VJEPA - TECHNICAL BARRIERS TO LYCHEES’ EXPORATION AND ITS CHALLENGES PDF

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UNIVERSITY OF ECONOMICS, HCMCDepartment of International Business – MarketingASSIGNMENT: VJEPA - TECHNICAL BARRIERS TOLYCHEES’ EXPORATION AND ITS CHALLENGESLecturers: Nguyen Huu LocStudent: Tran Thi Minh ThuCourse: 45 – KMID: 31191025084INTRODUCTIONOver the past few years, Japan has been one of the ...

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UNIVERSITY OF ECONOMICS, HCMC Department of International Business – Marketing

ASSIGNMENT: VJEPA - TECHNICAL BARRIERS TO LYCHEES’ EXPORATION AND ITS CHALLENGES Lecturers: Nguyen Huu Loc Student: Tran Thi Minh Thu Course: 45 – KM001 ID: 31191025084 INTRODUCTION Over the past few years, Japan has been one of the most important partners of Vietnam. After the Vietnam – Japan Economic Partnership Agreement (VJEPA) was signed, it has created a great opportunity for Vietnamese goods to be exported to Japan in general and agricultural products in particular. Especially when the demand for Japanese agricultural products is increasing, this can be seen through special incentives for agricultural products in the VJEPA. Agricultural products for export is currently one of the items with increasing export turnover and accounting for a large proportion of the items being exported to Japan. However, Japan is a rather difficult market with strict requirements for the purpose of ensuring health, hygiene and the environment. Therefore, for Vietnam's agricultural products to meet the strict requirements of the Japanese market is not an easy thing for Vietnamese agricultural production. Recently, Vietnamese agricultural products have made a great leap forward, which is the conquest of technical barriers and the success in exporting lychees to Japan. The following assignment discusses the process of bringing lychees to Japan as well as the opportunities and challenges of the lychees market in particular as well as the agricultural market in general of Vietnam. KEYWORD VJEPA: Vietnam – Japan Economic Partnership Agreement; Tariff barriers and Non-tariff barriers; TBT: Technical Barriers to Trade; Lychees exportation; Opportunities and challenges. P a g e 1 | 15

Table of Contents 1.

RESEARCH PROPOSAL.....................................................................................................3

2.

THEORIES.............................................................................................................................3

3.

VJEPA & TECHNICAL BARRIERS TO LYCHEES’ EXPORTATION AND ITS

CHALLENGES..............................................................................................................................5

4.

3.1.

About the lychees market and its importance to the economy...................................5

3.2.

Vietnam - Japan Economic Partnership Agreement (VJEPA)...................................6

3.3.

How did Vietnam enter successfully one of the toughest market – Japan?...............7

3.3.1.

Certificate of origin lychees....................................................................................7

3.3.2.

Requirements for gardens.......................................................................................8

3.3.3.

Requirements for the fresh lychees to export........................................................8

3.3.4.

Customs duties.........................................................................................................8

3.3.5.

The lychees’ exportation process after accepting the Japanese’s approval........9

3.4.

Opportunities and challenges of Vietnam after the lychees’ exportation to Japan.11

3.5.

Conclusion......................................................................................................................12

REFERENCES.....................................................................................................................14

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1. RESEARCH PROPOSAL Research overview of trade barriers in general and technical barriers for agricultural products in particular, particularly lychees; research on market characteristics of agricultural products of the two countries Vietnam - Japan; the journey of Vietnam overcomes technical barriers to bring lychees to conquer the Japanese market, thereby drawing opportunities and challenges for agricultural export. Based on the results of such research to propose solutions in the coming time to increase the value of exports as well as improve the quality and position of Vietnamese agricultural products in the Japanese market in particular and international market in general. 2. THEORIES Striving for global free trade is the goal of many countries around the world. However, in today's international trade, in order to enter a market, enterprises need to overcome two types of barriers, namely: Tariff barriers and Non-tariff barriers. Technical Barriers to Trade (TBT) is a form of trade protection through the fact that importing countries have standards for goods imported into the country. If imported goods do not meet one of the given standards, they are not allowed to be imported into the importing country. The main technical barrier is the quality and safety criteria for consumers of goods that countries put in place to limit the importation of goods into their country. Technical barrier is a very important measure and used by many countries. Countries applying technical barriers often impose very strict and insurmountable regulations on quality and technical standards of goods. Market requirements for imported goods can be divided into the three basic categories: •

