Vietnam – U.S. Trade Status and Outlook, 2012 – 2015e (@ Dec 17, 2012)

Vietnam - U.S. Trade 2001 - 2015e 1-10/2012 Data

HCM City, Dec 17, 2012. Despite the difficult domestic and international economic environment, Vietnam – U.S. trade in 2012 continued to grow, but at a slower pace than in previous years. Based on ten months’ data (Jan-Oct 2012) from the U.S. Department of Commerce, bilateral trade may reach $24.6 billion in 2012, a healthy increase of 12.8% over 2011. Most noticeably, U.S. imports of apparel from Vietnam may reach only $7.8 billion, a single-digit increase over the $7.2 billion in 2011, and down sharply from the double-digit growth of 2010 and 2011. On the other hand, Vietnam’s exports of higher-value-added products from “modern manufacturing” FDI are increasing sharply.

Total bilateral trade in 2011 was US$21.8 billion, up 17.5% over the previous year, with Vietnam’s exports to the U.S. $17.5 billion (up 18%), and imports from the U.S. $4.3 billion (up 17%), demonstrating once again that manufacturing foreign direct investment (FDI) and trade are strong and stable factors that support Vietnam’s economic and social development.

In comparison, total bilateral trade in 2012 may reach about US$24.6 billion (up 12.8%), with Vietnam’s exports to the U.S. about $20.0 billion (up 14%), and imports from the U.S. about $4.6 billion (up 7%).

Growth of Vietnam’s apparel exports to the U.S. is likely to continue to slow because of increasing labour costs, increased competition from countries such as India, Indonesia, Bangladesh, and Mexico, not to mention Cambodia and Myanmar, and reduced demand in the United States. The hope for Vietnam is that exports of “modern manufacturing” and services will take up the slack, both in export revenue and employment.

However, lack of trained workers and increasing wage costs without productivity gains in the factories and efficiencies in the economy (transportation infrastructure, customs, business services) that reduce costs may slow the growth of Vietnam’s exports to the U.S. According to the Asian Development Bank, less than 30% of young workers, who comprise half the workforce, have completed upper secondary education.

As for increasing labour costs, the below chart and table show actual minimum wages in vnd/month 2008-2012, proposed minimum wages in 2013, and projected minimum wages in 2014-2017 based on the Party Central Committee Decision 23-KL/TW, May 29, 2012 to “Adjust the minimum wage more rapidly in the private sector so that by 2015 the minimum will reach the level of the Basic Needs Wage.

Vietnam''s Minimum Wage 2008 - 2017 (chart)

Vietnam''s Minimum Wage 2008 - 2015 (table)

U.S. Textiles and Apparel Imports from “2nd Tier Countries”

Vietnam rapidly achieved the status of 2nd-ranked supplier to the U.S. textiles and apparel import market after entry into effect of the Vietnam-U.S. Bilateral Trade Agreement in December 2001 and Vietnam’s entry into WTO in January 2007, more than doubling its exports from about $3 billion in 2005 to over $7 billion in 2011, taking market share mostly from Mexico, it seems. However, Vietnam’s rapid growth of textile and apparel exports to the U.S. market has slowed since 2010 as other “2nd Tier Countries,” such as Indonesia, Indonesia, and Bangladesh, steadily increased their exports, while Mexico seems to have halted and reversed, since 2010, the sharp fall in its exports to the U.S. between 2005 and 2009. However, according to a number of industry experts, India’s infrastructure for garment manufacturing is still not adequate to match its raw material sources, which may be the core of their exports to the U.S. (cotton fiber, cotton yarn, fabric) and India still has much more to do in order to utilize all of their local raw materials, which may be difficult for them to achieve in the next 5 years. Mexico has NAFTA preferential access to the U.S. market.

U.S. Apparel Imports fr 2nd Tier 2005-2015e Oct 12

U.S. Apparel Imports 2005-2015e Jan-Oct 2012 TABLE

Source: Chart and table created by author, based on data from US Department of Commerce Apparel Imports Data

U.S. Textile and Apparel Imports from China, “2nd Tier Countries,” and “Other Countries”

The below chart shows that a “new normal” may have been achieved after the removal of U.S. apparel import quotas for WTO members in 2005, and for Vietnam in 2007, when Vietnam became a WTO member. U.S. apparel imports from “Other Countries” dropped by more than one-third, from $46.5 billion to $30.5 billion between 2005 and 2010; U.S. apparel imports from China nearly doubled from $22.4 billion in 2005 to $40.7 billion in 2011; and U.S. apparel imports from “2nd Tier Countries” increased by 37% from $20.3 billion to $27.9 billion in 2011. Since 2010~2011, it seems that a new equilibrium may have been reached, with the outlook for China’s apparel exports growth to the U.S. to decrease slowly over time, as more companies join the “leaving China” movement, while exports from the “2nd Tier Countries” and “Other Countries” increase slowly. Indonesia, where FDI doubled to $20 billion in 2011, Bangladesh, which recently hosted an AmCham Hong Kong apparel sourcing delegation accounting for $5.8 billion/yr, and Myanmar are seen as the most promising FDI destinations for those “leaving China.” Based on recent trends, U.S. apparel imports from Vietnam would increase, but the proposed doubling of the minimum wage by 2015 could reverse that trend.

