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Breaking down barriers to recovery



ASEAN member states are aiming to enhance supply chain resilience, improving connectivity and the free flow of goods by minimising trade restrictiveness, particularly non-tariff measures.

Doan Thi Thanh Ha and Salvador Buban from the Economic Research Institute for the ASEAN and East Asia, delve into this issue.

1496p 4 breaking down barriers to recovery
Doan Thi Thanh Ha and Salvador Buban from the Economic Research Institute for the ASEAN and East Asia

The COVID-19 pandemic has generated serious global shocks at an unprecedented scale. Since late 2019, within a few months, the virus has swept across continents, resulting in at least seven million cases of infection and over 400,000 deaths. On top of the enormous health cost, economic cost is also substantial. With strict transmission control policies such as wide-scale lockdowns, border closure and social distancing in place, production, trade, and services flows have been disrupted.

The World Bank’s 2020 Global Economic Prospects report projected a global GDP contraction of 5.2 per cent in 2020, the deepest recession in decades. Without a full understanding of the virus itself and effective prevention and treatment, a clear recovery path is not yet in sight.

Having close economic ties with China, ASEAN economies are expected to experience large contractions partly due to the disruption of China-led value chains. As of 2018, China is the bloc’s largest trading partner, accounting for approximately 17 per cent of total ASEAN trade. The negative shock is further exacerbated by the declining demand in the EU and the US, two large export markets for the ASEAN. In addition, reshoring by multinational enterprises who have invested in the region adds another risk to the disruption of global value chains. To mitigate the risks and maintain the region’s appeal to foreign investors, ASEAN countries need to continue their joint endeavour of liberalisation through regulatory reform.

The ASEAN has achieved significant improvements in tariff liberalisation. Average tariff on intra-ASEAN trade is as low as 0.2 per cent. On the contrary, non-tariff measures (NTMs), defined as policy measures other than ordinary tariffs, which can affect international trade by changing price or quantity traded, is on the rise. According to the NTMs database jointly developed by the Economic Research Institute of ASEAN and East Asia (ERIA) and the United Nations Conference on Trade and Development, between 2015 and 2018, the number of NTMs in the ASEAN has climbed by 15 per cent to about 9,500 measures. NTMs include many policy instruments, ranging from technical measures to ensure product safety and quality to non-technical measures, such as non-automatic licensing, price and quantity control, and subsidies, among others. Associated with NTMs is a plethora of technical and administrative procedures which could be time-consuming and costly for firms to comply with.

COVID-19 adds to these trade costs in several ways. First, trade cost can increase due to the introduction of new regulations to address concerns about food safety, food security, and the shortage of medical equipment, countries have introduced new regulations. Some regulations are indeed trade-enhancing, such as tariff reductions, elimination of import licensing requirements, and the suspension of anti-dumping duties for certain products. However, a growing number of economies have imposed export restrictions on essential products, including face masks, sanitisers, and some medical equipment. In some countries, the export of staples has also been restricted.

Albeit these measures could be allowed under the World Trade Organization, if not properly designed and administered, they can indeed be counterproductive. First, lack of access to necessities pose health risks to countries with inadequate domestic production capacity, especially for high-tech medical devices. In addition, the resulting price hike may prevent low-income people from getting access to medical supplies. Altogether, these imply higher risk of transmission of the virus, impeding cross-country efforts to contain the outbreak. Second, deprivation of export opportunities may discourage domestic firms from expanding their output. Third, imposition of trade barriers puts countries at risk of retaliation, stirring further trade disputes and disrupts supply chains.

Looking at a broader scale, rising trade cost due to COVID-19 is not limited to products used for prevention and treatment of diseases. Even for existing regulations, the closure of government offices lengthens processing time for paperwork, adding to the waiting time for export and import clearance of goods at the border. In a complex production network, trade costs accumulated along the supply chain could be significant.

Among the ASEAN’s key sectors with strong value chain participation, such as food and agriculture, and machinery and electronics, over 80 per cent of import value are subject to NTMs. A study by the ERIA suggests ad-valorem equivalent of NTMs are up to 5.7 per cent in manufacturing and 16.6 per cent in agriculture, implying significant added trade costs. Minimising trade restrictiveness to enhance supply chain connectivity.

Overall, to enhance supply chain resilience, improving connectivity and the free flow of goods has become urgent. With tariffs being at a low level, regulatory co-operation should push towards simplification and streamlining of NTMs based on concrete statistics and careful cost-benefit consideration.

