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HEADLINES

Vietnamese rice is sold in major Swedish supermarkets

Just one year ago, Vietnamese rice was still “absent” at retail stores and supermarkets, but since the end of 2019 until now, Vietnamese rice has been present in major supermarkets and most of the Asian food stores in Sweden.

According to information from the Ministry of Industry and Trade, in order to disseminate the benefits of the EVFTA Agreement while at the same time capture market needs and promote businesses to import Vietnamese goods, the Vietnam Trade Office in Sweden visited and worked at 9/12 Sweden’s largest Asian food import warehouses.

Through survey, it is learned that, since the end of 2019 until now, Vietnamese rice has been present in major Swedish supermarkets such as Willy, Ax Food and most Asian food stores. It is expected that, with the tariff quota that the EU applies to Vietnamese rice under EVFTA commitments, Vietnam’s rice exports to Sweden will increase sharply in the coming time period.

In the period 2015 – 2018, ITC’s statistics show that Vietnam’s rice import turnover to Sweden only reached an average of USD100,000/year. Other food products are imported with negligible turnover.
The Ministry of Industry and Trade said that although Sweden has a small population, the amount of Asian food consumption is quite large, mainly from Thailand, Korea and China. Goods from other countries, including Vietnamese products, still account for a relatively modest proportion.

A lot of Asian food products are imported such as rice, vermicelli, noodles, pho, beans, bamboo shoots, coconut milk, nuts, spices, frozen seafood, etc.

From the end of 2019 to date, with the campaign of the Trade Office to welcome the EVFTA Agreement and take advantage of the fact that Cambodian rice is subject to a temporary tax for three years, enterprises have shifted to import Vietnamese rice to replace Cambodian rice.

Along with the market survey, the Trade Office has met and worked with Asian food importers to introduce Vietnamese products, conduct communication and encourage businesses to import Vietnamese goods and disseminate information on EVFTA Agreement to about 50 enterprises in this in this business trip.

FROM THE BEGINNING OF THIS YEAR

Sweden exports to Vietnam

Sweden imports from Vietnam

Norway exports to Vietnam

Norway imports from Vietnam

Denmark exports to Vietnam

Denmark imports from Vietnam

EVFTA

Understanding Rules of Origin

• Investors looking to taking advantage of the recently ratified EVFTA must understand and comply with rule of origin guidelines.
• Rules of origin guidelines can be complex and manufactures should harmonize them according to rules of the EVFTA.
• While sourcing materials from third party states may decrease the overall cost of production, they will compromise competitiveness if entering EU markets.

Recently ratified by Vietnam’s National Assembly, the European Union Vietnam Free Trade Agreement (EVFTA) presents exciting opportunities in a multilateral trading partnership between both parties.

Not only has the agreement slashed tariffs on nearly 99 percent of all Vietnamese exports to the EU, but measures have also been taken to ensure that the FTA stays updated in the face of future agreements on both sides. For those seeking to tap into the agreement’s cost-saving measures, an important consideration, and the focal point of this article, are the EVFTA’s rules of origin.

In the face of low-cost sourcing options in close proximity to the Vietnamese market, and increasing regional integration on the part of the Association of Southeast Asian Nations (ASEAN) – of which Vietnam is a member, existing producers, and newcomers to the region alike will be hard-pressed to deny the benefits of regionally integrated supply chains.

However, while sourcing materials from third party states may decrease the overall cost of producing a given good, the introduction of third party inputs may compromise coverage under the EVFTA – leading to reduced competitiveness upon export to European markets.

The following paragraphs highlight the conditions under which goods will be granted coverage under EVFTA and outline the documentation that should be expected as part of the customs compliance process.

Qualifying for tariff reductions

Products will benefit from the tariff preferences under the EVFTA rules of origin provided that they can prove that they are “originating”. Products are considered originating under the agreement if they meet one of the following requirements:

• Wholly obtained in Vietnam; and
• Products produced in Vietnam incorporating materials which have not been wholly obtained there, provided that such materials have undergone sufficient working or processing within Vietnam.

While raw materials from Vietnam and goods produced in Vietnam using Vietnamese inputs easily fall into the wholly obtained category, many goods contain materials or components imported from countries not party to a trade agreement.

These goods must prove that the inputs that have been inputted have undergone specific levels of alteration within Vietnamese borders to tap into the benefits of the EVFTA. Many goods have set procedures – outlined in Protocol 1 of the EVFTA text – that must be completed within Vietnam for the good in question to be considered originating. The chart below provides an example of the layout of product-specific working requirements found within the EVFTA text.

