Opportunities but not without challenges for Vietnam’s plastic industry

Rules of Origin: The big challenge for Vietnam's plastic industry

Importers will be able to claim preferential tariff treatment as long as they have the documentation to support their claim. In addition, the chapter provides the competent authorities with the procedures to verify claims appropriately.

According to the Vietnam Plastics Association (VPA), domestic materials production meets only 20-30% of the demand for these products, mainly including PVC, PET, and PP. About 70% of raw materials are dependent on imports. This is a huge challenge for the plastic industry of Vietnam export to enjoy the tariff preferences if it does not meet requirements of TPP origin rules.

Statistics of the General Department of Vietnam Customs show that in 2014, total imports of plastic materials was 3.45 million tonnes with a value of 6.32 billion dollars. From January to mid-October, 2015, Vietnam exported 282 thousand tons of plastic materials, valued at 329.4 million dollars and 1.61 billion dollars of products from plastics, accounting for nearly 1.3 % of total merchandise exports of Vietnam since early this year. From the beginning of this year to Mid-October, Vietnam imported 2.96 million tonnes ($ 4.6 billion) of plastics material, accounting for 3.53% of total merchandise imports in the same period. Imports of products from plastics to reach 2.94 billion US dollars, accounting for 2.5% of total merchandise imports. Thus, from the beginning of the year to mid October, the industry witnessed a trade deficit of 4.2 billion dollars of plastic materials and 1.33 billion dollars of plastic products, showing that the plastic industry depends heavily on imported material input.

Big pressure is put on the industry when plastic production in a number of countries in the ASEAN region has entered a new level of production. For example, Malaysia's plastics industry is a leading supplier of polyethylene plastic membrane drag... Malaysia is also a member of the TPP, and benefits from the removal of tariff barriers. As Malaysian plastic products better meet the standards of origin rulers, their plastic products will have competitive advantages greater than at present before plastic products of Vietnam.

The lower tariff, the high technical barriers

The greatest weakness of Vietnam's plastic industry is the backward production technology. As Vietnam's products have been in the lower product segments so that companies less focused on modern technology investments. This causes big problems for the plastic products of Vietnam to overcome the technical barriers of importing countries. Especially, when the tariff barriers are removed, importing nations will tend to increase the technical barriers to prevent massive imports of goods from other countries. The competitiveness of Vietnam with plastic products will depend on its capacity in overcoming technical standards and SPS issues.

For example, exports to Japan and South Korea may benefit from the tariff removal in FTAs, but these two markets are very demanding, requiring high quality plastic products. This will be big challenges to export products of Vietnam to meet the technical requirements and quality without investing in technology innovation.

The US and Europe markets import simple plastic product like packaging, food wrap film, tarpaulin, which are easier to meet than in technology. Thanks to low labor costs plastic products of Vietnam have a price competitive advantage to than domestic production. However, measures of technical barriers that the US and Europe often apply very high. Besides the low-priced goods also face greater risks of anti-dumping, but business associations in the US and Europe are very experienced in this matter.

Flows of foreign investments: Challenge in opportunity

Economic integration will bring a wave of major investments into the plastics industry; this may be the opportunity to solve employment, and technology transfer... But this is also a pressure on domestic plastic business. For example, SCG from Thailand has invested more than $ 30 billion for the construction of two petrochemical plants, specializing in the manufacturing of plastic materials in Vietnam. Those are also two largest projects producing plastic materials in Vietnam. Since this competitive pressure, local businesses, instead of benefiting from the agreement, will face fierce competition, even in the domestic market. This huge challenge is forcing domestic enterprises to link together, through different forms of investment, to quickly upgrade the competitiveness of the sector on a large scale.

Requirements on environment protection: “Hard first, enjoy later”

Importing countries set more and more regulations on environment on their domestic production and on imported products. The commitment to the environment protection is also becoming the trend in new generation of FTAs that Vietnam has participated in the negotiation and implementation.