Quality standards and specifications of the product

•

Standards of food hygiene and safety for users

•

Environmental standards

World trade faces many obstacles and difficulties because countries have in turn set up technical barriers to protect the domestic market, hindering the development of free trade. And these barriers actually do great damage to countries when they encounter them thereby leading to retaliation between countries that distort international trade. Due to their diverse and flexible forms, technical barriers have a very wide range of influence. Once the importing countries use technical barriers, the exporting countries will face many difficulties: declining exports, P a g e 3 | 15

destroyed or returned goods, causing great losses for these countries. In fact, there have been many cases of world trade being hindered and damaged by encountering trade barriers.

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3. VJEPA - TECHNICAL BARRIERS TO LYCHEES’ EXPORTATION AND ITS

CHALLENGES Vietnam has become the second largest exporter of lychees in the world, accounting for 19 per cent of the global market share, according to the International Society for Horticultural Science (ISHS). According to consumers and companies on the global market, the quality of Vietnam lychees was much better than similar products from other mass exporting countries.

3.1.

About the lychees market and its importance to the economy

Lychees and some fruits of Sapindaceae play an important role in the economies of many countries. With the increasing demand for fresh and processed fruits in the international market, this is a great prospect for production of lychees, logan and some species of Sapindaceae in Vietnam as well as the countries that produce these kinds of fruit in general.

According to the Fruits and Vegetables Research Institute (FAVRI), Vietnamese logan, lychees account for only a very small part of China's output. However, due to higher quality and harvest season, we have strongly exported logan and lychees to China, and to many markets of the world, since over the years, many scientific and technical advances have been applied in the production of these special fruits in Vietnam for a better quality exported product.

According to the statistics of the General Department of Vietnam Customs, in 2018 Vietnam’s enterprises exported more than 92 thousand tons of lychees (including fresh and dried lychees) with a value of more than 40.8 million USD, up to 172% in volume and 126% in value compared to the results achieved in 2017. In which, fresh lychees exports reached more than 75 thousand tons (accounting for 81.5% in terms of volume), worth 30.9 million USD; meanwhile, the dried lychees reached more than 17 thousand tons with a value of more than 9.9 million USD.

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Also in 2018, Vietnam's lychees were presented in 27 countries and territories around the world, more than in 2017 (only 19 countries and territories). Markets in which Vietnamese lychees are presented in 2018 include: China, United Arab Emirates, Australia, Saudi Arabia, Canada, Laos, UK, Bahrain, Malaysia, Turkey, Korea, Japan, Netherlands, Thailand, Belgium, USA, Norway, Germany, France, Russia, Switzerland, Oman, Kuwait, Sweden, Ireland, Singapore and Cambodia.

To be specific, the exports volume of lychees in 2018 to China reached more than 83.5 thousand tons with a value of more than 33.9 million USD, up to 151% in volume and 91% in value compared to the year of 2017. The amount of lychees exported to the Chinese market accounted for 90.7% of the country's total lychees’ exportation of the season.

Statistics of the General Department of Vietnam Customs (GDVC) show that the number of enterprises participating in lychees’ exportation in 2018 has also increased significantly, twice as high as in 2017. 97 enterprises participate in exporting, while this figure in 2017 was only 44 enterprises.

In the past crop year, Vietnam's lychees exports were registered for export declarations at the border gates of Lang Son, Lao Cai and Ha Giang. Lychees of all kinds are mainly exported by road transport and only a very small amount of lychess are exported by air.

