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The US-China Phase One Trade Deal and Vietnam

The US-China Phase One Trade Deal and VietnamThe US and China in January this year signed a much-anticipated phase one trade deal.The deal allows for some relief to investors, but several questions remain as well as the long term sustainability of the agreement.Vietnam Briefing looks at the phase one trade deal and its impact and implications on Vietnam in the near term. Quick Navigation Vietnam likely to weather the impact of phase one dealSupply chains vulnerableThe China plus one strategyTrade war has upended supply chains The US and China signed a much-anticipated phase one trade deal on January 15, 2020. This initial trade deal is seen as the first step towards a de-escalation of the US-China trade war now ongoing for more than 18 months.But what does this mean for Vietnam?Most people globally are hoping for an end to the trade war and will see this as beneficial to global trade. While this, to a certain extent is also good for Vietnam, the continuing trade war has obvious benefits for the country.While the phase one deal is an important step in US-China relations it appears temporary and does not go into several details of existing tariff lines between the US and China. The phase one agreement is, however, a commitment by China to buy an additional US$200 billion worth of US goods over the next two years. This deal is seen as a way of managing US-China trade rather than dealing with specific Chinese tariffs. In addition, this agreement only covers US$134.2 billion out of the US$185.8 billion of total US exports to China in 2017.The phase one deal also comes with certain caveats. For example, if the US believes that China does not buy enough from the US and therefore does not keep its end of the deal, the US can retaliate with additional tariffs.While the US has scrapped further tariffs that were due to come into effect in December last year, 25 percent of tariffs on US$250 billion worth of Chinese goods remain in place.Given these recent developments as well as the coronavirus outbreak in China, the phase one deal is not expected to have an immediate and profound effect on Vietnam. We look at the reasons why.Vietnam likely to weather the impact of phase one dealThe China plus one effect: Several manufacturers have already moved operations to Vietnam as a result of the US-China trade war. These include investment in factories, office buildings, and staff. This is not limited to non-Chinese investors. China’s retaliatory tariffs on the US have also pushed some Chinese investors to alternative destinations. Given Vietnam’s rise as an investment destination, switching back to China would be costly.Vietnam’s free trade agreements: As an export-led economy, Vietnam has been active in signing several free trade agreements (FTAs). FTAs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Vietnam – EU (EVFTA) will ensure that Vietnam remains a competitive investment destination. The standard of product quality, manufacturing and employee rights guaranteed in these agreements will continue to enable Vietnam to become a manufacturing hub and expand as an exporting base.Origin fraud: Vietnam has been working harder to tackle origin fraud and transshipment. It recently introduced Resolution 119 to promote cooperation among government agencies on information sharing and the product inspection process. Vietnam customs have also stepped up its enforcement efforts which US authorities have appreciated.Trade surplus: According to a Bank of American Merrill Lynch study, Vietnam’s trade surplus with the US has grown to US$600 million. Too alleviate US concerns, Vietnam is working to reduce the trade surplus by buying US Boeing jets and energy products as well as cracking down on Chinese manufacturers who reroute goods to bypass tariffs.Supply chains vulnerableAnother aspect to note is that the US may not want another disruption to US supply chains in Asia given concerns from American manufacturers. This has been compounded due to the ongoing COVID-19 outbreak in China.Nevertheless, Vietnam will need to remain vigilant. As mentioned earlier, the US in 2019 imposed duties on aluminum and steel products on Vietnam contending that certain products were produced in South Korea and Taiwan. Prior to that in 2017, it imposed duties on Vietnam for steel products originating from China.While the phase one deal may ease tensions between the US and China in the short term, several issues remain unresolved and as such the two countries may return to trade tensions and new tariffs.The China plus one strategyThe manufacturing shift to