The impact of Free Trade Agreements (FTAs) on Vietnam chemicals exports

The situation of Vietnam chemicals exports in recent years

In 2019, the export value of the chemical industry contributed about US $ 3.2 billion, accounting for around 1.21% of the country’s total export turnover.

The impact of FTAs on Vietnam chemicals exports

Source: VIRAC, GDVC

According to data of the General Department of Vietnam Customs, export value of chemicals and chemical products in Q1/2020 reached US $ 803 million. In which, export of chemicals reached US $ 472.4 million, down 2.2% over the same period in 2019, exports of chemical products reached US $ 331 million, up 11.9% year over year. 

The impact of FTAs on Vietnam chemicals exports

Source: VIRAC

Chemicals exported from Vietnam account for 1% of the chemical exports worldwide, according to ITC 2019. The largest importers of Vietnam chemical industry include China, Japan, India and South Korea, which made up nearly 55% of total export takings. 

Impacts of FTAs on chemicals exporting to major markets

Chinese market

In 2018, China’s consumption of chemicals and chemical products attained US $ 1.26 trillion, of which only US $ 576 million were chemicals imported from Vietnam. Organic chemicals such as hydrocarbons, phenols, antibiotics, etc. used as solvents and raw materials are mainly imported staples. 83% of Vietnam’s organic chemicals exported to China is relevant to the above product lines, but only account for 0.9% of China’s chemical import turnover.

In fact, the preferential tax rates applied to chemical products have been reduced to 0% according to the ASEAN- China free trade area (ACFTA). However, regulatory import requirements such as Technical Barrier to Trade (TBT), product quality, intellectual property… are the actual hurdles for Vietnamese enterprises.

According to ITC statistics, China is currently imposing 9 non-tariff measures on all types of chemical products imported from Vietnam, including TBT, SPS (sanitary and phytosanitary measures), conformity regulations, product labeling….

Japanese market

Similar to Chinese market, organic chemicals are the most consumed and imported by Japan. The popular product labels are heterocyclic compounds, nucleic acid, ethers … which deploy in pharmaceuticals and agriculture industries. However, the amount of Vietnam’s chemicals exported to Japan is mostly inorganic chemicals and their related products. The potential for exporting organic chemical products is left open, as the current non-tariff barriers that Japan applies to Vietnam’s organic chemicals imports are actively complicated.

Currently, Japan employs an average of more than 33 different non-tariff measures (NTMs) on chemical products, especially strict measures on chemicals used in the pharmaceutical and agriculture industries. NTMs including regulations on packaging, labeling (TBT), traceability, safety level, etc. are listed in Good Quality Practices (GQP) issued by the Ministry of Health.

The influence of RCEP on Vietnam’s chemicals exports 

In the future, when the Regional Comprehensive Economic Partnership agreement (RCEP) is signed, this will be a great opportunity for countries in the region generally and Vietnam particularly. RCEP mainly focuses on tariff reduction and service liberalization. Unlike other trade agreements, RCEP does not require members to liberalize their economies, protect labor rights or environmental standards, or require intellectual property protection. Therefore, RCEP not only ensures most preferential tariffs for product ranges but also reduces the number of non-tariff barriers, which are the actual obstacles for exporters.

There is currently a number of non-tariff barriers (NTBs) announced by RCEP countries. The most common NTBs in the chemical industry are Sanitary and Phytosanitary measures (SPS), which protect people, animals and plants from dangerous substances; and Technical Barriers to Trade (TBT). These barriers can be applied bilateral, multilateral, inter-regional or intra-ASEAN. Overall, ASEAN countries are subject to fewer non-tariff barriers than non-ASEAN countries. That creates advantages for Vietnam in the future when RCEP comes into effect, the number of NTMs from major markets such as China and Japan will decrease and be less strict.

Effects of EVFTA on chemicals exporting to EU market

Despite being the traditional export area for chemicals, since 2014, the export of chemicals in Europe has been declining. As some environmental protection laws in the region became stricter and the building factories expenses increased, the dominant position of the chemical industry gradually shifted to Asia and the Middle East countries. The European chemical industry continues to be adversely affected by the strict legal regulations and the weakening of the Union.

Therefore, under the influence of EVFTA, it is expected that the EU will increase imports of chemicals and chemical products from Vietnam when applying tariff by 0% for most imported chemicals. However, the EU also places rigid requirements on the management and handling of goods containing high levels of toxic chemicals such as REACH regulation (Registration, Evaluation, Authorization and Restriction of Chemicals)

REACH regulation – new EU chemical law

The REACH regulation has been applied in the Union and in many countries around the world, becoming the ground and direction for international chemical use. This regulation is implemented in many stages over 10 years, with a required declaration list of products in different industries that relate to consumer goods, such as chemicals, dyeing, printing,…

Under the new regulation, substances imported into the EU in quantities of over 1 ton/year need to be registered. This provision is directly referred to Vietnam’s export products, especially chemicals.

Henceforward, exporting is expected to recover optimistically in the circumstances of many countries gradually lifted some restrictive measures due to the pandemic. In addition, Vietnam chemicals exports are also predicted to grow rapidly by taking advantage of signed free trade agreements (FTAs), especially EVFTA and upcoming RCEP.


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