTA thế hệ mới được đàmphán giữa Việt Nam và 27 quốc gia thành viên Liên minh Châu Âu EVFTA dự báo sẽ có tácđộng đáng kể đến toàn bộ hệ thống kinh tế Việt Nam và hoạt động thương mại của các doanhnghiệp Việt Nam Trong đó, sản xuất, gia công nhựa là một trong những ngành kinh tế được

dự báo sẽ hưởng lợi lớn từ EVFTA với những cơ hội, đột phá mới cho cả xuất nhập khẩu vàthu hút đầu tư Trong bài nghiên cứu này, nhóm tác giả đã sử dụng thiết kế nghiên cứu địnhtính để thu thập, tổng hợp và phân tích dữ liệu thứ cấp từ các nguồn đáng tin cậy (Trademap,VCCI, MoIT, VPA) Bài viết này được thực hiện nhằm (i) đánh giá tác động của EVFTA đốivới tăng trưởng xuất khẩu sản phẩm nhựa của Việt Nam sang thị trường EU, (ii) chỉ ra cơ hộicũng như thách thức mà EVFTA mang lại cho thị trường xuất khẩu nhựa Việt Nam, và (iii)

đề xuất một số kiến nghị sẽ được đưa ra nhằm nâng cao hiệu quả kinh tế của ngành nhựa vàthúc đẩy xuất khẩu nhựa của Việt Nam sang EU trong thời gian tới

Từ khóa: EVFTA, ngành nhựa Việt Nam, xuất khẩu

OPPORTUNITIES AND CHALLENGES FOR VIETNAMESE PLASTIC

EXPORTERS WITH THE AGREEMENT OF EVFTA Abstract

The EU-Vietnam Free Trade Agreement (EVFTA) is a new-generation FTA negotiatedbetween Vietnam and the European Union's 27 member states EVFTA is expected to have asignificant influence on both the Vietnamese economic system and the commercialoperations of Vietnamese firms In which, production and processing of plastic are one of theeconomic sectors forecasted to benefit greatly from the EVFTA with new opportunities andbreakthroughs for both export and import and investment attraction In the research, theauthors have used a qualitative research design to collect, aggregate, and analyze secondarydata from reliable sources (Trademap, VCCI, MoIT, VPA) This paper was conducted to (i)assess the impact of the EVFTA on the growth of Vietnam’s export of plastic products to the

EU market, (ii) point out the opportunities and challenges that EVFTA brings to Vietnam’splastic export market, (iii) propose recommendations to improve the economic efficiency ofthe plastic industry and promote Vietnam’s plastic exports to the EU in the near future

Keywords: EVFTA, Vietnam’s plastic industry, export Introduction

According to the World Bank, Vietnam is one of the fastest-growing economies in theregion, supported mainly by strong domestic demand and export-oriented manufacturing.Being involved in a large and unified market like the EU is an excellent opportunity forVietnam The European Union-Vietnam Free Trade Agreement (EVFTA) was signed in thespirit of comprehensive cooperation and balanced interests of Vietnam and the EuropeanUnion (EU)

The new-generation FTA is assumed to provide strategic benefits to Vietnam bypotentially expanding trade and investment with one of its largest and most significantpartners With a wide range of commitments, a deep degree of liberalization, and highstandard commitments, the EVFTA is forecasted to have a strong impact on the entireeconomic institutions as well as the business activities of Vietnamese enterprises In which,production and processing of plastic are one of the economic sectors forecasted to benefitgreatly from the EVFTA with new opportunities and breakthroughs for both export andimport and investment attraction

In this paper, we used qualitative methods to analyze the topic “Opportunities and Challenges for Vietnamese Plastic Exporters with the Agreement of EVFTA” The paper is

implemented mainly to achieve 3 following objectives:

(1) Identify a brief overview of EVFTA and its potential impacts on the Vietnamesedevelopment of the plastic industry

(2) Commenting on the development of the plastic industry in Vietnam before andafter the EVFTA officially came into effect

(3) Indicating opportunities, challenges, and recommendations to optimally exploitthe agreement and overcome limitations.

