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Development Of Vietnam - India Economic- Trade Relations: The Barriers And Outlook (Part 2)

18/03/2016


Development Of Vietnam - India Economic- Trade Relations: The Barriers And Outlook (Part 2)

The Vietnam-India joint declaration on strategic partnership, which was signed by Prime Ministers of the two countries during Prime Minister Nguyen Tan Dung’s state visit to India in May 7th 2007, has brought Vietnam-India relations to the highest level. Relationship strategic partnership allows both sides to expand and promote all areas of cooperation, from economic, trade and investment to security, defense, science and education, culture, tourism and agriculture. Economic and trade relations are identified by the two governments as one of the key pillars of Vietnam–India strategic partnership relations.


(Part 1)

Development Of Vietnam - India Economic- Trade  Relations: The Barriers And Outlook

  Do Thang Hai*

In 2014, Vietnam’s imports from India reached US $ 3.13 billion USD. Imported goods from India are mainly machinery and raw materials for production and animal husbandry such as seafood, machinery, pharmaceuticals, cotton, steel, animal feed, textile materials, leather, footwear, plastics, petroleum, chemicals, fibers, fabrics, automobiles, gems…

      The structure of Vietnam’s imports from India in 2014

    Unit: million USD

No.  Commodity Turnover
1 Marine products 353
2 Machinery, equipment and spare parts 291
3 Medicines 267
4 Cotton 266
5 Maize (Corn) HS-Code 1005 213
6 Metals 205
7 Animals feed and raw materials 138
8 Textile raw materials, leather and footwear materials 119
9 Plastics 117
10 Gasoline 102
11 Chemicals 85
12 Yarn 77

Source: Vietnam General Department of Customs

In terms of trade between Vietnam and India, trade balance is tilting in favor of India. However, trade deficits have recently tended to narrow. In 2008, the deficit was US $ 1.7 billion, and in 2013 it was only US $ 670 million. More and more high added value goods from Vietnam are exported to the Indian market such as mobile phones, computers, electronic products and components, chemical products, plastic materials and plastic products, billet... together with the traditional export commodities such as pepper, rubber, shoes ... will help gradually narrow the trade balance in the future. In addition, Vietnam’s exports to India market have enjoyed a favorable legal environment when India officially recognized Vietnam as a full market economy, and this helps Vietnam’s exports make further inroad into the Indian market where there are many protectionist barriers as well as the frequent use of trade defense instruments. Vietnam also step up trade promotion activities in the Indian market. Some of Vietnam’s national trade promotion programs have activities such as participating in trade fairs, sending trade delegations to India, organizing the workshop about the Indian market for Vietnam enterprises. These programs have brought practical results and boosted trade between the two countries.

To further promote trade relations, and address quickly and effectively problems arising in bilateral trade relations, as well as bring bilateral trade to US $ 15 billion in 2020 as committed by leaders of the two countries, Ministry of Industry and Trade of Vietnam has coordinated with India to establish the Vietnam-India Joint Subcommittee on Commerce and the two states successfully held the first meeting in November 2013, and a second session in January 2015.

With the current development momentum along with import tax reduction under roadmap of ASEAN-India Trade in Goods (AITIG) under the Framework Agreement on Comprehensive Economic Cooperation Between ASEAN and India, the Vietnam and India will certainly achieve bilateral trade targets set by leaders of the two countries.