Vietnam associated with the trade war has been in the making for a number of years; China is not out of the picture altogether. In addition, given China’s size, its well-oiled supply chains, and raw materials – no one country has the capability to absorb all of China’s manufacturing including Vietnam.Instead of abandoning the Chinese market, investors are choosing to supplement Chinese operations with low-cost inputs sourced from production facilities in markets such as Vietnam. Vietnam itself depends on China for several raw materials from China for several industries such as textiles, rubber, and plastic.The recent coronavirus has already put pressure on supply chains in Vietnam. Industry leaders have warned that if inputs are not available by the end of February, investors would have to look at alternative sources such as India, Malaysia and China as a temporary solution.Trade war has upended supply chainsThe two years of the US-China trade war has pushed investors to find new suppliers, sell to different markets and diversify their operations. With much of the tariffs still remaining, investors exposed to the trade war’s costs remain less upbeat. The trade war has therefore shaken existing supply chain relationships pushing investors to forge new partnerships with a renewed focus in emerging markets.The manufacturing shift has already begun. It is in this context that Vietnam benefits, and as long as it continues to play its cards right, can continue to attract further investment, even if there is a thawing in the US-China relationship.Source:  https://www.vietnam-briefing.com/news/us-china-phase-one-trade-deal-vietnam.html/

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An Introduction to Doing Business in Vietnam 2020 – New Publication from Dezan Shira & Associates

An Introduction to Doing Business in Vietnam 2020 – New Publication from Dezan Shira & AssociatesAn Introduction to Doing Business in Vietnam 2020, the latest publication from Dezan Shira & Associates, is out now and available for complimentary download through the Asia Briefing Publication Store.In this issue:An Introduction to VietnamHow to Set Up in VietnamTax and AccountingHR and PayrollVietnam follows an export-led growth model, as can be found in several emerging economies, combining trade liberalization and foreign direct investment promotion to spur exports. Vietnam’s growth has accelerated in recent years in part due to the US-China trade war, which kicked off in July 2018. As part of the fallout, Vietnam’s exports to the US rose by 28.8 percent year on year in the first quarter of 2019, making the US the largest importer of Vietnamese goods. A number of manufacturing businesses have also moved operations to Vietnam, including Foxconn, Samsung, and LG.In addition to building the country’s export capacity through the private sector, the government has pursued strategies to join several free trade agreements. With the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in effect and the EU-Vietnam (EVFTA) expected to be ratified soon, Vietnam’s Ministry of Planning and Investment forecasts Vietnam’s GDP could increase by 1.35 percentage points by 2035 with the EVFTA boosting GDP by 15 percent. These trade deals along with already signed FTAs are likely to ensure that Vietnam remains competitive in the short-to-medium term.Vietnam has been enjoying strong growth since the 1990s despite crisis and uncertainties in the global market. Its government has also worked to improve business policies. Vietnam continues to prioritize infrastructure investment and does not shy away from looking at countries outside ASEAN to fuel its growth. The government has also invested in industrial zones and this investment is expected to further increase as foreign investment pours in. These reasons have made Vietnam one of the fastest growing economies in Asia maintaining a 7 percent Gross Domestic Product (GDP) in 2019. In addition, Vietnam’s labor force is a competitive advantage and is an important part of Vietnam’s future economic growth. Vietnam is known for its young, hardworking, literate and easy to train workforce.All these factors make Vietnam an attractive destination for business, however challenges remain such as bureaucracy, language barriers, supply chain constraints, grey areas in regulations and infrastructure. We hope this business guide will provide investors with an insight into key aspects of undertaking and doing business in Vietnam and help you make an informed decision when beginning your operations in Vietnam.Sources: https://www.vietnam-briefing.com/news/an-introduction-to-doing-business-in-vietnam-2020.html/