Therefore, the authors decided to conduct the paper with the aim to analyze andpropose possible solutions and recommendations from three perspectives: policy makers’,businesses’, and government’s views By that way, we aim to increase the inclusivity of ourresearch subject

In the Harmonized System (HS) for commodity description and coding, plasticproducts (including plastic materials, semi-finished products, and finished plastic products)are classified under Chapter 39: Plastics and articles thereof Additionally, productscontaining plastic materials are classified under other chapters within the HS system.However, for the purpose of this research, the data and analysis will be limited to plasticproducts under Chapter 39 Moreover, to ensure the highest level of credibility and validity ofthe study, the authors of this paper limited this research within the time period of 4 years,from 2017 to 2021 Due to a shortage of time and limited knowledge, this research wouldface some challenges in terms of reliability and representativeness

Apart from the introduction, this paper includes four main parts The first part is theliterature review and research hypothesis After that, the overview of EVFTA's regulationsrelated to plastic exporting; and the Vietnamese plastic industry in the context ofimplementing the EVFTA are systematically presented In the final two parts, the authorsanalyze the further opportunities and challenges; and draw a conclusion on the topic

Prior to this paper, several studies have been conducted to analyse the impact ofEVFTA on economic institutions Jan Grumiller et al (2018) assume that trade liberalization

is expected to have a good economic impact on Vietnam and loss in public revenue willnegatively affect Vietnam, but should not pose a particular policy challenge According toTran and Do (2018), new-generation FTAs stimulate economic development and stabilizemacroeconomics Maryla Maliszewska et al (2020) also conclude that The EVFTA can bringsignificant benefits to the Vietnamese economy, not only on a macroeconomic level withincreasing GDP and trade flows but also in terms of poverty reduction

Focusing more on the sector of the plastic export industry, as reported by the VietnamChamber of Commerce and Industry (2020), The EU is currently Vietnam's largest plasticexport market, accounting for 15% of Vietnam's total plastic export turnover in 2019 Theyalso pointed out that after the EVFTA came into effect in August 2020, plastic is one ofVietnam's product groups that will soon take advantage of opportunities from this agreement

to increase exports to the EU Phung Xuan Hoi (2022) wrote that EVFTA and variousadvantageous tariffs are valuable for Vietnam's plastic industry General Department of VietNam Customs (2019) indicates that plastic export turnover has consistently recordedincreases in recent years, with the average growth rate reaching between 14% and 15%annually Hanh Nguyen (2022) concluded that the EVFTA is also a prospect to attract EUinvestors in the construction of the plastic segment.

Many researchers have conducted papers on various themes related to the FTAs.However, those studies are primarily concerned with determining the impact of the EVFTA

on the overall macroeconomy, or else just mentioned the overall plastic industry but did notexploit it intensively There were limited papers that looked at the plastic industry and pointout opportunities and challenges, particularly in the Vietnam market Therefore, our groupdecided to dig deeper into the plastic industry, to clarify the present situation and givenecessary proposals and recommendations Furthermore, the Covid-19 pandemic is a crucialcomponent that we investigate in order to deliver more informative and up-to-date researchthat sets itself differs from other publications

Research methodology

Analysis

AfterEVFTA

BeforeEVFTA

Overview &

Regulations

EVFTA AgreementPart 2

Opportunities &Challenge

Proposals

ResearchMethodology

PreviousReseachReview

ConclusionLiterature Review

Part 1

Figure I: Research model illustration

To achieve the model above, we used the qualitative research design This entailsemploying information and expertise from credible papers and journals Regarding thecollection of data, our paper makes use of the data provided by Trade Map, VietnamChamber of Commerce and Industry (VCCI), Ministry of Industry and Trade (MoIT),General Department of Viet Nam Customs (GDVC), Vietnam Plastic Association (VPA), These serve as the foundation for our group to make some suggestions for improving theAgreement

