Huge export surplus contains many potential concerns

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

In 2020, Vietnam saw a record export surplus. But it should not be too happy because of this result, the greater the trade surplus, the more worries there are because of potentially unsustainable factors for export, what do you think about this?

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

The first point of concern is that trade surplus is only due to increased exports. In fact, exports did not increase much, but imports were low. Imports didn’t increase much this year as the pandemic causing the global supply chain to break, creating disruptions, closing border trade, with the economy of many countries stagnating.

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

It must also be added that Vietnam is a developing country, in the process of industrialization and modernization, importing a lot of equipment and technology. FDI enterprises imported machinery and equipment, as did domestic firms themselves. 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 processes.

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

The third concern is the source of the surplus. Vietnam has a trade surplus with countries with developed industries such as the EU and the US but has a trade deficit from Asia (China and some ASEAN countries). These are countries with a technology level not much higher than Vietnam. That is not desirable. The US and EU are the countries with technology sources.

The fourth point of concern is that Vietnam's export surplus in many markets is likely to cause Vietnamese goods to be limited. Recently, the Eurasian Economic Union has introduced measures to limit Vietnam's textile and apparel imports because Vietnam's textile and garment exports to this market skyrocketed when Vietnam signed an FTA with this region. Currently, the US' trade deficit with Vietnam is also very high. Although the US has not applied any measures to Vietnam yet, the US has taken measures against China. One of the main reasons raised by the US side is that the trade deficit from the Chinese market is too large.

In 2020, Vietnam's international economic integration took many outstanding steps, like the 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 an important factor contributing to reducing losses and damages in Vietnam's exports in the context of the Covid-19 pandemic?

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

Among the 12 FTAs ​​in effect, two new generation FTAs, CPTPP and EVFTA, open the market much faster and have very wide commitments. We have seen CPTPP help promote the export of Vietnamese goods to new markets where Vietnam did not have previous FTAs ​​such as Peru and Canada. Exports are also promoted.

Since the EVFTA was implemented (August 1, 2020), the most visible point is to promote strong agricultural, forestry and fishery exports to EU countries. Obviously, the implementation of FTAs ​​helps to strongly promote exports. Vietnamese products exported to many countries are essential, so they also take advantage of part of the opportunity.

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

In the export "picture" this year, 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 by over 71%. The share of exports of Vietnamese enterprises has continuously decreased. Not only in terms of the proportion of exports, for many years, but also the export growth rate of FDI enterprises has always been higher than domestic firms. Export surplus is due to FDI enterprises and export performance is decided by FDI enterprises.

However, since 2018, there have been some positive changes. The proportion of exports of Vietnamese enterprises has increased and this year the proportion of exports of domestic enterprises is nearly 29%. In 2018 and 2019, the proportion of exports of FDI enterprises turned back to below 70%, but this year 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 is now beginning to decline. The inherent weakness is the trade deficit. Since 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 support a lot, the policy must be consistent with the framework of international commitments. In addition, enterprises themselves must also make efforts to improve their position in exporting.

Thank you very much!