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The ASEAN-Hong Kong China Free Trade Agreement and Vietnam

The ASEAN-Hong Kong China Free Trade Agreement and VietnamThe ASEAN-Hong Kong China Free Trade Agreement came into effect on June 11, 2019, for Vietnam, Laos, Myanmar, Singapore, and Thailand.Vietnam recently issued regulations on special preferential import tariffs for the implementation of the AHKFTA effective February 20, 2020, as well as guidelines on rules of origin.The agreement will allow Vietnam to continue improve its competitive free trade network and move up the value chain from exporting low-tech manufacturing to high-tech goods. Quick Navigation Vietnam and Hong Kong TradeASEAN-Hong Kong trade explainedHong Kong – ASEAN bilateral relationsOpportunities for businessAHKFTA and Vietnam Vietnam issued Decree No. 07/2020/ND-CP on the special preferential import tariffs for the implementation of the ASEAN-Hong Kong China Free Trade Agreement (AHKFTA). The decree took effect on February 20.The AHKFTA came into effect on June 11, 2019, for Vietnam, Laos, Myanmar, Singapore, and Thailand. The remaining ASEAN member states are expected to complete the ratification process soon. The deal was first signed and agreed in November 2017 to increase economic cooperation, reduce taxes, and increase investment between regional markets and Hong Kong.As per the Decree, the preferential import tax rates are applicable under the following conditions:Imported goods are listed in the special preferential import tariff under Decree 7;Imported from countries that are part of the AHKFTA;Transported directly from the exporting country part of the AHKFTA; andMeet rules of origin guidelines and obtain the certificate of origin (C/O).In addition, goods that were imported after June 11, 2019, and until February 20, 2020, under the AHKFTA will be eligible for a refund if they paid tax at a higher rate.The Ministry of Industry and Trade (MOIT) also issued Circular 21 specifying rules of origin guidelines for the AHKFTA. The origin criteria are similar to several other FTAs. Circular 21 came into effect in December 2019.Vietnam and Hong Kong TradeAnalysts have noted that with ongoing trade tensions, Hong Kong businesses are keen to expand investment opportunities in Southeast Asia, and particularly in Vietnam. At the end of 2019, Hong Kong was the second biggest investor in Vietnam. Hong Kong businesses have invested more than 1,300 projects in Vietnam on key sectors such as textiles and garments, real estate and investments. Many expect these numbers to improve following the AHKFTA.Vietnam is Hong Kong’s third largest trade partner and biggest export market in ASEAN. In the first five months of 2019, Hong Kong accounted for 30.4 percent of total FDI investment in Vietnam, equaling US $5.08 billion.Hong Kong’s importance as an entrepôt for trade between mainland China and Vietnam will continue to grow at a much faster pace with the FTA coming into force. Re-exports of goods of ASEAN origin through Hong Kong to China have been growing at an annual average rate of 6.4 percent since 2012.On the other hand, re-exports of mainland China’s origin goods to ASEAN through Hong Kong have been growing at an annual average rate of 3.7 percent since 2012. Vietnam was the sixth largest destination for Hong Kong’s exports in 2018, with 60 percent being re-exports originating from the Chinese mainland. With ASEAN countries custom duties reduced or eliminated, Hong Kong’s domestic goods will become more competitive in the region.While China has been rapidly increasing investment in Vietnam, some analysts say China is also pushing investment into through Hong Kong as Vietnam becomes more cautious about Chinese investment.In addition to an increase in traded goods, the FTA and the Investment Agreement (IA) will encourage the service sector in ASEAN countries to take advantage of Hong Kong’s professional, financial, commercial, and legal services. The region will also benefit from increased investment flows, especially in the real estate, manufacturing, and service industry.  