1 European Union–Vietnam free trade agreement

1.1 Overview

1.1.1 Introduction of the EVFTA Agreement

The EU-Vietnam Free Trade Agreement (EVFTA) is a new-generation FTA that wasnegotiated between Vietnam and the 27 member states of the European Union EVFTA,along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP), are two FTAs with the widest scope of commitments and the highest level ofcommitment of Vietnam to date (Wtocenter.vn, 2016)

EVFTA was signed on June 30th, 2019 and took effect from August 1st, 2020 Theagreement consists of 17 chapters, 2 declarations, and several memoranda of understandingwith the main contents being: trade in goods (including general provisions and marketopening commitments), rules of origin, customs and trade facilitation, sanitary andphytosanitary measures (SPS), technical barriers to trade (TBT), trade in services (includinggeneral provisions and market opening commitments), investment, trade defense,competition, state-owned enterprises, government procurement, intellectual property, tradeand sustainable development, cooperation and capacity building, and legal and institutionalissues (Wtocenter.vn, 2017)

With a wide scope of commitments, deep liberalization and high standards, EVFTA isexpected to make a substantial impact on both the Vietnamese economic system and thebusiness activities of Vietnamese enterprises

1.1.2 Overview of the plastic industry in Vietnam

Plastics are commonly used in a wide range of industries in Vietnam, includingpackaging, consumer goods, electronics, automotives, aviation, textiles, and agriculture.Regarding the structure of plastic products, the Vietnam Plastics Association (VPA)categorizes plastic products produced in Vietnam into four main product groups: packagingplastic, household plastic, construction plastic and engineering plastic (Ministry of Industryand Trade, 2020) (Table I) In general, Vietnam has strengths in the production of packaging,consumer plastic products, construction plastic products, and some high-tech plastic productssuch as oil pipes, plastic components for automobiles, and computer equipment However,Vietnam's plastic products still lack diversity in terms of design and models

Table I: Main groups of plastic products produced by Vietnam Product Proportion

Packaging plastic 39 Thin film packaging, plastic bags, PET bottles

Household plastic 32 Household items

Constructionplastic 14 Construction plastic pipe, building material plastic

Engineering

Source: ITC Trademap

The EU is the largest market for plastic exports from Vietnam, accounting for 15% ofVietnam's total plastic export turnover in 2019 Vietnam primarily exports finished productsand semi-finished products including articles for packaging, plastic tableware, constructionpipes, and various other plastic articles to the EU In 2019, the highest proportion beingarticles for conveyance or packing of goods at 43.9% (Trungtamwto.vn, 2021)

In early 2020, the COVID-19 pandemic had a significant impact on the global market,including Vietnam's export industry However, Vietnam's plastic industry experienced lessimpact from the pandemic Specifically, based on data from the General Department ofCustoms, the export revenue of plastic raw materials in the first 10 months of 2020 amounted

to $1.09 billion, showing a 0.6% increase compared to the same period in 2019 Additionally,the export revenue of plastic finished products during the same period reached nearly $3billion, reflecting a 3.7% growth compared to the previous year (Trungtamwto.vn, 2021)

1.1.3 EVFTA's Commitments Related to the Plastic

The plastic production and processing industry is forecasted to benefit significantlyfrom the EVFTA, with opportunities arising for both exports, imports, and investmentattraction

In the Harmonized System (HS) for commodity description and coding, plasticproducts (including plastic materials, semi-finished products, and finished plastic products)are classified under Chapter 39: Plastics and articles thereof Additionally, productscontaining plastic materials are classified under other chapters within the HS system.However, for the purpose of this research, the data and analysis will be limited to plasticproducts under Chapter 39

1.1.3.1 Commitments on tariffs measures

Currently, the Most Favoured Nation (MFN) tariff rate applied by the EU for plasticproducts is commonly 6.5%, with an average MFN tariff rate for all Chapter 39 plasticproducts at 5.47% Plastic is one of the few products for which the EU maintains relativelyhigh MFN tariff rates, as the EU primarily imposes high MFN tariffs on agricultural productsand very low (or zero) tariffs on industrial products However, regarding the EU's importduties on Vietnam's plastic products, the EVFTA has committed to eliminating tariffsimmediately upon the agreement's implementation, starting from August 1st, 2020.