Cognisant of the importance in addressing non-tariff barriers and managing NTMs, the 26th ASEAN Economic Ministers Retreat held on March 11 in the central city of Danang has resulted in a joint statement in which the ministers agreed to “continue addressing non-tariff barriers, particularly those that impede the smooth flow of goods and services in supply chains, and refrain from imposing new and unnecessary non-tariff measures.”

The ASEAN Plus Three Economic Ministers virtual meeting held on June 4 further reaffirmed that commitment.

Now the key task for the ASEAN is the effective implementation of initiatives and commitments on NTMs. While the ASEAN could continue to use its existing institutional arrangements and mechanisms to ensure that NTMs are not imposed arbitrarily without legitimate objectives, it should also strengthen co-operation with neighbouring East Asian countries. In the immediate term, restrictive measures on the export and import of essential commodities during the crisis should be removed. Measures to address safety concerns should be temporary and withdrawn once the pandemic situation improves.

In the longer term, enhancing transparency through full implementation of the ASEAN Single Window and the ASEAN Trade Repository, and respective national trade repositories is vital. Moreover, the adoption of international standards and eventually the harmonisation of various technical regulations are key elements that should be pursued in order to manage NTMs in the ASEAN. VIR



Vietnam remains attractive destination to international investors: HSBC survey



Vietnam keeps being an attractive investment environment for global investors, with many Indian and Chinese enterprises saying they plan to expand their business in the Southeast Asian country in the next two years, according to an HSBC survey. 

The UK-based HSBC Holdings plc (HSBC), one of the largest banking and financial services institutions in the world, has recently released the results of a large survey of nearly 1,600 companies from six of the world’s largest economies all of which have operations in Southeast Asia.

The survey, ‘HSBC Navigator: Southeast Asia (SEA) in Focus,’ covered 1,596 companies from the U.S., the UK, China, France, Germany, and India.

Survey respondents were key decision-makers from companies already doing business in SEA or those considering doing so.

These international businesses have strong expectations for continued growth in SEA, including Vietnam, which “has been striding forward in recognition and application of the sustainability agenda.”

About 21 percent and 26 percent of Indian and Chinese firms operating or intending to operate in SEA, respectively, said they plan to expand their business in Vietnam in the next two years.

In respect of Vietnam’s advantages, three out of ten businesses pointed to a skilled workforce, while 27 percent cited competitive wages and proven economic resilience in response to the COVID-19 pandemic.

Forty-nine percent of the Indian companies surveyed said they were enthusiastic about Vietnam’s supportive government and regulatory environment, while the corresponding rates of the American and Chinese firms are 33 percent and 30 percent.

Encouraged by Vietnam’s regulatory environment, 36 percent of the American companies in the poll said that they were keen on opportunities to develop and test new products and solutions in the market.

Meanwhile, 39 percent of the Indian companies stated they were attracted by Vietnam’s infrastructure.

Notably, 49 percent of the firms polled, mostly from China, India, and the U.S., expressed their hope to make use of the EU – Vietnam Free Trade Agreement (EVFTA) to further promote their trade operations in the region.

Being attracted by the supply chain ease and social and political stability of Vietnam, a quarter of the German respondents selected both as positive features of the Vietnamese market.

“Vietnam has been striding forward in recognition and application of the sustainability agenda to become a regional leader in its progress toward achieving the 17 United Nations Sustainable Development Goals (SDG),” HSBC said in the survey.

Ranked 51st out of 162 countries by the SDG Index, Vietnam is thus rated as having greater success than all other Southeast Asian countries barring Thailand, according to the poll.

However, some 31 percent of the respondent enterprises operating in Vietnam worried that new regulations and rules on carbon reduction could impact them, while 36 percent flagged the difficulty in hiring employees who possessed the correct sustainability credentials and knowledge.

Vietnam’s GDP growth is expected to make an impressive recovery over the course of 2022, likely reaching a 6.2 percent progression following a 2021 low of 2.6 percent, HSBC forecast.

The country is rising as a global production hub thanks to the incentives given by the government, especially in the signing of free trade agreements, HSBC Vietnam CEO Tims Evans said.

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Intel plans to expand investment in Vietnam



American technology company Intel has plans to broaden business and investment activities in Vietnam following the country’s good management of the COVID-19 pandemic, the Vietnam Government Portal (VGP) quoted Intel CEO Patrick Gelsinger.

The Intel executive made the statement at a meeting with Vietnamese Prime Minister Pham Minh Chinh in Hanoi on Friday.