In addition to these procedures, certain areas of working are specifically noted for their inability to qualify as goods for originating status. These exemptions include the following:

• preserving operations to ensure that the products remain in good condition during transport and storage;
• breaking-up and assembly of packages;
• washing, cleaning; removal of dust, oxide, oil, paint or other coverings;
• ironing or pressing of textiles and textile articles;
• simple painting and polishing operations;
• husking and partial or total milling of rice;
• operations to color or flavor sugar or form sugar lumps;
• peeling, stoning, and shelling of fruits, nuts, and vegetables;
• sharpening, simple grinding or simple cutting;
• sifting, screening, sorting, classifying, grading, matching (including the making-up of sets of articles);
• simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards, and all other simple packaging operations;
• affixing or printing marks, labels, logos, and others like distinguishing signs on products or their packaging;
• simple mixing of products, whether or not of different kinds; mixing of sugar with any material;
• simple addition of water or dilution or dehydration or denaturation of products;
• simple assembly of parts of articles to constitute a complete article or disassembly of products into parts; and
• slaughter of animals

EVFTA compliance

Under the EVFTA, all firms exporting goods from Vietnam to the EU have two options concerning compliance. Depending on their status with the Vietnamese government, exporters must either complete a certificate of origin and origin declaration form or a specialized origin declaration form. Compliance associated with these alternatives is outlined below:

Certificate of Origin

EU based exporters should compile information available as per Protocol 1 of the EVFTA to obtain a certificate of origin. Those seeking to export to the EU from Vietnam will have to meet requirements that, while similar to those mentioned above, are outlined in Vietnamese legislation.

• Vietnam’s Ministry of Industry and Trade issued Circular No. 11/2020/TT-BTC implementing the rules of origin in the EVFTA. Vietnam’s goods exported to the EU market will be granted the certificate of origin (C/O) form EUR 1 to enjoy preferential tariffs under the EVFTA. The circular will take effect on August 1, 2020.
• In addition to the application forms listed above, it may be necessary to produce any of the following supporting information:
• direct evidence of the manufacturing or other processes carried out by the exporter or supplier to obtain the goods concerned, contained for example, in his accounts or internal book-keeping
• documents proving the originating status of materials used, issued or made out in a party, where these documents are used in accordance with domestic law
• documents proving the working or processing of materials in a party, issued or made out in a party, where these documents are used in accordance with domestic law
• proof of origin proving the originating status of materials used, issued or made out in a party in accordance with this protocol

Note: Certificates of origin may be issued retroactively for goods that have already been exported under limited circumstances such as technical errors or limited information on the ultimate destination of a product.

Origin declaration

Made out by any exporter for consignments the total value of which is to be determined in the national legislation of Vietnam and will not exceed US$6,600 (EUR 6000).

Or

Origin declaration

Exporters that have been approved by the Vietnamese government may forgo the issuance of a certificate of origin once their approval status has been relayed to relevant EU authorities. Instead, an Origin Declaration will be required upon export.
Note: Producers in the EU exporting to Vietnam may forgo all requirements above if they file electronic origin documentation with a database in the EU after their participation in this database has been notified to Vietnamese authorities.

OTHER NEWS

Vietnam’s Automobile Industry and Opportunities for EU Investors

• Vietnam’s automobile industry has grown significantly in recent years thanks to the country’s fast-growing middle class.
• While car ownership remains low compared to regional peers, families have increasingly upgraded to cars from motorbikes in the past five years.
• With the upcoming EVFTA, the Vietnamese automotive market will be fully opened to major automotive production centers of the EU by 2030.

Vietnam’s automobile industry has grown significantly in recent years. The average growth rate of domestically assembled vehicles was approximately 10 percent per year in the 2015-2018 period. With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the Vietnamese market, the number of spare parts suppliers have also invested in the industry giving the sector a much-needed boost.

The motorbike is ubiquitous to Vietnam, but with the country’s fast-growing middle class, car ownership is steadily rising. This growth, however, is likely to be stunted in the short term due to the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its economy.

Vietnam’s Industrial Policy and Strategy Institute predicts 750,000 to 800,000 vehicles will be sold annually by 2025 up from 288,683 in 2018.

The automotive industry is a major contributor to the GDP of many countries in the world:

As displayed above, with such a high share in Vietnam’s GDP, the automotive industry has always received special attention from the government. There are currently many large automotive assembly and production projects in Vietnam with the aim of not only meeting domestic demand but also tapping into the regional market.

Local conglomerate Vingroup officially inaugurated its Vinfast factory on June 14, 2019, making it the first domestic automobile factory in Vietnam. The factory is not only state-of-the-art but also in line with Industry 4.0 standards.

However, the Vietnamese automotive industry faces stiff competition. Part of the reason for this is the zero-tariff policy between ASEAN countries that Vietnam is part of. Thus imports are cheaper than domestically produced vehicles.

Although Vietnam is one of the four largest automobile manufacturers in Southeast Asia, it has one of the lowest average localization rate in this region (only around 10-15 percent, and is still far behind Thailand, Indonesia and Malaysia).