1.1.3.2 Commitments on non-tariffs measure

As a new-generation FTA, the EVFTA encompasses a range of commitmentsconcerning non-tariff measures Most of these commitments are applicable across variousmerchandise categories, including plastic products The commitments related to plasticproducts are primarily focused on import-export restrictions and Technical Barriers to Trade(TBT)

Restrictions on Import and Export Measures

The EVFTA reiterates the obligations set forth in the World Trade Organization(WTO), stipulating that Vietnam and the EU shall not impose or maintain any prohibitions orrestrictions on imports or exports, except as committed or permitted under the WTO'sexisting provisions and exceptions Therefore, apart from the cases specified in thecommitments, Vietnam or the EU cannot prohibit or restrict the import or export of plasticproducts

The EU does not have any reservations regarding this obligation Vietnam reserves alist of products that are still subject to import and export restrictions, as stated in Annex 2-A-

4 of the EVFTA, which includes used household plastic products Thus, Vietnam willcontinue to prohibit or restrict the quantity of import and export of used household plasticproducts

Technical Barriers to Trade (TBT)

Regarding technical standards, the EVFTA introduces specific requirements thatdiffer from those of the WTO These requirements include:

 Before issuing technical regulations, the EU/Vietnam must consider differentmethods of governance, beyond relying solely on legal regulations They areencouraged to assess the impact of these regulations

 When appropriate, the EU/Vietnam should refer to and use internationalstandards such as ISO, IEC, ITU, Codex If different standards are appliedinstead of international ones, the differences must be clarified, and the reasonsfor not using international standards should be explained

 The proposed regulations must be notified to the other party's government atleast 60 days in advance to allow for comments All relevant parties should beinvolved in the consultation process for the draft, and comments on the draftshould be considered

 During the implementation of technical standards, the EU/Vietnam mustensure that the standards are reviewed when necessary to align withcorresponding international standards.

 Regular reviews should be conducted to enhance the compatibility of international standards with international standards

non- When requested, the EU/Vietnam should consider recognizing equivalenttechnical regulations of the other party

Regarding labeling and markings on goods under the EVFTA, specific commitments include:

 The mandatory information on labels should be relevant to consumers/users orindicate the product's compliance with mandatory technical standards

 If goods have already met the relevant mandatory technical standards, there is

no obligation to register or seek approval for their labels before they arecirculated in the market, except for public interest reasons

 Labels can be attached or supplemented at approved locations within theimporting country's territory However, the old label may need to be retained

on the product without removal

 Additional languages, internationally approved terms, figurative marks,symbols, images, and other information beyond the importing country'srequirements can be included on labels

 Non-permanent labels that can be separated or removed from goods or labelformats accompanied by other relevant documents are encouraged

For EU goods exported to Vietnam, a special commitment states that if Vietnameselaw requires information on the country of origin, labeling the product as "Made in EU" or

"Produced in the EU" satisfies this requirement for non-agricultural goods (excludingpharmaceuticals)

Overall, it can be seen that the TBT provisions in the EVFTA do not bring significantchanges to the existing mechanisms for issuing and implementing TBT measures of eachAgreement party (EU/Vietnam), except for some new provisions related to labelingrequirements (Wtocenter.vn, 2021)