Vietnam is an attractive destination for foreign investors as it is a vibrant economy and a promising market, CEO Gelsinger said.

He highlighted that Vietnam remains a charming investment destination in the eyes of foreign investors thanks to its dynamic economy, potential market, and industrious population.

He appreciated the Vietnamese government’s efforts in creating favorable conditions for foreign investors, particularly its support for Intel to maintain production amid the pandemic time.

Chinh, who visited Intel’s headquarters in California earlier this month, praised semiconductor chip manufacturer’s investment activities in Vietnam over the past 15 years.

Intel’s assembly and test factory, located in Saigon Hi-Tech Park in Ho Chi Minh City, became the U.S.’s biggest high tech project in Vietnam.

Since it came into operation in 2010, the factory has generated hundreds of jobs and consolidated Vietnam’s status in the global semiconductor supply chains.  

Chinh recommended that Intel build a research center in Vietnam and assist the Southeast Asian nation in building up a startup and innovation ecosystem and high-quality workforce.

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E-bike buyers face serious sticker shock amid rising gasoline prices



Increased fuel prices are wreaking havoc across the transportation industry in Vietnam as costs of once wallet-friendly alternatives, such as e-bikes, ride-hailing services, and budget airlines all steadily rise as a result.

To combat the problem, the government is considering proposals to cut taxes on gasoline and oil, according to the National Assembly (NA).

Ripple effect

Nguyen Tri, sales manager for electric bike brand PG, explained that the increased price of e-bikes and e-scooters is due to the rising costs associated with transporting the bikes to sales outlets and distributors.

According to Tri, PG had resisted raising rates at the beginning of the year despite spare part shortages and rising transport costs, but once fuel in Vietnam surpassed VND30,000 (US$1.28) per liter and transport operators hiked fees by 10 percent in March, the firm was left with no choice.

“The increased prices of input materials, such as aluminum, steel, and electric wires have forced the prices of spare parts up by 10 to 20 percent,” Tri explained, adding that the hike in fuel prices has left an enormous impact on the firm’s post-pandemic recovery.

The freight industry has faced the same fate.

Nguyen Kim Thanh, director of Kim Phat Transportation Company in District 12, Ho Chi Minh City, said that record-high fuel costs are creating serious struggles for her firm as it attempts to renegotiate with customers. 

The on-demand delivery sector is also confronting woes as a result of the rising cost of fuel, coupled with a decrease in demand, with Grab, GoJek, and Be drivers all struggling to earn a living.

Many are now considering looking for new jobs, including Nguyen Phuc Bao Chau, a student from Bach Viet College in Ho Chi Minh City, who is a part-time delivery worker.

“I am thinking about quitting my current job and seeking a new one because of soaring gasoline prices and sluggish demand,” Chau said.

More expensive fuel has also placed an undue burden on local airlines, including Vietnam Airlines, Vietjet Air, Bamboo Airways, and Vietravel Airlines.

A commercial deputy director of a local air carrier told Tuoi Tre (Youth) newspaper that airlines’ business operations remain slow although the aviation sector is showing positive signs of recovery.

Some nations are still limiting the number of air passengers aboard inbound flights, in some cases lowering flight capacities by up to 50 percent.

This, along with rising gas prices, is putting serious pressure on airlines.

If jet fuel continues being traded at $130 per barrel in 2022, the cost will add VND5.7 trillion ($245 million) over the course of the year, according to local airlines.

That number will jump to VND9.12 trillion ($392 million) if jet fuel hit $160 per barrel.

The way forward

Speaking about inflation, NA deputy Nguyen Manh Hung from Can Tho City, a permanent member of the NA Economic Committee, told Tuoi Tre that the spike in petrol and oil prices has become a hot topic as it stokes fears of high inflation.

To keep inflation under control, it is vital to reduce excise taxes on gasoline and oil.

In addition, it is urgent to refill the country’s petrol and oil reserves, while obstacles facing the Nghi Son refinery, which accounts for as much as 40 percent of the country’s fuel supply, should be removed soon, said Hung.

Fuel inventories at enterprises should also be addressed.

The prices of fuel will only stabilize when there is an abundant supply of gasoline and oil.

Furthermore, accelerating fuel rates have make food and foodstuffs more expensive. The prices of food are forecast to jump to over 20 percent in the near future.

The NA Economic Committee shared its support for the government’s plan to keep inflation below four percent and requested a clearer scenario for it amid economic growth.

The country’s economic growth target of 6-6.5 percent, plus relief packages for post-pandemic recovery, is expected to drive up inflation.

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