AITGA fuels Vietnam-India trade and investment ties

Friday, 2018-06-01 17:48:49
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The import turnover of steel products from India into Vietnam was at a staggering rate of 800-1,000% annually in 2017 (illustrative image)
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NDO - Tariff cuts under the ASEAN-India Trade in Goods Agreement are forecast to be a key driver in raising the Vietnam-India bilateral trade turnover, and a climb in Indian investment into the Southeast Asian nation in the future.

According to the Trade Department, under the Indian Embassy in Vietnam, in addition to the improvements in Vietnam’s business climate and the huge demand for consumption and growth, further import tariff slashes under the ASEAN-India Trade in Goods Agreement (AITGA), which is part of the ASEAN–India Free Trade Agreement (AIFTA), are helping Vietnam to attract more India exporters and investors.

Vietnam’s General Statistics Office (GSO) reported that, in the first three months of the year, firms in Vietnam spent US$1.035 billion importing products from India, far higher than the figure of US$384.079 million in last year’s corresponding period.

Rough estimations show that, in 2017, the import turnover of steel products from India into Vietnam was at a staggering rate of 800-1,000% annually. The turnover of many other types of goods into Vietnam also rose significantly. This year, Vietnam will continue truncating and annulling import tariffs, and this will lead to a bigger rise in Indian exports and investments into Vietnam, the source said.

Many delegations of Indian firms are expected to come to Vietnam in search of investment and business opportunities this year, focusing on the sectors of pharmacy, agriculture, IT, and biological technology, as well as boosting their existing investments in the country.

“Many Indian businesses operating in the solar and wind energy industries are looking for investment opportunities in several provinces in Vietnam. Some of which have proposed their projects and are awaiting approval from the local and central authorities of Vietnam,” said India’s Ambassador to Vietnam P. Harish. “I think the investment capital [of the upcoming Indian renewable energy projects] may mount to hundreds of millions of US dollars.”

Tata Coffee under India’s Tata Group is now fast-tracking the construction of its major freeze-dried coffee plant in Binh Duong province, which will produce 5,000 tonnes of freeze-dried coffee annually. Construction on the plant began in August 2017 and it will become operational in early 2019.

Under the AITGA, import tariffs for many types of agricultural materials will be removed over the next two years, from an average of 10-15% at present.

According to Indian statistics, 40% of the Indian-Vietnamese trade is in agriculture. Several Indian agricultural firms have come to Vietnam both to find trade and investment partners. There have been many successful Indian agricultural projects in Dien Bien province and the Mekong Delta region.

Recently the government promulgated Decree No. 159/2017/ND-CP on Vietnam’s special import tariff plan to implement the AIFTA for the 2018-2022 period.

Under the plan, as many as 5,668 lines of tariffs – or 59% of the plan - will be either erased or cut down. Product groups with the most tax slashes will include meat-based products, vegetables, and many other types of agricultural products.

AITGA sees tariff liberalisation of more than 90% of products traded between ASEAN and India, including special products such as palm oil (crude and refined), coffee, black tea and pepper. Tariffs on more than 4,000 product lines were eradicated. The last period for tariff reductions or eliminations under the various tariff categories for Vietnam is set for 2024.

According to the General Statistics Office, both countries’ two-way trade turnover hit roughly US$7.5 billion last year, up from US$5.5 billion in 2016, US$1.54 billion in 2006, and US$273.4 million in 2001. In this year’s first three months, the figure sat at US$2.6 billion, far higher than US$673.3 million recorded in the same period last year.

The two countries set a target of raising the figure to US$15 billion by 2020.

According to Ambassador P. Harish, the AIFTA is expected to continue serving as a key propellant of a climb in trade between Vietnam and India in the future.

While having lowered or erased tariffs on many commodities and under the IAFTA, Vietnam’s tariff reduction/elimination is taking place in 2018. Bilateral trade will likely receive a strong boost when tariffs for many commodities are eliminated or remarkably cut under the IAFTA.

According to India’s Embassy to Vietnam, the India-Vietnam trade has skyrocketed from US$237 million in the 2001-2002 fiscal year, [from April to March] to US$10.135 billion in the 2016-2017 fiscal year, impressively up more than 4,000% within 15 years.

After Vietnam and India established a bilateral strategic partnership in 2007, the turnover reached US$2.5 billion in 2008 and US$2.8 billion in 2010. However, it was not until 2010 when the AIFTA was established that the two nations’ bilateral trade turnover soared impressively. Within just five years, from 2010 to 2015, the figure soared from US$2.8 billion in 2010 to US$5 billion in 2015, according to the Institute for India and Western South Asia.

According to Asia Briefing, a subsidiary of pan-Asia consultancy Dezan Shira & Associates, the tariff cuts under AITGA will help Vietnam court more Indian investments.

“We look forward to investments in Vietnam from Indian companies, not only in the renewable energy sector but also in energy conservation. Energy Efficiency Services Limited from India is already collaborating with a few provinces in Vietnam to drastically reduce their electricity consumption, especially in the areas of street lighting through the use of LED bulbs, thereby contributing to the overall sustainable development of the country by reducing its reliance on hydrocarbons,” a Dezan Shira & Associates report on Vietnam-India trade and investment ties recently released.

In the India-Vietnam joint statement released during state visit of President of Vietnam Tran Dai Quang to India on March 3, 2018, the two countries underscored their energy co-operation as one of their biggest co-operation pillars.

“The two sides agreed that their co-operation in oil and gas exploration, thermal and hydroelectric power and renewable energy and energy conservation is registering remarkable progress,” the statement read.

“President Tran Dai Quang welcomed Indian businesses to expand their oil and gas exploration and exploitation activities on land and in the continental shelf and exclusive economic zone of Vietnam, and, to this effect, suggested that the relevant Indian companies file concrete proposals for the blocks offered by the Vietnamese side.”

Both countries have also agreed to actively pursue the signing of a memorandum of understanding on collaboration in oil and gas exploration projects in third countries. The Vietnamese side also welcomed Indian oil and gas companies to avail of the opportunities in the midstream and downstream sectors in Vietnam.