In addition, the local automobile industry has not been able to invest in core and high technology products such as engine production and transmission systems. Localized parts are mostly of low technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic products.

About 80-90 percent of the main raw materials used to manufacture components are still imported. As a result, companies are required to import approximately US$2 billion to US$3.5 billion in components and parts for vehicle manufacturing, assembly, and repair each year.

For this reason, domestic automobile production costs are 10-20 percent higher than in other countries in Southeast Asia. As a result, the cost of cars produced domestically are at a disadvantage compared to completely build units (CBUs) that are imported.

Increasing car ownership

Vietnam imported more than 109,000 CBUs in the first nine months of 2019 with a turnover of US$2.4 billion as per official statistics. Compared to the same period in 2018, imported cars increased by 267 percent in volume and 257 percent in value.
Cars with less than nine seats led imports – with about 75,848 vehicles valued at US$1.5 billion. This shows the increasing purchasing power and the changing demands of customers. In addition, the vehicles imported from the EU mainly come from Germany. As per the General Department of Vietnam Customs in 2018, 1,197 imported cars from Germany were registered in Vietnam. Germany’s ZF Friedrichshafen inaugurated its first plant producing chassis modules for cars in Haiphong in November 2019.

Furthermore, according to Vietnamese Automobile Manufacturers Association (VAMA), in the first nine months of 2019, the sales of VAMA members reached 219,205 cars for all types. This corresponds to an increase of 18 percent compared to the same period last year. In addition, the private car segment has recorded increased growth, specifically by 30 percent over the same period in 2019.

A CTS report stated that the reason for rising car consumption is Vietnam’s strong GDP growth. Vietnam is still at the beginning of a growth cycle. When compared with GDP per capita of other countries in the region, the reasonable growth rate of car ownership in Vietnam is about 10.5 percent a year. If GDP per person increases by 1 percent, then car consumption per person should increase by 1.5 percent.

In addition, car prices are expected to fall in the future as economic stimulus measures such as the ban on motorcycles in the inner city are likely to take effect. This means that the growth rate of car consumption could also be higher and reach about 12-15 percent per year in the next 10 years.

EVFTA: Opportunities for EU investors

The European Union Vietnam Free Trade Agreement (EVFTA) is a comprehensive and ambitious agreement and presents significant opportunities for both Vietnam and the EU.

One of the most significant contents in this agreement is the commitment by Vietnam to eliminate tariffs on EU exports once the agreement comes into force. For cars and auto parts exported from the EU, Vietnam has guaranteed to reduce the import tax to zero percent after seven to 10 years, once the EVFTA takes effect.

The EVFTA is expected to take effect once the National Assembly of Vietnam ratifies the agreement. As a result, the Vietnamese automotive market is expected to be fully open to major automotive manufacturing centers in the EU by 2030. In addition, it is also forecast that the Vietnamese automotive market will reach a production capacity of one million vehicles per year by 2030.
As middle-class incomes continue to grow and Vietnam’s motorization landscape transforms, the country’s automobile industry is expected to remain on an upward trajectory.

However, with disruption to supply chains and less demand, the automobile industry will likely suffer short term declines as it goes through a period of adjustment. Nevertheless, government incentives and Vietnam’s free trade agreements such as the EVFTA are likely to bolster the industry in the long term aided by a growing middle class.

Vietnam’s Solar Industry: Bright Prospects for Investors

• Vietnam’s energy consumption will continue to grow as the economy recovers from the pandemic-induced downturn.
• Tight deadlines will make it difficult for investors to benefit from revised feed-in-tariffs, but new investment mechanisms are being considered.
• Other challenges regarding infrastructure and administrative processes need to be addressed to fully take advantage of Vietnam’s solar energy potential.

Vietnam’s golden era for solar development

In June 2020, Sharp Energy Solutions Corporation (SESJ) completed a mega solar power plant in Ninh Thuan province, which is expected to generate 76,373 megawatt hour (MWh) per year. The plant is the newest addition to SESJ’s five other existing solar power plants in Vietnam.

Sharp is only one of the many companies that cashed in on Vietnam’s hunger for renewable power by investing in large-scale solar power projects. As the country bounces back from the pandemic-induced downturn, its energy demand is expected to rise by over 10 percent per year by the end of 2020 and by 8 percent per year in the next decade.

For years, Vietnam like many other developing countries relied on coal as the cheapest and easiest option to meet energy needs. However, technological progress and growing environmental concerns have made renewable energies more attractive. In 2017, solar energy played almost no part in Vietnam’s energy strategy. By the end of 2019, Vietnam surpassed Malaysia and Thailand to reach the largest installed capacity of solar panels in Southeast Asia. The country found itself with 5 gigawatts (GW) of photovoltaic projects, far exceeding the 1 GW by 2020 target.

