Implementing tariff cuts: More challenges than opportunities!

(Baonghean) - On November 14, 2014, the Ministry of Finance issued Circular 05 on Vietnam's special preferential import tariff schedule. Accordingly, from January 1, 2015, there will be an additional 1,715 tax lines reduced to "zero" between countries participating in the Free Trade Agreement for the period 2015 - 2018. This is a big challenge for domestic manufacturers and traders, because the tax reduction groups belong to the agricultural sector, agricultural products (aquatic products, seafood, livestock meat), and processed materials must be mainly imported, such as: plastics, electronic components, garments, etc.

Elevator components manufacturing at Strongplus Viet - Han Co., Ltd. (Hamlet 15, Nghi Kim, Vinh City).

The ASEAN Trade in Goods Agreement was signed on February 26, 2009 at the 14th Summit in Cha-am (Thailand) between the member countries of the Association of Southeast Asian Nations (ASEAN). Accordingly, Vietnam will have to basically complete the elimination of tariffs within ASEAN by 2015, with only 7% of tariff lines being flexible until 2018.

To implement Vietnam's commitment for the next phase, the Ministry of Finance continued to issue Circular 165/2014/TT-BTC dated November 14, 2014 on the ASEAN Special Preferential Import Tariff for the period 2015 - 2018 along with a number of other important circulars. Accordingly, along with 6,859 tax lines (accounting for 72% of the total import and export tariff schedule) under ATIGA (ASEAN's first comprehensive agreement regulating all intra-ASEAN trade in goods) were reduced to 0% from 2012 to 2014.

Mr. Chu Quang Luan, Director of Nghe An Customs Department, said: In addition to joining the World Trade Organization (WTO), Vietnam has participated in free trade areas including: ASEAN Free Trade Area (AFTA), ASEAN - China Free Trade Area (ACFTA), ASEAN - Korea (AKFTA), ASEAN - Japan (AJCEP), Vietnam - Japan (VJEPA), ASEAN - Australia - New Zealand (AANZFTA), ASEAN - India... Thus, corresponding to these reduction steps of Vietnam, the partner countries in the above trade agreements (ASEAN, China, Korea, Australia, New Zealand, India) will eliminate most of the import taxes for Vietnamese goods imported into these markets in the period of 2015 - 2018.

Discussing the impacts on Nghe An's import and export tax revenue starting from 2015 due to the implementation of tariff reduction, Mr. Nguyen Van Quang, Deputy Head of the Business Department, Nghe An Customs Department affirmed: It will not affect Nghe An much, because the goods imported into Nghe An are mainly gasoline, wood, components, in which the import tax on gasoline imported by the Vietnam National Petroleum Group through Nghe An has a tax amount of 490.47 billion VND (2014), accounting for nearly 50% of Nghe An's import and export tax in 2014. Construction materials, components, auto parts, paper, textiles, cars, etc. are still obliged to pay import tax and will be reduced to 20% in 2017 and 2018. Therefore, it is expected that Nghe An's import and export tax revenue in 2015 will not decrease. However, that is for Nghe An, but nationwide, the reduction of tariffs within ASEAN and between ASEAN and some other countries has affected the revenue quite significantly, depending on the importing country and imported goods of Vietnam.

Also according to the commitment, in ASEAN alone, only 2 groups of goods are exempted from the obligation to eliminate tariffs, including: Sensitive agricultural products such as live poultry, chicken meat, poultry eggs, citrus fruits, paddy, brown rice, processed meat, sugar, which maintain a 5% tax rate, and groups of national defense and security products (weapons, ammunition) or products that affect health (marijuana, opium)...

