AEC formation: Challenges and opportunities for Vietnamese enterprises
The ASEAN Economic Community (AEC), which is expected to be formed by the end of 2015, aims to add impetus to economic development and global integration of regional countries. Vietnamese enterprises will be presented with both challenges and opportunities when they join the community.
AEC will build a united market and production facility for ASEAN members, promoting the free inflow of commodities, services, investment and skilled workers in ASEAN. AEC aims to speed up economic development equally, set up an economic region with a high competitive capacity, facilitating full integration into the global economy.
In 2003, ASEAN leaders defined the ASEAN vision to 2020 with three main pillars; the ASEAN Political-Security Community (APSC), the ASEAN Economic Community (AEC), and the ASEAN Socio-Cultural Community (ASCC). In 2007, the leaders reaffirmed the agreement and decided to speed up AEC building process in 2015. Specifically, they came to a decision of reducing the regional integration process by approving the AEC action plan and the AEC building in 2015.
Vietnam’s AEC participation in 2015 will offer many opportunities but pose challenges for the economy.
The product sales markets will be expanded but this means that competition with other producers in the region will be greatly increased. Capital source rotation will put pressure on Vietnamese enterprises. Human resources are the most problematic issue because the country still lacks skilled and experienced manpower, especially in the new technology sector.
Formerly, made-in-Vietnam products were only exported to familiar countries such as Laos, Cambodia and Myanmar, but the country’s AEC participation will open new markets for Vietnam’s commodities such as Indonesia, Thailand, Singapore and Malaysia without the present barriers created by taxation. A competitive economy will create conditions for Vietnamese firms to renovate themselves, improve manpower and enhance their sources of capital, management and administration.
Assessing the issue, Pham The Hung, President of the Institute for Small and Medium-sized Enterprises (SMEs) Research said that almost all of SMEs have outdated equipment and technology, unskilled workers and short-term business thinking. These are alarming issues as Vietnam further integrates into the global economy.
Tran Thanh Hai, Deputy Head of the Ministry of Industry and Trade’s Export and Import Agency said that when the AEC is formed Vietnamese businesses can sell goods to ASEAN countries the same as if it were the domestic market. This is an advantage for commodity circulation. In addition, export and import procedures are less wordy and original reform procedures will allow enterprises to certify the origin by themselves, creating favorable conditions for enterprises to clear custom to ASEAN market.
Mr. Tran Thanh Hai forecast that before the AEC threshold, Vietnam’s exports to ASEAN would continue to maintain growth thanks to enjoying tariff preferences with more than 99% of ASEAN tariff lines cut to 0-5% in accordance to the ATIGA agreement. This is the time for enterprises to be flexible in identifying and catching potential benefits from the AEC, to intensify the capacity of increasing economic scale not only in regional markets, but also in other markets that ASEAN signed free trade agreements such as China, the Republic of Korea, Japan, India, Australia and New Zealand.
Nguyen Cam Tu, Deputy Minister of Industry and Trade said that tariff burden clearance, or zero tax rate will be the biggest benefit when the AEC is formed because this is considered as a tonic for export stimulation, investment attraction and economic growth of its member countries.
However, if the tariff burden clearance brings big benefits for the economy, original rules will emerge as a new burden for domestic enterprises. To enjoy the preferences, commodities in ASEAN countries must prove their origin in accordance to specific regulations for each commodity. These put pressure on traders and require their adaptability and suitable changes.
Aiming to reach the target, Deputy Minister Tu said that AEC needs to be consolidated and strives to be the hub of the production network and supply chain regionally and globally, in order to further boost economic growth and integration./.
( Compiled by VNF )