3.2.

Vietnam - Japan Economic Partnership Agreement (VJEPA)

Japan is the seventh most populous country in the world with 126.1 million inhabitants; GDP per capita is relatively high, the cost of living is huge. Therefore, Japan is an important target market for exporters. However, Japan is also a difficult market with very high requirements for imported goods. Japanese consumers are familiar with goods of high quality and guaranteed about sanitary conditions, food safety and environmental standards, especially agricultural products. Like other countries, Japan also provides many regulations and standards for imported goods for the purpose of protecting consumers and protecting the environment in the country. And these regulations and standards have raised real technical barriers for goods imported into the Japanese market. P a g e 6 | 15

Japan is now the target market for Vietnamese agricultural products, especially since the VJEPA was signed at the end of 2008 and takes effect from October 2009; Promoting advantages and overcoming the limitations is the way for Vietnamese agricultural products to have a chance to enter a "difficult" market like Japan. Directly benefiting from the VJEPA agreement is the export of agricultural products. Specifically, according to VJEPA's commitments, Japan has pledged to reduce taxes on items equivalent to nearly 84% of Vietnam's agricultural export value. Japan will also continue to reduce and eliminate import tariffs on 72 agricultural lines in 7 years and 214 lines with a 10year tariff reduction and elimination schedule. In particular, it is noteworthy that there are items of vegetables, fruits specifically in this assignment - lychees which are the products that Vietnamese enterprises have a lot of advantages when exporting to this market. Currently, Vietnamese agricultural products have become very familiar to Japanese consumers and reach great value.

3.3.

How did Vietnam enter successfully one of the toughest market – Japan?

Given the fact that Japan is one of the most fastidious markets in the world with strict requirements, Vietnamese functional enterprises have paid special attention to ensuring the quality of lychees in export areas (Bac Giang, Hai Duong). Although Vietnamese lychees have entered many difficult markets, but if the US and Australia markets only require irradiation, Japan will request treated by fumigation. It took more than 2 years to perform the steam sterilization experiment, in the end, the Japanese expert came to check directly and approved". This is a new breakthrough. It was the first time that Vietnam conducted a successful steam sterilization and received a nod from Japan. Most especially, this success is not only for lychees but also a premise for other fruits to enter Japan, even Korea - the two countries only accept fumigation, not irradiation. To be specific, here are some requirements of Japan lychees exportation 3.3.1. Certificate of origin lychees P a g e 7 | 15

The Vietnamese government does not require exporter to make Vietnam origin for exports. However, in many cases, buyers will require the exporter to provide a Certificate of Origin in Vietnam. For customers in countries that have signed free trade agreements with Vietnam, they may require Certificates of Origin in the form so that buyers can enjoy special preferential import tax. 3.3.2. Requirements for gardens Lychees gardens must ensure traceability, lychees orchards exported to Japan must prepare and keep production records and logs, be inspected and issued a code by the Plant Protection Department.

Regarding to the management of harmful organisms: apply integrated management measures for the oriental fruit fly (Bactrocera dorsalis).

Regarding to food safety: on lychees gardens exported to Japan, it is absolutely forbidden to use pesticides banned from use, and at the same time, comply with the four-right rule to ensure that the Japanese regulations are met, about the maximum permissible residue level for fresh lychees fruit for export.

3.3.3. Requirements for the fresh lychees to export Detailed regulations on fumigation treatment facilities, packing, packaging and labeling facilities, phytosanitary inspection for export and import of Vietnam fresh lychees. To be specific export batches must be packed and fumigated with Methyl Bromide - recognized by the Plant Protection Department and MAFF - with a minimum dose of 32g / m3 within two hours, under the supervision of quarantine staff. The batch of lychees exported for export must be accompanied by the Phytosanitary Certificate issued by the Plant Protection Department.

