Huge export surplus causes many concerns

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Dr. Le Quoc Phuong, former Deputy Director of Industry and Trade Information Center (Ministry of Industry and Trade).

In 2020, Vietnam sawa record export surplus. But many said there are potential unsustainable factors for export. What do you think about this?

In the specific context of Vietnam, the large trade surplus has four worrying factors.

First, the trade surplus is only due to increased exports. In fact, exports did not increase much, but imports weretoo low. Imports werelow this year due to global supply chain beingbroken by the pandemic, creating disruptions, closing border trade and causing the economy of many countries to stagnate.

Meanwhile, the import demand of Vietnam is huge because Vietnam is aprocessing economy. Most industrial goods are processed and manufactured, for example textiles, footwear, electronics and components, iron and steel.

Vietnam is a developing country, in the process of industrialization and modernization, importing a lot of equipment and technology. FDI enterprises import machinery and equipment, and domestic enterprises did too. With a country that imports mainly production materials but imports only increase by 1.5% in the first 11 months of 2020, the stronger increase in exports will affect the production and business process.

Second, Vietnam has a high trade surplus, mainly due to FDI enterprises. For many years, FDI enterprises had a high trade surplus, domestic enterprises had a large trade deficit. The effect of both sides is the trade surplus of the economy.

Third is the source of the surplus. Vietnam has a trade deficit withdeveloped industries such as the EU, the US but has a trade deficit withAsia (China, some ASEAN countries). These are countries havea technology level that is not higher than Vietnam. That is not desirable.

Fourth is that Vietnam's export surplus in many markets is causing Vietnamese goods to facewarnings and limits. Recently, the Eurasian Economic Union has introduced a measure to limit the import of Vietnamese textiles because Vietnam's textile and garment exports to this market skyrocketed when Vietnam signedan FTA with this region. Currently, the US trade deficit from Vietnam is also very high. Although the US has not applied any measures to Vietnam yet, the US has taken measures to apply to China. One of the main reasons raised by the US side is the trade deficit from the Chinese market is too high.

In 2020, Vietnam's international economic integration made big strides, likethe implementation of the Vietnam-EU FTA (EVFTA). Do you think that the implementation of new-generation FTAs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EVFTA is one of the important factors reducing losses and damages toVietnam's exports in the context of Covid-19?

Vietnam actively participates in FTAs, including the Regional Comprehensive Economic Partnership (RCEP) and the recently concluded Vietnam-UK FTA, so Vietnamwill have a total of 14 FTAs. Among them, 12 FTAs have taken effect.

Out of 12 FTAs in effect, two new generation FTAs, CPTPP and EVFTA, open up the market with very wide commitments. We have seen the CPTPP help promote the export of Vietnamese goods to new markets where Vietnam did not have previous FTAs, such as Peru and Canada.Markets which have FTAs and exports are also promoted.

Since its implementation (August 1, 2020), the EVFTApromoted the export of agriculture, forestry and fishery products to EU countries. Obviously, the implementation of FTAs strongly promotes exports. Vietnamese products exported to many countries are essential, so they also take advantage of the opportunity.

However, businesses need to take advantage of more opportunities brought by FTAs. To take advantage, businesses must ensure very strict requirements of FTAs, especially the origin of goods. Besides, the technical standards, food hygiene and safety are strict. Another factor is the environment and labor standards in the new generation FTAs are contents that other FTAs do not have.

The role of domestic enterprises has been emphasized as a bright spot because of strong export growth. This trend has been going on for several years, so can it be considered sustainable growth or not, sir?

In recent years, FDI enterprises have played a dominant role in Vietnam's exports, the proportion of exports has continuously increased and the highest level is that FDI enterprises accounted for 72.6% of exports in 2017, then decreased slightly. Currently, FDI enterprises still keep the proportion of exports at over 71%. The share of exports of Vietnamese enterprises has continuously decreased. Not only in terms of proportion of exports, for many years, FDI enterprises’ export growth rateis always higher than domestic enterprises. Export surplus due to export performance is decided by FDI enterprises.

However, since2018, there have been some positive changes. The proportion of exports of Vietnamese enterprises has increased and the proportion of exports bydomestic enterprises is nearly 29% in 2020. In 2018 and 2019, the proportion of exports by FDI enterprises went back to below 70%, but in 2020 it increased to more than 71%.

Vietnamese enterprises have improved in the proportion of exports but are too slow and unstable. The growth rate at one point exceeded that of FDI but has now begun to decline. The inherent weakness is still the trade deficit. Since then, it shows that the trend of improvement of Vietnamese enterprises in the export structure is not enough for sustainable assessment; it still requires a lot of effort. The government must provide a lot of support, and the policy must be consistent with the framework of international commitments. In addition, enterprises must also make efforts to improve their position in exporting.

Thank you Sir!