Expanding markets from FTAS - Turning challenges into opportunities

In the context of strong globalization, participation in Free Trade Agreements (FTAs) has become one of the important strategies to help countries, including Vietnam, expand their markets and improve their international competitiveness. As of 2024, Vietnam has signed a total of 13 major FTAs, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU - Vietnam Free Trade Agreement (EVFTA), and FTAs ​​with ASEAN, Korea, Japan, and many other partners. However, many Vietnamese companies have yet to take full advantage of these FTAs.

FTA is a barrier for unprepared companies

According to the Ministry of Industry and Trade, the current average rate of Vietnamese enterprises using FTA tariff incentives for exports is only about 30-40%. This figure suggests that Vietnam is missing a significant opportunity to increase export turnover, with around 60-70% of tariff incentives not being fully utilized[1]. 

According to reports from USAID and the Ministry of Finance, many SMEs in Vietnam still lack the necessary information and skills to take advantage of the tariff incentives offered by FTAs. This is because these agreements have complex tax commitments and require companies to have a deep understanding of regulations[2]. In addition, many small enterprises do not have sufficient financial resources to invest in upgrading technology, quality management, and meeting product origin requirements according to FTA standards, which reduces their ability to take advantage of incentives in international markets[3].   

FTAs such as CPTPP and EVFTA bring many benefits to Vietnamese businesses, but they also pose significant challenges for companies that are not yet prepared. In particular, requirements on rules of origin, quality standards, and labour and environmental regulations can be seen as important barriers. These requirements not only require companies to have in-depth knowledge of the FTA's legal requirements, but also to invest heavily in infrastructure, production lines and quality management systems to meet strict international standards.

One of the most complicated issues for Vietnamese companies is the rules of origin. These require companies to prove that the majority of the value of their products comes from domestic materials or from FTA member countries. This means that companies need to build up domestic supply chains or from countries in the FTA region to ensure that their products are eligible for preferential tariffs. However, many Vietnamese companies still rely on raw materials from outside the FTA area, especially in the textile and manufacturing sectors, making it difficult for them to prove the rules of origin. 

In addition, the quality and technical standards of demanding markets such as the European Union (EU) require companies to invest heavily in production technology and improve quality control processes. For example, in the agricultural and aquatic products industry, companies exporting to the EU must meet standards such as GlobalGAP, HACCP and ISO 22000. These standards cover not only food safety, but also quality control processes from production and processing to packaging and transport. Compliance with these standards involves significant costs for training, inspection, monitoring and maintenance of quality management systems.

For small and medium-sized enterprises, meeting these standards is a significant challenge due to financial and human resource constraints. The cost of upgrading factories, equipment and training staff to meet international standards is often very high. In addition, maintaining certification to international standards requires companies to comply with regular inspection procedures, and each inspection costs a lot of money. This reduces the competitiveness of small companies in the international market, especially when compared to large competitors with strong financial resources. Finally, the environmental and labour standards requirements in FTAs such as the EVFTA are not only a legal barrier, but also a major financial burden for enterprises. Many Vietnamese companies, especially in heavy industry, are not willing or have insufficient resources to invest in green production systems, use renewable energy, or reduce emissions. These standards require companies to completely change their production processes, using modern technology to meet environmental protection requirements, while at the same time ensuring working conditions for employees. For companies that are not prepared in terms of technology and management, meeting these requirements can mean losing opportunities to export and participate in international supply chains.

Turning challenges into opportunities

Although FTA requirements present many challenges, for some companies they are a driving force for sustainable development. Companies are finding that meeting these high standards not only helps them expand their markets, but also adds value to their products and strengthens their reputation in the international marketplace.

Investing in improving product quality and production technology is key for companies to succeed in international markets. FTAs such as EVFTA and CPTPP not only provide opportunities to export to large markets, but also create conditions for Vietnamese enterprises to improve production capacity, apply modern quality control processes, and obtain international certifications such as ISO, HACCP, or GlobalGAP. These certifications not only help companies' products meet the stringent requirements of international markets, but are also important tools for building reputation and brand.

In addition to improving product quality, environmental and labour standards in FTAs also help companies move towards sustainable development. Rather than focusing solely on short-term benefits, many companies have realised that meeting these requirements not only helps them avoid trade defence measures, but also opens up new opportunities in markets that prioritise green and sustainable goods. This is particularly important in the context of globalisation, where consumer trends are gradually shifting towards environmentally and socially responsible products.

Sustainable development not only helps companies add value to their products, but also minimises legal risks and costs in the long term. For example, investing in clean production technologies, using renewable energy or reducing emissions not only helps companies meet environmental requirements, but also helps them reduce operating costs, optimise production processes and increase energy efficiency. At the same time, compliance with labour standards also helps companies build good relations with employees, minimise labour disputes and create a sustainable working environment.

Another important point is that by meeting the high standards of FTAs, companies can gain access to global supply chains. In many industries, multinational companies require their suppliers to meet quality, environmental and labour standards. Meeting these requirements not only helps Vietnamese enterprises expand their export markets, but also helps them become reliable partners in international supply chains, creating opportunities for long-term sustainable growth. 

Thus, the high standards of FTAs are not only a challenge, but also a driving force for sustainable development for Vietnamese enterprises. By investing in technology, improving product quality, and complying with international standards, enterprises can not only expand export markets, but also create sustainable competitive advantages in the context of globalisation. Developing in this direction will not only help enterprises seize the opportunities of FTAs, but also ensure long-term and stable development in the future.

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