U.S. Apparel Imports 2005-2015e Jan-Oct 2012 data

Source: Chart created by author, based on data from US Department of Commerce Apparel Imports Data

Vietnam’s Higher Value-added Exports from “Modern Manufacturing” FDI

A recent phenomenon in 2012 is the sharp growth in Vietnam’s higher value-added exports from “modern manufacturing” FDI such as the Intel $1 billion assembly and test facility in Saigon Hi-Tech Park, and also FDI by Jabil Circuit, Korea’s Samsung Electronics Co., and Japan’s Nidec, etc. Based on this FDI, Vietnam has increased high-tech exports amid a global slowdown that has damped demand for goods from other Asian nations. Shipments of mobile phones and other electronics from Vietnam surged 91 percent in the first 10 months of the year to $16 billion. Vietnam’s shipments of electrical machinery to the U.S. climbed 58% in the first eight months of 2012, while China’s sales to the U.S. in the category rose 11 percent, Malaysia’s grew 4 percent, Thailand’s slid 5 percent and Indonesia’s fell 16 percent in the period.

Click here to see …

Vietnam – U.S. Trade before BTA, 1996-2000.
Vietnam – U.S. Trade Status and Outlook 2011 – 2020e (Jan 24, 2012)
Vietnam – U.S. Trade Status and Outlook 2011 – 2020e (Jun 26, 2012)

Source of data

US Department of Commerce Trade Data
US Department of Commerce Apparel Imports Date
Vietnam Trade Data: General Statistics Office of Vietnam

More trade data from the U.S. Department of Commerce

US Imports fr Vietnam by end-use category, 2002-2011 (latest data available)
US Exports to Vietnam by end-use category, 2002-2011 (latest data available)

Additional Background about Key Trade and Investment Agreements

U.S.-Vietnam Bilateral Trade Agreement – After 5 years (2002-2006) – Executive Summary This report assesses the impact of implementing the U.S.-Vietnam Bilateral Trade Agreement (BTA) on Vietnam’s trade, foreign investment and economic structure over the five years following its coming into force on December 10, 2001. It particularly focuses on bilateral relationships between the two countries in the context of the parallel and mutually reinforcing process of Vietnam’s accession to the World Trade Organization (WTO), completed on January 11, 2007. The report is co-authored by research staff from the Vietnamese Ministry of Planning and Investment’s Central Institute for Economic Management (CIEM), the Ministry’s Foreign Investment Agency (FIA), and the Support for Trade Acceleration (STAR Vietnam) Project funded by the U.S. Agency for International Development (USAID). Includes:
• Executive Summary (17 pages, pdf file)
• Powerpoint Presentation with Highlights of the Report (ppt file)
• Full Report: Assessment of the 5-Year Impact of the BTA on Vietnam’s Trade, Investment, and Economic Structure (146 pages, pdf file)

Update and Background on Vietnam’s WTO Accession and Implementation (including Apparel Trade), with a Summary and Overview of Vietnam’s WTO Accession Agreement, and also links to downloads of complete information on the Working Party Report (260 pages), Commitments on Goods (560 pages), Commitments on Services (60 pages). Also, includes USTR Fact Sheets on U.S.-Vietnam WTO Bilateral Market Access Agreement, General Overview, Agricultural Goods, Industrial Goods, Services, Textiles and Apparel. Click the link above for more information.

U.S. Trade Representative Trans-Pacific Partnership Updates
Outlines of the Trans-Pacific Partnership Agreement (TPP) At the APEC 2011 Summit in Hawaii, APEC Leaders announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs. Five defining features will make the TPP a landmark 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues that will boost the competitiveness of TPP countries in the global economy. Click the link above for more information.

ASEAN Economic Community (AEC) – 2015 Each ASEAN Member Country shall abide by the the ASEAN Economic Community (AEC) Blueprint, and implement it by 2015. The AEC Blueprint will transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy. The AEC Blueprint including its strategic schedule is annexed to this Declaration of ASEAN Heads of State/Government, Nov 20, 2007: ASEAN Economic Community (AEC) Blueprint 2015.

Additional updated information since 2007 can be found in this ASEAN Economic Community Handbook for Business 2012.

Balance of market access opportunities and concessions

The Vietnam – United States Bilateral Trade Agreement indicates that there should be a balance of “market access opportunities” and “concessions.”

“The Parties shall seek to achieve a satisfactory balance of market access opportunities through the satisfactory reciprocation of reductions in tariffs and nontariff barriers to trade in goods resulting from multilateral negotiations.”—U.S. – Vietnam Bilateral Trade Agreement, July 13, 2000 Chapter I, Article 3. General Obligations with Respect to Trade.

“The Parties agree to establish a Joint Committee (“Committee”) on Development of Economic and Trade Relations between Vietnam and the United States of America. The Committee’s responsibilities shall include the following: B. ensuring that a satisfactory balance of concessions is maintained during the life of this Agreement;”—Chapter VI, General Articles, Article 5. Consultations.

By: Herb Cochran, Executive Director