 

2. Cooperation in the fields of industry and energy

 Cooperation in the field of industry between the two countries is constantly being strengthened and gradually expanding. There have been specific and practical cooperation in many sectors of the two countries that have big prospects such as textiles, footwear and chemicals.

 a/ Cooperation in the field of textiles

In 2014, Vietnam exported about US $ 121 million worth of textiles to India, including yarn, raw materials, fabrics, technical textiles, textile products, up 30% from 2013. In addition, Vietnam also imported cotton, yarn, fabrics, textile materials and garments from India with total value of US $ 518 million, up 22.5% over the previous year. India has become Vietnam’s largest supplier of cotton with a turnover of about US $190 million in 2013 and US $266 million in 2014. Textiles trade totaled US $639 million, accounting for 11% of the total bilateral trade volume in 2014. Indian is a potential market for Vietnam in terms of materials for textile production. Under AITIG, the majority of items of textile raw materials, cotton, fabrics, yarns are on Normal Track (NT), according to commitments of Vietnam on roadmap for tariff reductions (import tax on these items will be 0% in early 2018).
In order to strengthen the cooperation in textile industry, Indian government offered US $300 million credit line to Vietnam during Prime Minister Nguyen Tan Dung’s visit to India in May 10/2014. Two sides also established Joint working group on textiles assigned with outlining a roadmap and promoting investment cooperation projects in textile trade between the two countries. Accordingly, Vietnam encourages Indian businesses to increase investment in textile, dyeing; cooperate with exporters of cotton, yarn, cloth and open custom bonded warehouse in Vietnam in order to facilitate import procedures and enhance the competitiveness of products.

b. Cooperation in the field of electricity production

In  May 2013, the Prime Minister of Vietnam issued a decision assigning India’s TATA Power Corporation as investor of Long Phu 2 thermal power plant with a capacity of  2 x 600 MW at Soc Trang province under BOT (build-operate-transfer) contract. During General secretary of Vietnamese Communist Party Nguyen Phu Trong’s visit to India in November 20th, 2013, Ministry of Industry and Trade of Vietnam and Indian TATA Group signed a Memorandum of Understanding (MoU) on progress of this project implementation. India highly appreciated that Vietnam allowed Tata Power to invest in Long Phu 2 Thermal Power Plant Project.      

c. Cooperation in the field of petroleum

 India attaches great importance to the development of cooperation in trade and investment in the oil and gas sector in Vietnam. India’s Oil and Natural Gas Corporation Limited (ONGC) has participated in many projects for exploration, extraction and processing of oil and gas with Petrovietnam, such as projects on gas extraction and mining at Lan Tay and  Lan Do fields, Block 127 and Block 128 located along the east coast of northeast Vietnam and Ho Chi Minh city. Indian Essar Group is a partner of Petro Vietnam in operating joint venture at Block 114. In addition, the two sides also enhance cooperation in exploration of oil and gas in third countries under an agreement signed between ONGC and Petrovietnam Exploration Production Corporation (PVEP). Other Indian companies such as International Manpower Resources, Larsen and Turbo Ltd, Babcock and Wilcox Thermax, Ion Exchange ... also expressed hope to cooperate (with Vietnam companies) in providing technical services, management expertise, specialists and equipments for oil and gas industry.

In the fields of oil and gas processing, petrochemicals and services, many Indian companies (e.g. Larsen and Turbo., Ltd) offered a variety of important equipments for the projects of Phu My Fertilizer Plant, Dung Quat Refinery, Ca Mau fertilizer plant. Alfa Laval is a member of EPC contractors of Quang Ngai Bio-Ethanol Plant and Phu Tho Bio-Ethanol Plant. Both plants have capacity of 100 million liters of ethanol/year (using cassava). Aker Solutions are subcontractors for front end engineering design (FEED) of the two projects. In addition, PRAJI provided FEED design and technology solutions for biofuel project in Binh Phuoc. Currently, these two biofuel plants in Quang Ngai and Binh Phuoc have been put into operation.

d. Investment cooperation,

According to Vietnam Foreign Investment Agency, as of December 2014, India has 87 valid FDI projects in Vietnam with total investment of more than US $ 298 million, ranking 30th out of 101 countries and territories having investment in Vietnam. Indian investments mostly focused on the areas of oil and gas, mining, agriculture and food processing, manufacturing, energy...

 Deputy Minister of Industry and Trade of Vietnam

(Part 3)

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