The following article takes a look at Vietnam’s recent solar boom and the future trajectory of solar energy development in the country.

New FiT approved in the midst of uncertainty

Much of Vietnam’s recent success with solar energy can be attributed to feed-in-tariffs (FiT). FiTs encourage investment in renewable energy by guaranteeing an above-market price for producers. Since they usually involve long-term contracts, FITs help mitigate the risks inherent in renewable energy production.

In April 2020, the Vietnamese government finalized the new solar FiTs, ten months after the previous FiT program expired in June 2019. The new tariffs are 10-24 percent lower than before and are still uniform across regions but differentiated by type (ground-mounted, floating, and rooftop).

Under the new decision, solar projects are required to achieve commercial operation by December 31, 2020, to benefit from the new FiT rates. The delay in the government’s approval gives solar developers a very narrow time frame to work with.

With the current supply chain disruptions affecting solar cells and module delivery from China, and other pandemic-induced economic uncertainties, it will be very challenging for firms to become operational before the deadline. Thus, advisory firms like FitchSolutions expect that the new FiT scheme will not be the main driver of investments in solar energy in Vietnam.

Looking forward, Vietnam still intends to implement an auction mechanism in the future. All projects who do not qualify for the new FIT rates will go through a competitive bidding process. By giving the government the ability to issue a call for tenders and select the most price-competitive firms, the scheme will help better manage clean energy development across the country.

However, a transition away from a FiT scheme may take longer than expected given that undeveloped large-scale photovoltaic projects were just approved to receive tariffs. Attracting investment will largely depend on the government’s ability to deliver a clear auction scheme and other incentives on time.

Long-term commitment to boost solar energy

The revised FiT came shortly after the Vietnamese government announced that it intends to double its power generation capacity over the next decade. This will increase the proportion of renewable energy to 20 percent in an attempt to reduce reliance on coal for electricity production.

In late 2019, the Prime Minister approved the outline of the national Power Development Plan (PDP) VIII, expected to be completed before the end of the year. The PDP VIII covers the period of 2021 to 2030 with a vision to 2045 and sets out renewable energy development and investment attraction as two of the key priorities.

In addition to developing the PDP VIII, the MOIT also submitted Proposal No.544/TTr-BCT on January 21, 2020, which outlines a pilot program on direct power purchase agreement (DPPA) mechanisms.

The DDPA program would allow energy producers to sell and deliver electricity to corporate consumers instead of going through a state-owned electric utility company. The proposal sets a two-year timeframe for implementing the pilot program and lays out the criteria for participating developers and private power consumers. It is expected to range between 400-1000 megawatts (MW) and will be available nationwide.

Despite some criticism of the DPPA’s limited scope, the proposal is a positive development for the growth of renewables in Vietnam. It signals that Vietnam is a serious solar player that is willing to implement supportive mechanisms to retain investor interest in the renewable energy sector.

Investors will have to contend with other challenges

Beyond the uncertainties over future investment schemes, there are other factors that both investors and government authorities need to consider as Vietnam moves forward with solar energy development.

First, there are some infrastructure shortcomings that hinder energy transmission. Most solar power plants are concentrated in the sunny southern region, where they tend to overwhelm the national grid. Meanwhile, some solar plants have seen their operation date delayed due to incomplete transmission lines.

Bringing energy to economic centers and northern cities is, therefore, still a challenge. The new PDP aims to address this by ensuring that energy development is balanced among the regions, and that power grids are connected within Vietnam and with neighboring countries as well.

Further, ground-mounted solar projects need to consider land rights, an issue that looms large in Vietnam. Though investors can benefit from exemptions from land-use fees and rents, administrative processes can take time and cause significant delays.
There are still uncertainties regarding the future of coal. While the PDP VIII emphasizes sustainable development to address climate change, Vietnam’s coal imports in the first half of 2020 surged by 53.8 percent from a year earlier, a record high.

According to the MOIT, coal-fired plants account for around 35 percent of Vietnam’s power generation capacity.

The ministry expects that the country will face severe power shortages as the construction of new power plans fall behind the fast-growing demand for energy. Thus, coal may continue to fill the energy gap in the upcoming years.

However, there are signs of dwindling interest for coal. The majority of planned coal power capacity has been delayed or postponed. Though alleged corruption and engineering difficulties partly explain these delays, local opposition and a global movement away from coal power are also major contributing factors.

For example, South Korean and Japanese lenders have pulled back their investment in coal power projects, while Chinese companies are becoming more aware of the risks of continuing to invest in coal. With proper strategic planning and increased support for investment, Vietnam can leverage the opportunities provided by the solar boom and cement its position as a renewables leader in Southeast Asia.