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Financial integration when joining new generation FTAs: Opportunities and challenges for Vietnam
Date: 12/10/2020 6:58:59 PM
he year 2020 marks the 10-year period of Vietnam starting the process of negotiating participation in new-generation Free Trade Agreements (FTAs).


Illustration. Source: Internet.

Participation in these FTAs ​​is expected to create strategic changes, in order to enhance economic cooperation and remove previous tariff barriers that hindered trade between countries. together. However, in addition to the opportunities provided, these FTAs ​​also pose many challenges that require synchronous solutions to accelerate the integration process, especially with the financial sector of Vietnam in the context of integration. .

Financial commitment in new generation FTAs

The term "New Generation Free Trade Agreement (FTA)" is used to refer to FTAs ​​with extensive and comprehensive commitments, including commitments on free trade in goods and services such as "Traditional FTA"; the deepest level of commitment (tariff reduction is almost 0% according to the roadmap); has a strict enforcement mechanism, including "non-traditional" fields such as labor, environment, state-owned enterprises, government procurement, transparency, investment dispute settlement mechanism ...

Up to now, Vietnam has signed and negotiated 17 FTAs. Among them, two new-generation FTAs ​​have been signed, namely the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Free Trade Agreement between Vietnam and the European Union (EVFTA).


Countries committed to abolish import duties on 65% -95% of tariff lines and completely eliminate 97-100% of tariff lines as soon as the Agreement comes into effect, the rest of the goods will have a schedule for elimination. Tariff removal within 5-10 years. In the CPTPP, Vietnam commits to eliminate high tariff lines, in which: 65.8% of tariff lines have 0% tax rate as soon as the Agreement comes into force; 86.5% of tariff lines will have the tax rate of 0% in the 4th year when the Agreement comes into force; 97.8% of tariff lines will have the tax rate of 0% in the 11th year when the Agreement comes into force. With regard to export taxes, Vietnam commits to eliminate most of the goods currently subject to export taxes according to a schedule of 5-15 years after the Agreement comes into force.

Regarding financial commitments, the CPTPP establishes a legal framework for investments in the financial and banking sector in a separate Chapter. Accordingly, the contents related to finance - banking in the CPTPP are divided into 3 groups: commitments on the legal environment for operations and provision of financial and banking services; Market access commitments for the financial services to be provided; Commitments on payment, money transfer, measures to protect the balance of payments and other commitments that affect the monetary policy and exchange rate management process.


The main contents of the Agreement include: Trade in goods, trade in services, rules of origin, customs and trade facilitation; food hygiene and safety measures and phytosanitary measures, technical barriers in trade, investment, trade defense, competition, intellectual property, sustainable development; legal issues, cooperation and capacity building.

Along with the above contents in EVFTA, Vietnam and the EU committed to abolish import duties on 99% of tariff lines within a period of 7 years for the EU and 10 years for Vietnam. Accordingly, Vietnam commits to eliminate tariffs as soon as the Agreement comes into force for 48.5% of tariff lines, after 3 years it is 58.7% of tariff lines, after 5 years it is 79.6% of tariff lines. tax, after 7 years is 91.8% of tax lines and after 10 years it is 98.3% of tax lines. With regard to export taxes, Vietnam commits to abolish most of the export duties on goods to the EU with a schedule of up to 15 years.

As for the financial sector in EVFTA, Vietnam essentially maintains open levels of commitments to financial services, banking, securities and insurance. Specifically, for financial services provided across borders: No open commitment or open commitment, but very limited; For overseas consumer finance services: Completely open, with no restrictions; For the establishment of representative offices, branches, joint ventures, and enterprises with 100% foreign capital in Vietnam: Relatively open but only for services with commitments (allowing establishment of public branches EU reinsurance company in Vietnam); For EU workers to Vietnam to provide financial services (presence of natural persons), there is no open commitment.

According to economic experts, joining the new generation FTAs ​​will create new opportunities for Vietnam’s socio-economic development, but it comes with challenges for the financial and banking sector. goods will be affected. Therefore, the identification of opportunities and challenges is necessary to help state management agencies and enterprises operating in the banking and finance sector to adjust to international trends. .

Challenges in financial integration when Vietnam joins new generation FTAs

Besides the opportunities brought by FTAs, challenges in financial integration, Vietnam joining new generation FTAs ​​need to be identified and foreseen to take proactive measures to respond.

According to MSc. Nguyen Thi Hai Binh, MSc. Luu Anh Nguyet (2020), participating in the CPTPP requires Vietnam to expand the financial services - banking industry to a deeper level, gradually eliminating different conditions in access to finance - banking. Vietnamese financial institutions and the financial institutions of other contracting parties. In the context of Vietnam’s financial inspection and supervision corridor is not strong enough, allowing cross-border financial transactions (in CPTPP), developing and expanding new payment methods. diversified financial segments… will increase the risk of payment, financial risk and financial crime in Vietnam.

In addition, the participation and implementation of the new FTAs ​​poses significant challenges for Vietnam’s financial institutions such as: Increasing competition with international financial institutions, increasing the rate of water ownership. In addition to at Vietnamese financial institutions, the pressure to improve quality and shift financial and banking human resources to foreign and regional institutions. Meanwhile, the competitive capacity of the Vietnamese financial system before joining CPTPP and EVFTA was relatively low compared to its member counterparts.

Along with that, competitive pressure requires Vietnamese financial institutions to improve their competitiveness, actively respond to impacts from the international economic environment, reform of governance capacity, risk management in accordance with international conventions and practices ...

One of the other challenges posed to Vietnam when joining the new generation FTAs ​​is that domestic financial institutions have a non-standardized operational structure and have not approached international standards on financial safety; the financial inspection and supervision have not kept up with the new situation. The development of science and technology in the Industrial Revolution 4.0 is both an opportunity and a challenge for the financial and banking sector. This will lead to difficulties in competing and attracting customers in the market.

Countries participating in the CPTPP must commit to comply with the obligations to open the service market in an opt-out approach, except for those areas that are included in the selective reservation list. The requirement for Vietnam and its member countries to join the CPTPP is to allow foreign financial groups to sell their services to other member countries’ markets without having to establish branches at If domestic firms in this market are allowed to provide such services. This is a great pressure on the system of domestic credit institutions.

In addition to the above challenges, the new-generation FTAs ​​will put pressure on businesses operating in the financial services sector, state management agencies to improve transparency and self-responsibility. responsibility. This is the pressure on the whole financial system to improve financial capacity, governance and operational efficiency, meet the requirements of commitments, thereby promoting efficiency of state management in the field. this.

Solutions to promote financial integration when joining new generation FTAs

In order to promote financial integration when joining the new generation of FTAs ​​of Vietnam in the context of economic integration, the author proposes solutions to focus on in the coming time as follows:

Firstly, to study and review and complete institutions in the banking and finance sector in the context of integration in order to create a strong enough legal corridor, consistent with the practical situation of Vietnam when participating in alternative FTAs. new generation.

Second, enhancing the inspection, examination and supervision of cross-border financial transactions (in CPTPP); At the same time, to renew payment methods, diversify financial products through the application of financial technology to ensure safe and stable transactions.

Third, Vietnamese financial institutions need to have preferential policies to attract high-quality human resources to work in order to increase their competitiveness with international financial institutions in the context of integration. Along with that, to attach importance to increasing the competitiveness of the Vietnamese financial system when implementing new generation FTAs ​​compared to its member partners.

Fourth, the deep participation of foreign investors in the implementation of commitments in the financial sector also facilitates the expansion of cooperation, and enhancement of governance and finance capacity for domestic banks. Therefore, domestic banks need to improve their governance capacity and overcome existing shortcomings. Strengthening competitiveness on the basis of improving governance, operating and developing a variety of new services can stand up to fierce competition pressure in the coming time.

Fifth, state management agencies need to improve transparency and accountability when implementing new generation FTAs.

Sixthly, promoting propaganda, technical assistance and consultation with units operating in the banking and finance sector in the process of signing and implementing FTAs, especially new generation FTAs ​​to grasp seize opportunities, identify risks, challenges and fully implement the commitments in the agreements to which Vietnam has and will join.

In order to take advantage of the advantages that the new generation FTAs ​​bring, Vietnam needs to continue maintaining economic integration and linkages in the region and the world, enhancing competitiveness, and strengthening the governance and national governance in terms of integration.

(Source:Financial Journal Term 2 - August 2020)
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