Making good use of FTAs to boost exports to Latin America

Leather and footwear is one of the items with positive export growth to Latin America. Photo: ST

Increase the penetration ability of Vietnamese goods

According to Cu Chi Loi, an expert on the Americas, former Director of the Institute of Americas Studies (VIAS), Latin America is the focal point of the Covid-19 pandemic, which was heavily affected by the end of 2019 and the beginning of 2020. The economic growth of this area decreased by 7% in 2020. However, the Latin American economic recovery has begun.

Compared to other regions, Latin America has a high vaccination rate, at about 60-65%. Economic recovery in this region in 2021 has been positive, but it will not be until 2023 or early 2024 that the Latin American economy will return to the level as before the Covid-19 pandemic. These are good signals for Vietnamese enterprises to increase trade and export of goods to this region.

According to the Ministry of Industry and Trade (MoIT), economic and trade relations between Vietnam and Latin American countries in recent years have been continuously expanded and developed. Up to now, Vietnam has had trade relations with all 33 countries in the region, with the total two-way trade turnover increasing more than 63 times from US$245 million in 2000 to US$15.6 billion in 2020. Meanwhile, Vietnam's exports to Latin America reached US$8.25 billion and imports reached US$7.33 billion.

“Notably, Latin American economies are changing and restructuring. Compared with many countries trading with this market, Vietnam can be considered as being late. Therefore, the restructuring process of the Latin American economy is an opportunity for Vietnamese enterprises to penetrate," said Loi.

Some economic experts have analyzed that Vietnam-Latin America's trade growth has been quite high. In general, Vietnam and Latin America have a great reciprocity. Vietnam can be a bridgehead for Latin American businesses to penetrate many markets, especially the Chinese market. Conversely, Vietnam can also import abundant input materials from Latin America.

One of the new signals in trade cooperation between the two sides, especially with the Mexican market, is that it began to show signs of modern trade, participating in the global value chain.

Vietnam exports a large amount of electronic goods to Mexico, while this is also an important Mexican export item to the US and Canada. Thus, Vietnam's exports to Mexico are input for Mexico's exports to other markets. “Trade relations have the shape of a supply chain and global value. This shows the current global development trend, so the potential is huge,” said Loi.

Meet the rules of origin

Recently, Vietnam has signed many agreements with countries in Latin America, especially the Vietnam-Chile FTA signed on November 11, 2011, effective from 2014; the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which three Latin American countries including Mexico, Chile and Peru are members.

“The CPTPP, which has been in effect for nearly three years for Mexico and Chile and will come into force from September 2021 for the Peruvian market, brings positive results. These FTAs are considered an important turning point, creating a new impetus to promote trade and investment cooperation between Vietnam and Latin America," said Deputy Minister of Industry and Trade Do Thang Hai.

Nguyen Cam Trang, Deputy Director of the Import-Export Department (MoIT), said that the tariff incentives in the CPTPP bring great opportunities for Vietnamese enterprises to export to markets such as Mexico and Chile.

Vietnam has had nearly three years of implementing the CPTPP with Mexico. In the 2018-2020 period, export growth to Mexico always reached double digits with an average growth of 18.8% per year. Key products with increased export value were phones, means of transport, spare parts, and shoes. Of the CPTPP partner countries, Mexico and Canada are markets that Vietnam signed the FTA for the first time, so its impact on export growth can be seen immediately.

“Based on the value of goods exported to Mexico granted Certificates of Origin (C/O) under the CPTPP, out of the total US$3.8 billion worth of exports to Mexico in the 10 months of 2021, there was more than US$1.4 billion of goods granted C/O under the CPTPP. The high rate of C/O issuance proved that enterprises have used tariff preferences from the CPTPP to export to Mexico," said the leader of the Import-Export Department.

In the context that the regional economy is recovering and businesses are increasingly taking advantage of incentives from the FTAs, opportunities to boost exports to Latin America are high.

However, according to Trang, with an FTA like the CPTPP, the rules of origin are quite new, and different from what exporters were familiar with. To continuously take advantage of incentives from the FTAs, businesses need to improve their initiative, seize opportunities on tariff preferences, and master the rules of origin of these FTAs. “To export, businesses must also understand the tastes and consumption habits of the market as well as regulations on importing goods such as ensuring quality, food hygiene and safety. In the long run, to export effectively to the Latin American market, enterprises must pay special attention to improving the competitiveness of their products," said Trang.

In addition to meeting the rules of origin to promote exports, talking more about the difficulties when exporting to Latin America, the leader of a consulting business specializing in supporting logistics solutions for the Latin American market said that the export volume of Vietnamese goods to this market was still modest, so carriers did not prioritize Vietnamese goods when arranging goods on ships and planes.

Previously, shipping time to the Latin American market usually took only 30 days. However, due to the Covid-19 pandemic, the delivery time has risen to 50-60 days, leading to late delivery. Meanwhile, Vietnam's goods exported to this market are mainly agricultural products, which need to be transported quickly to ensure quality. Logistics is a big problem that needs a suitable solution when promoting exports to Latin America in the near future.