Talking to some businesses, after nearly 1 month of the Ministry of Finance's circulars on tariff reductions taking effect, some businesses still have not grasped the information. Strongplus Elevator Vietnam - Korea Co., Ltd. is a Nghe An company that trades and manufactures elevators located in Hamlet 15, Nghi Kim (Vinh City). The company is currently manufacturing some components for export to Korea for its parent company that manufactures elevators. Talking about the impacts of tariff reductions on businesses, Mr. Le Luong Nguyen, Director of the company, said: The company is currently importing iron (high quality) from China, so it is not known whether import and export taxes will be reduced or not, I will start to learn about the regulations. The "Golden Pig" high-end animal feed factory under VIC Trading Co., Ltd. in Nam Cam Industrial Park regularly imports animal feed for processing, the company imports 300 tons of raw materials including corn, cassava, soybeans from Laos, Brazil, and the US every month. The company's leaders were delighted to hear that raw materials imported from ASEAN or China would have a tax rate of 0%. Mr. Nguyen Van Thang - Factory Director said that the exemption of import tax on processed raw materials will create more favorable conditions for businesses, because the cost can be reduced. The representative of Royal Food Joint Stock Company (Thailand) is building a canned fish processing factory in Nam Cam Industrial Park and plans to export canned fish products to ASEAN countries (in July 2015) which will also be favorable when the tax rate is reduced to "zero". Meanwhile, Thai Duong Foreign Pig Breeding Company Limited in Hamlet 9, Dai Son Commune, Do Luong District, is in the business of buying, selling, and raising breeding pigs and pigs for meat. Currently, this company sells 200 tons of pork products each month, mainly to China. Regarding the information about the 0% tariff reduction (ASEAN region) from January 1, 2015, Mr. Le Quang Thanh - General Director said that as an exporting unit, the company has not yet seen any major impact on production and business activities. However, because it is exporting in small quantities, the company and distributors have not yet enjoyed the policy.

Product packaging at Golden Pig Premium Animal Feed Company.

However, it is known that in recent years, Vietnam has mainly exported to ASEAN key commodity groups such as: rice, crude oil, iron and steel, phones of all kinds and components, machinery, equipment, spare parts, gasoline, computers, etc. However, the goods that Vietnamese enterprises import from ASEAN and China are essential items, input materials for domestic production such as: raw materials for textile and garment, leather and footwear industries; computers, electronic products and components; machinery, equipment, tools and spare parts; plastic raw materials, etc. The value of these 4 commodity groups accounts for more than 46% of Vietnam's total import turnover from ASEAN. The reduction of 1,715 tax lines to 0% from January 1, 2015 will certainly increase the import turnover of goods from ASEAN countries to Vietnam, especially goods from some countries such as Thailand and China (implementing the ASEAN - China agreement). The change in the import tariff will certainly lead to the possibility of foreign goods flooding the Vietnamese market, competing with domestic goods because the food safety standards of foreign goods are mostly better than those of Vietnam. For some supermarkets in Nghe An, with the advantage of cheap prices, there has been a situation of importing beef, chicken (tough), chicken feet, chicken wings, etc. from Korea and China. These two countries also joined the agreement with ASEAN. These types of goods are competitively priced compared to domestically produced goods. Although Vietnamese consumers do not like these products, they are still consumed strongly in restaurants and fast food restaurants because they are attractively prepared, which also reduces the market share of products in the province and in the country. In the Vinh City market, there have appeared some stores selling Korean and Thai consumer goods. Electronic components and computers are the products that are under the most pressure on domestic production. Consumers are increasingly accessing cheaper computers and electronic devices from countries participating in the agreement, which also explains why many electronics and electrical appliance supermarkets are launching promotions and discounts to clear out inventory before importing new, cheaper goods. Although others can import, we can also export, however, compared to other countries, Vietnam's production capacity and quality of technological and industrial products are limited, so there is a risk that Vietnam will have a strong trade deficit from 2015.

Even the import tax on cars and auto parts, although not reduced much, is now 50% in 2014 (previously 150-100% tax). And by 2018, Vietnamese consumers will be able to buy cheap cars because the import tax will be 0%, which will be a big challenge for cars manufactured in Vietnam when the production capacity of this industry is weak.

Thus, the tariff cuts are getting deeper and deeper and will have many impacts on businesses. If small domestic trading enterprises do not pay attention to grasping information, they will easily suffer losses due to buying high-priced goods, making it difficult to compete. Enterprises exporting, importing and processing agricultural products will also face fierce competition when tax lines are increasingly cut over time. State management agencies need to have solutions to continue to propagate to businesses, support businesses to integrate, and at the same time, planning the development of domestic production industries also needs to take this situation into account.

Chau Lan