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Conditions in place

Released at: 08:08, 14/09/2015 Vietnam - Japan Relations

Conditions in place

Trade between Vietnam and Japan will benefit greatly from current and upcoming agreements.

by Tue Lam

According to the Asia Pacific Market Department under the Ministry of Industry and Trade (MoIT), in recent years economic, trade and bilateral investment cooperation between Vietnam and Japan have seen robust development. Two-way trade reached approximately $28 billion in 2014 and is expected to reach $30 billion this year. Japan is Vietnam’s third-largest export market, behind only China and the US. 

Export items to Japan recording large turnover in recent years include textiles, footwear, handicrafts, furniture, seafood, crude oil, and components for motor vehicles, machinery, computers, and electronic products, of which textiles reached $2.7 billion in 2014 and are expected to reach $3 billion in 2015. Japan also has among the largest amount of foreign direct investment in Vietnam. 

To further promote trade between the two countries, MoIT, in collaboration with the Embassy of Vietnam in Japan and the Vietnam Business Association in Japan, recently held the Vietnam Business Forum in the country. According to Mr. Le An Hai, Deputy Head of the Asia Pacific Market Department, Japan has been a major market for many years and is an important trade partner of Vietnam. 

He stressed that with a large import market like Japan, Vietnamese enterprises need to improve their business capabilities and monitor the quality standards of their exports. They should also actively conduct trade promotion activities to better take advantage of the potential in the Japanese market and fully utilize the advantages from tax reductions in trade agreements, especially the Vietnam-Japan Economic Partnership Agreement (VJEPA) the two parties signed in 2008 and the upcoming TPP. 

Welcome opportunities

Trade relations between the two countries are on the increase and a great deal of potential lies ahead given the number of trade agreements Vietnam and Japan have signed. In 2008 the two officially signed the Vietnam - Japan Economic Partnership Agreement (VJEPA), whereby Vietnam committed to eliminating 82 per cent of tariffs on Japan’s imports within 16 years. Japan, meanwhile, will eliminate 94 per cent of tariffs on Vietnam’s exports within ten years. Japan pledged to cut average tariffs on agricultural products from 8.1 per cent in 2008 to 4.74 per cent in 2019 and from 6.51 per cent to 0.4 per cent on industrial products. In particular, shrimp, crab, and certain fish and textile products enjoyed zero tax rates as soon as the agreement took effect in 2009. 

The Ministry of Finance (MoF) has recently announced preferential import tariffs as part of the VJEPA in the 2015-2019 period. More than 3,200 tariff lines on Japanese goods will be completely removed, with a focus on raw materials, machinery, electronic products, and components. According to a representative of AEON Vietnam, new tax policies have had a positive impact on retail businesses. The reduction in tariffs will help it import more products for Vietnamese customers, the representative said. The group has invested in four AEON shopping centers in Vietnam, with total investment of over $512 million. 

When the TPP is signed Vietnam will probably benefit the most because it provides access to major markets like the US and Japan. According to many experts, the TPP may help Vietnam’s GDP growth reach 13 per cent in 2025. Meanwhile, Japanese enterprises will also gain many benefits from exporting goods to Vietnam thanks to tax incentives. 

Overcoming obstacles

Despite trade agreements creating many opportunities for businesses in both countries and promoting trade relations, Vietnamese enterprises still face many barriers, mostly technical barriers, when exporting goods to Japan. According to Mr. Ha Duy Tung, Deputy Head of the International Cooperation Department under MoF, many Vietnamese products exported to Japan are still not entitled to incentives because they fail to meet the country’s quarantine standards. “Vietnamese rice has faced many difficulties in being exported to Japan because plant protection residues exceed permitted levels,” he said.

Agreeing, Mr. Nguyen Son, Deputy Director General of the Interagency Steering Committee for International Economic Integration, said that a few years ago Japan Customs, in a small inspection, found that some shrimp shipments from Vietnam contained antibiotic residues, and so decided to conduct inspections on all shrimp shipments to the country. This suggests that barriers relating to quality are the most important matter for Vietnamese enterprises to overcome.

Mr. Do Van Dung, Chairman of the Vietnam Enterprise Association in Japan, said that lower taxes by themselves won’t make exports to Japan easier. “Enterprises wanting to export to Japan must prove the origin of all materials used and provide evidence on processing time, wages, and that workers are older than 18 years of age,” he said. By way of example, in the field of agricultural products, the whole process, from land reclamation, planting, and care of crops must have clear backgrounds and clean processes.  

Vietnamese enterprises must understand the language and the culture of the country, he added. For example, labeling must be clear. If sardines are incorrectly labeled in the Japanese language it will be difficult for sardine exports to enter the Japanese market. Many Vietnamese businesses do not understand this issue. “The Japanese, when they do business, do it for their country, not just themselves,” Mr. Dung stressed. 

Therefore, he added, the capture of information and the understanding of Japanese business practices is extremely important for Vietnamese enterprises hoping to gain a foothold in the market. Many Vietnamese enterprises, however, especially small and medium-sized enterprises, still lack complete information on the Japanese market. Some have struggled in the country despite doing quite well in the US or the EU. 

After the signing of bilateral trade agreements there are many opportunities on offer for Vietnamese enterprises because Japan is now trending towards imports from Vietnam and other Southeast Asian countries rather than China. In order to promote exports to the country, Vietnamese enterprises must ensure they meet requirements regarding food safety. “We cannot ask Japan to lower their standards just because we have integrated with other countries around the world,” Mr. Son said. 

Despite the difficulties and the differences between enterprises from Vietnam and Japan, at the ministerial-level meetings between the two countries Minister Hayashi said that Japanese enterprises expect to continue promoting agricultural exports and long-term agricultural investment in Vietnam, including in the fields of animal husbandry and aquaculture. From September Japan is expected to export apples to Vietnam and will soon consider allowing Vietnamese mangoes to be imported into Japan. The signs bode well for trade cooperation between the two countries in the future. 

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