With increased access to Hong Kong’s trade network, its proximity to mainland China, and China’s Belt and Road Initiative, foreign and domestic firms should prepare to take full advantage of the FTA.ASEAN-Hong Kong trade explainedHong Kong is among the world’s most open economies, and with its liberal tariff regime, the FTA aims to increase the flow of goods and services from Hong Kong to the ASEAN countries.The agreement covers four major areas, namely tariff reduction for goods traded, reducing restrictions for trade in services, longer stay for business travelers, and better investment protection. With respect to trade reduction, most ASEAN states will eliminate or reduce custom duties on goods from Hong Kong.On reducing trade restrictions, both parties have agreed to remove restrictions on foreign capital participation and the number of people employed. Thailand, Vietnam, and the Philippines will also allow Hong Kong firms to take 50 percent or full ownership of firms.On the issue of business travel, Hong Kong business visitors will be able to stay in an ASEAN country for 90 days. As of now, seven of the ASEAN member states allow Hong Kong travelers to stay for 14 to 30 days without a visa.Hong Kong will be providing tariff free access to all products from ASEAN countries as the FTA enters into force, while for goods originating from Hong Kong, individual member states have made the following commitments on tariff reduction:Singapore will reduce customs duties to zero;Brunei, Malaysia, Philippines, and Thailand will eliminate customs duties of about 85 percent of their tariff lines within 10 years and reduce customs duties of about another 10 percent of their tariff lines within 14 years;Indonesia and Vietnam will eliminate customs duties of about 75 percent of their tariff lines within 10 years and reduce another 10 percent of their tariff lines within 14 years; andCambodia, Laos, and Myanmar will eliminate customs duties of about 65 percent of their tariff lines within 15 years and reduce another 20 percent of their tariff lines within 20 yearsHong Kong – ASEAN bilateral relationsAs of 2018, ASEAN is Hong Kong’s second largest trading partner in merchandise trade and the fourth largest in services trade. Hong Kong’s total exports to ASEAN increased by 7.3 percent year on year to US$2.8 billion, while imports totaled US$73 billion, a 20.1 percent year-on-year increase. With China being ASEAN’s largest trading partner since 2009, trade is likely to further grow with Hong Kong increasingly handling re-export trade.In 2018, the US $28.1 billion – or 97% – of Hong Kong’s exports to ASEAN were re-export items, of which 69.8 percent from mainland China highlighting Hong Kong’s importance as a trading hub.Amongst the ASEAN member states, in 2018, Thailand, Singapore and Vietnam were Hong Kong’s top three trading partners at US$13.4 billion, US$12.3 billion, and US$10.7 billion of Hong Kong’s total exports with ASEAN, respectively.Opportunities for businessWith its liberal tariff regime, its position as a financial hub, a strong legal system, and excellent infrastructure, Hong Kong is an ideal location for Southeast Asian corporations.Hong Kong has a Closer Economic Partnership Arrangement (CEPA) with China, which allows preferential market access to Hong Kong service providers and tariff-free treatment for products originating in Hong Kong. With the CEPA, ASEAN-China FTA, and AHKFTA, Hong Kong has the potential to facilitate and increase investments and trade across the region.Hong Kong also gives access to the Pearl River Delta Metropolitan Region (PRD), an economic hub in China, and with the signing of the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area in July 2017, regional cooperation will continue to increase. The focus is on increasing infrastructure connectivity, enhancing market integration, developing innovation hubs, building modern industries, and increasing international cooperation.Hong Kong will continue to be a stepping-stone for mainland Chinese firms expanding in the region and a major destination of Chinese outward investments, attracting almost 60 percent of the total Chinese outward FDI.AHKFTA and VietnamThe implementation of the AHKFTA will allow Vietnam to continue improve its competitive trade agreement network. It will further help the economy to move up the value chain from exporting low-tech manufacturing to exporting high-tech goods such as electronics, machinery, vehicles and medical devices as well.Businesses leaders should take the time to understand whether their operations can benefit from AHKFTA, but also how the new deal will affect competitors and larger market conditions.Note: This article was first published in November 2017 and has been updated to include the latest developments.Source : https://www.vietnam-briefing.com/news/asean-hong-kong-china-free-trade-agreement-vietnam.html/

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The changing of Vietnam’s Labour Market in the revolution of Industry 4.0

