Vietnam agriculture struggles with AEC formation

This is not the first time that the AEC has faced a delay. In 2012 the commencement of the AEC was postponed to December 31, 2015 from the original plan of January 1, 2015. 

ASEAN was first formed in 1967 with six member countries – Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand – and subsequently joined by Cambodia, Laos, Myanmar and Vietnam.

The first six members are commonly referred to as the ASEAN 6 while the latter four entrants are common known as the CLMV countries. Vietnam expressed interest in joining ASEAN in 1992 and became a full member on July 28, 1995.

The bloc was formed aspiring to create an EU styled single market and production base with a free flow of goods, services, investments, capital and skilled labour as well as to promote regional peace and stability.

The ASEAN Free Trade Area (AFTA) first came into force on January 1, 1993 and member countries subsequently signed an agreement on the Common Effective Preferential Tariff (CEPT) Scheme on January 28, 1992 aiming to remove tariff and non-tariff barriers within the region.

On May 17, 2010 the ASEAN Trade in Goods Agreement (ATIGA) went into effect, after ratification by all of the ASEAN Member States. The ATIGA enhanced the CEPT into a more comprehensive legal instrument and superseded it.

In line with ATIGA the ASEAN member states agreed to eliminate import duties on all products traded between the Member States by 2010 for the ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) and by 2015 – with flexibility to 2018 – for Cambodia, Laos, Myanmar and Vietnam.

Certain products were placed in the General Exceptions (GE) List of each ASEAN Member State and are not subject to import duties reduction or elimination. The agreement provided for reduction and elimination of import duties to be effective on January 1 of each year.

In line with the ATIGA agreement, Vietnam was scheduled to cut its import tariffs on substantially all agro-forestry and seafood products on January 1, 2015 but those reductions were delayed until December 31 and will now become effective January 1, 2016.

Leading economists have said that cutting these tariffs poses a great challenge for Vietnam’s agricultural, forestry and seafood businesses to compete with imported products from other ASEAN nations.

A number of challenges

Tran Kim Long, Head of the International Cooperation Department under the Ministry of Agriculture and Rural Development (MARD) has said that effective on January 1, 2016, tariffs will be completely eliminated on 1,434 out of 1,539 imported agro-forestry and seafood products.

The reductions will not apply to drinks, wine and vinegar while 89 other items, mainly poultry products, eggs, arabica coffee and Thai Hom-Mali rice will see the import tariffs reduced to 5%.

Tariffs on cigarettes and tobacco will not be cut down while tariffs on all forestry and timber products will remain in effect and reductions phased in through 2018.

Long added that integration is hindered due to the fact that Vietnam's economy and prosperity is fragile, with the country's competitiveness in the region remaining weak once sustainability measures are considered.

Though the AEC brings opportunities for Vietnam to expand its markets it at the same time sparks fiercer competition on its own turf, particularly in the agro-forestry and seafood industries.

At a time when the AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and capital, Vietnam still faces innumerable problems in human resource quality and poor infrastructure due to its failure to adequately prepare.

Foreign manufacturers have been attracted to Vietnam due to its low labour costs but this is partly traded off by relatively low productivity and/or high costs of training. This has negatively impacted quality standards in the agro-forestry and seafood sectors of the country.

Long also suggested the government continue improving its investment and business environment and perfecting the legal framework to support firms investing in agro-forestry and seafood products.

Vietnam's infrastructure system remains underdeveloped despite huge investment. Infrastructure services and utilities are too expensive and even restrictive for economic activities. The problem is even worse in urban areas, where high population density and migration are common.

Last but not least, lack of preparedness and the obstacles encountered in implementing the AEC is an inevitable result of a lack of awareness by businesses in the agro-forestry and seafood sectors of ASEAN.

These businesses possess little knowledge about ASEAN and they are not genuinely united in striving for the common good to achieve the benefits of a single Southeast Asian market.