1.2 The Situation of Vietnam’s Plastic Industry in the context of Implementing EVFTA

1.2.1 Plastic Export Situation of Vietnam before EVFTA came into effect

From 2017 to 2019, the export situation of Vietnam's plastic industry to the EUshowed some signs of growth With an average growth percentage of 6.5% per year,Vietnam's plastic export turnover to this region increased from 561.2 million dollars in 2017

to 636.3 million dollars in 2019 By the end of 2019, the EU market ranked third in the list of

“Importing markets for plastic products exported by Vietnam”, with 13.1% of the total sharevalue, just behind the US and Japan

Figure II: Exported value of Vietnam's plastic industry to the EU (2017-2019) (thousand

dollar)

Source: ITC Trademap

This period of growth shows that before the EVFTA, the EU was considered as apotential and growing market for Vietnam's export plastic enterprises The reason is the EUmarket's characteristics always have two opposing trends: on the one hand, the demand forfinished and semi-finished products such as plastic bags or plastic packaging is increasingwith economic development and income levels; on the other hand, the concern ofenvironmental problems increases the demand for high quality products In addition, evenbefore the EVFTA, the EU tax applied to Vietnamese plastic products was low with a GSPrate of 3% (compared to MFN tax of 6.5%) At the same time, unlike other big competitorssuch as China and Thailand, Vietnam has not been subject to anti-dumping duties by the EUsince 2006

In the EU (27) market, the countries in which Vietnam has the largest export valueinclude: Germany, the Netherlands, France, Belgium and Poland In particular, the value ofplastic exports to Germany and the Netherlands has always reached more than 100 millionUSD for 3 consecutive years from 2017 to 2019 Moreover, in 2019, Vietnam's plastic exportmarket in the EU was expanded thanks to the appearance of Luxembourg, with an exportvalue of 17 million USD in 2019 (ITC Trademap, 2019)

Similar to Vietnam's plastic export situation to the world, in comparison to plasticfinished goods, Vietnam’s plastic materials exported to the EU only accounted for a smallpart of Vietnam's total plastic exports in 2019 with 13%

Year 2019 Year 2018

Year 2017

560.000 540.000 520.000

561.240

580.000

612.092

620.000 600.000

636.321

660.000 640.000

Table II: The structure of Vietnam’s plastic products exported to the EU in 2020

HS

Vietnam’s export to EU (27) share value in 2020

(%) Plastic materials

3907 Polyacetals, other polyethers and epoxide resins, inprimary forms; polycarbonates, alkyd resins, 12.6

3902 Polymers of propylene or of other olefins, in primaryforms 0.4

Plastic product and Semi-product

3923 Articles for the conveyance or packaging of goods,of plastics; stoppers, lids, caps and other 44.5

3926 Articles of plastics and articles of other materials of heading 3901 to 3914, n.e.s. 30.1

3924 Tableware, kitchenware, other household articlesand toilet articles, of plastics (excluding 3.9

3920 Plates, sheets, film, foil and strip, of non-cellularplastics, not reinforced, laminated, 1.8

3921 Plates, sheets, film, foil and strip, of plastics, reinforced, laminated, supported or similarly 1.5

3917 Tubes, pipes and hoses, and fittings therefor, e.g joints, elbows, flanges, of plastics 1.5

3918 Floor coverings of plastics, whether or not self-adhesive, in rolls or in the form of tiles; 0.8

3919 Self-adhesive plates, sheets, film, foil, tape, strip andother flat shapes, of plastics, whether 0.7

Source: ITC Trademap statistics

From the above table we can conclude that until 2020, the groups of plastic materialsand products (HS3907, HS3923) accounted for a large proportion of 57.1% export turnover.Plastic products for industrial manufacture (HS3917) increased, from 9,260 thousand USD in

2019 to 14,072 thousand USD in 2020, to reach 1.5% share in exported value

In contrast to the growth period of 2017-2019, Vietnam's plastic export situation tothe EU market in the first half of 2020 showed signs of decline: