disadvantages of the joining of Free Trade Agreements (FTAs) for Vietnam's development, disadvantages of the joining of Free Trade Agreements (FTAs) , disadvantages of the joining of FTAs, joining Free Trade Agreements,

Disadvantages of the joining of Free Trade Agreements (FTAs) for Vietnam’s development

Free Trade Agreements (FTAs) have many positive impacts on Vietnam. The most prominent incentives among them are tariff preferences that can help Vietnamese businesses boost production and export to countries within the scope of a separate FTA Agreement. However, along with the positive points are a few limitations and disadvantages that are likely to negatively affect the development of the Vietnamese economy.

Up to now, Vietnam is involved in 17 FTAs, of which 15 have been implemented, and the remaining 2 are being negotiated which is the FTA between Vietnam and Israel and the FTA between Vietnam and the European Free Trade Association (EFTA).

Considering on a global scale, at present, Vietnam is the only developing country with such a large number of FTAs and such quality, cooperating with many powerful economic powers in the world.

With the diversification of FTAs, the Vietnamese business sector will have more favorable opportunities to access international markets, many of which have expressed their great interest in Vietnamese domestic products.

However, because the nature of FTAs is a bilateral and multilateral exchange, the Vietnamese market will also become an ideal destination for international businesses, thereby creating direct competition for Vietnamese products created by Vietnamese enterprises for the domestic market.

That is one of the disadvantages for the business sector, but in general, the positive opening of the economy in the long run will make the Vietnamese market more diversified. Compared to losing a part of profits from the Vietnamese market, Vietnamese businesses can focus on international markets with high potential such as the US, China, Canada, etc.

Therefore, the temporary decrease in benefits from FTA tariff preferences to the Vietnamese market will only be short-term, Vietnamese enterprises will gain more practical business benefits from FTAs in the long run, thereby pushing Vietnam’s economy to develop strongly.

However, from a different perspective than business and finance, Vietnam’s participation in many FTAs can also lead to potential dangers of more legal nature such as the risk of trade remedies investigations by the import markets of Vietnamese goods due to a sharp increase in the volume of Vietnam’s exports, causing serious injury or threatening to cause serious injury to the domestic industries of those countries.

Current status of trade remedy lawsuits of countries towards Vietnam

With the fact that Vietnam is increasing its export production to many international markets, the possibility that Vietnam will be subject to a trade remedy investigation from the Trade Remedies Department of those countries will increase through time.

For the US market, the country has recently issued an anti-dumping investigation order for gas-powered high-pressure cleaners which is one of the trade remedy investigation measures in the world, along with anti-subsidy, self-defense and anti-circumvention of trade remedy measures.

According to the Vietnam Trade Remedies Department, in 2022, the total export value of Vietnam’s goods to the US economy reached 109.1 billion USD, accounting for about 30% of the total export turnover of the country (In 2022, Vietnam has a total export value of 371.3 billion USD, an increase of 10.5% compared to 2021).

The figure achieved in 2022 marks the first time that Vietnam has an export market with a total value of goods exceeding 100 billion USD/year.

With such a high export value, the US has conducted many trade remedy investigations against Vietnamese enterprises, mainly in anti-dumping and anti-circumvention measures.

According to the Trade Remedies Department, by the end of 2022, the United States is the largest trade remedy investigation market with Vietnam with a total of 52 cases (accounting for about 22.5% of all cases of trade remedy investigation applied to Vietnam). Although this indication only reflects the number of cases, including cases where Vietnam won and lost, but in general, this is an indicator that reflects the sudden increase in the volume of goods due to FTAs and other policies of the Vietnamese government and business community which have raised concerns among importing countries.

Currently, the two most worrying items in all trade remedy lawsuits applied to Vietnam are solar cells and wooden cabinets, which are items with a large export turnover of Vietnam, subject to anti-circumvention of trade remedy investigation.

These products have been taxed trade remedy duties by the United States with China. However, because Vietnam’s export volume of similar products to the United States has increased sharply, it is currently under investigation for trade remedy circumvention, which means that the investigating agency suspects that China enterprises have exported products to Vietnam and then exported to the United States to avoid the trade remedy duties imposed.

Currently, the US Department of Commerce (DOC) has initiated more than 20 cases against trade remedy circumvention with respect to Vietnamese export products.

Nonetheless, the large export volume or value is a concern but not the only factor. Because many Vietnamese products with small export turnover are also subject to trade remedy investigations such as the case of Australia anti-dumping investigation of ammonium nitrate products or the United States anti-dumping investigation on Vietnam paper files.

Solving the problem of trade remedies

In general, apart from the basic difficulties such as speeding up nationwide efforts to meet the requirements and commitments made by Vietnam when signing FTAs, the biggest difficulty from Vietnam joining many FTAs in the world also comes from its advantage, an increase in export turnover to a broader market list.

In fact, Vietnam currently does not have a particularly tight management mechanism from state agencies to enterprises producing and exporting Vietnamese products and goods. As an emerging market, which is in need of rapid development, perhaps in this process Vietnam has been too focused on immediate profits quarterly and annually, but has not placed too much focus on the impact of what trade remedies lawsuits can bring to the business sector and the Vietnamese economy.

If there is a stricter management mechanism based on the understanding of the volume and value of exports of the importing countries to conduct an investigation through the petition of domestic manufacturing enterprises, the Trade Remedies Department of Vietnam or other management agencies will be able to create a reasonable export lane, thereby directing the source of goods and products of Vietnamese enterprises to suitable countries.

For the “paradise” markets of Vietnamese enterprises such as the United States and China, which would have reached the boundary eventually, the management agency may consider providing export positions to that market according to the priority mode of pre-registration, or according to the contributions of businesses, whether the product meets the standards or not, prioritizing higher quality products to enhance the image of Vietnam, etc.

In the process of operation, enterprises need to actively store production and export records, not depending on state agencies. Accordingly, when subject to a trade remedy investigation, enterprises will have a stronger basis to protect their interests.

Another important note in the case of a trade remedy investigation is that businesses need to actively cooperate with goodwill, answer and respond to requests of the investigating agency quickly and fully throughout the investigation process to avoid default trade remedy duties for the entire manufacturing industry of the investigated products in Vietnam.

Enterprises need to aim to be taxed individually compared to the whole group of businesses, even exempted from duties provided that they do not commit acts of violating regulations on production, export and trade remedies.

ASL LAW is the top-tier Vietnam law firm for Anti-dumping & countervailing. If you need any advice, please contact us for further information or collaboration.


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