The changing of Vietnam’s Labour Market in the revolution of Industry 4.0When the whole world is changing toward Industry 4.0, the Vietnam government is also trying to push more productivity as well as quality from all areas of the economy with labour-intensive sectors. This trend is significant to keep the competitiveness of the Vietnam market to attract more foreign direct investment (FDI). Quick Navigation Labour supply & Labor productivity in Vietnam 2019Labor force distributionLabor challengesContact us: Labour supply & Labor productivity in Vietnam 2019With a huge population, Vietnam is a potential market that can provide a young labour force. Besides, the labour cost is also cheaper in comparison with other countries. These advantages together with the stable political situation are the reasons that help Vietnam can attract up to US$13.25 billion of FDI in 2019, which grows by 6% according to First Alliances 2019 Salary Guide. According to Vietnam Briefing News, in 2017, the number of the labor force in Vietnam was 53.7 million, half of this number was the workforce between 15 and 39 years old. However, the percentage of skilled workers was just 21.5% in 2017. The number of male workers was slightly more than 50% of the whole workforce. Furthermore, the unemployment ratio in the working-age was just 2.24%. Labor productivity is also an element that foreign companies will look at when they decide to choose one country to invest in. From 2018, Vietnam’s labor productivity has increased by 22.5%. However, this productivity has not increased relative to Vietnam’s economic growth. In the period from 2011 to 2017, the average annual productivity of the country rose 4.7%, while the annual growth of investment capital rose nearly 2 times at 9%. This number is showing that the Vietnam government needs to take more action to make sure that the productivity of Vietnam labor sources can be more competitive in the market.In addition, because of the faster growth rate of the economy compared with labor productivity, wages are also rising faster than productivity. As mentioned in the previous part, productivity was increased by 4.7% from 2011 to 2017, while the average wages increased by 6.67%. This fact made the Vietnam labor market less attractive than before. Foreign companies are likely to move their business to countries with higher productivity. Labor force distributionIn 2017, most of the labor resources located in rural areas with a percentage of up to 67.8%. Below areas are accounting the largest share of the labor force in Vietnam according to Vietnam Breifing reports in early 2017:The Red River Delta: 21.7%South Central Coast: 21.6%Mekong River Delta: 18.9%Southeast area: 17.1%In the sector-wise, the majority of Vietnamese workers are still in agriculture, fishery, and forestry. However, in 2017, there was a significant transformation in labor supply from agriculture, forestry, fishery to construction, industry, and service. Therefore, the demand for skilled workers keeping increasing.Labor challengesThe first challenge is the lack of skilled workers because automation in Industry 4.0 can replace repetitive work with high productivity and accuracy. However, the percentage of skilled workers in 2017 was just 21.5% which leading to the main challenge of Vietnam labor sources is the lack of skilled labor force. It was reported that 40% of foreign companies in Vietnam found it hard to recruit skilled employees. The second challenge is that Vietnamese workers have not been focusing enough on soft skills and social skills. With the impact of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement, there are more and more opportunities for job demand in Vietnam and the labor cost is forecasted to be increased. But once against, this trend also requires skilled workers with soft skills, social skills.To overcome these challenges, the Vietnamese government has been taking more and more training and focusing on education to increase the knowledge of labor resources. Labor reformed is the key factor that keeps Vietnam growing along with the trend of Industry 4.0. Not only the government, but the corporate itself also needs to focus to do more training, attract more talent and retain the talent pool. Employees themselves also need to aware that upskill is the way to develop and contribute to the development of the whole country.For more information, please visit our website at https://www.enworld.com.vn/blogContact us:Brandname: Navigos SearchTag line: Success After JoiningWebsite: https://www.enworld.com.vn/Email: contact@navigossearch.comPhone: +84 28 3925 5000 (HCM office); +84 24 3974 3033 (HN Office); +84 23 6351 9119 (DN Office)Fax: +84 28 3925 5000 (HCM office); +84 24 3974 3033 (HN Office); +84 23 6351 9119 (DN Office)Address:Ho Chi Minh OfficeHa Noi OfficeDa Nang Office

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