3.3.4. Customs duties Lychees is not in Vietnam’s nomenclature of taxable exports, therefore, the exporters do not have to pay export tax, VAT on exported commodity is 0% P a g e 8 | 15

Japan is a difficult market with high standards, so Vietnamese enterprises need to comply with the above requirements in order to export fresh lychees to Japan.

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3.3.5. The lychees’ exportation process after accepting the Japanese’s approval The Plant Protection Department worked with Hai Duong and Bac Giang, two localities with the largest lychees growing area in the country, implementing everything to prepare for the first shipment of lychees to Japan this year. At the same time connect export businesses to participate in the program; guide localities and enterprises on the process of planting, caring and handling phytosanitary products and packaging according to Japanese regulations.

In order for lychees to be exported to Japan, in February 2020, Vietnam started building the first three commercial-scale fumigation treatment systems in Vietnam at Post-Import Center 1 (Hanoi), the factory of Global Company (Bac Giang) and the factory of Hung Viet Company (Hai Duong). Bac Giang and Hai Duong also establish lychees growing areas to meet the export standards to Japan.

However, in early May, when the harvest season was near, the Ministry of Industry and Trade sent a document to the two Departments of Industry and Trade of Hai Duong and Bac Giang stating MAFF announced that it could not send experts to Vietnam to check and recognize the system. Vietnam's export of fresh lychees fumigation treatment due to epidemic effects. It is seemed that the exportation to Japan will never be wide-opened.

But, thanks to the non-stop efforts, the Ministry of Agriculture and Rural Development continued to negotiate with the Japanese side to move towards to transfer the supervision to the Vietnamese side by considering special and creative measures in the context of the Covid-19 epidemic to remove difficulties for the export of fresh lychees to Japan. In recent times, the Ministry of Agriculture and Rural Development and Ministry of Industry and Trade have proactively coordinated with relevant enterprises and localities to select and grant 19 eligible production unit codes for 103 hectares of lychees and 107 households. The total output is expected to reach over 600 tons. According to the Vietnam Trade Office in Japan, the batches of lychees were packed in small boxes of 200g and sold at supermarkets with a promotional price of JPY489 (original price P a g e 10 | 15

JPY537), equivalent to VND 100,000 for each. Accordingly, 1kg of Vietnamese lychees priced up to over VND 500,000. On the first day of opening, the batch of Vietnamese 2-ton fresh lychees, transported by plane to Japan, sold out within hours. Japanese businesses and consumers highly appreciate and praise Vietnam's lychees for its good quality. Lychee is a short-term fruit; therefore, its appearance in Japan and the high appreciation of Japanese consumers will be a good springboard to expand its consumption to other fastidious markets and improve its value. Especially, exports will eliminate serious depreciation of the fruits’ prices.

From the success of lychees, lychees will be positioned in the high-end segment, when exported to Japan, it is possible to confidently conquer other markets.

Currently, Japan is the third largest import-export market of Vietnam. Data from the General Department of Customs shows that, in the first 5 months of 2020, despite the Covid-19 epidemic, bilateral trade between Vietnam and Japan still reached $ 15.6 billion, up 2.2% over the same period. period of 2019. In which, Vietnam's merchandise exports to Japan reached 7.83 billion USD, and imports were 7.77 billion USD. Pandemic developments in the world are complicated and unpredictable; Therefore, the economy still faces many difficulties and challenges. The supply of raw materials and the output of products by manufacturing industries, especially those with export value, accounts for a large proportion, being negatively affected.

Up to now, after years of trying to open up the market, Vietnamese lychees have been presented in more than 30 countries and territories. As a result, the recent lychees crops have no output bottlenecks, and there is no longer a drop in prices. Typically in 2019, despite the crop failure, the revenue from lychees increased sharply. In Bac Giang, some fruits bring farmers a revenue of 6,300 billion VND, an increase of more than 500

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billion VND compared to 2018. Lychees growers in Hai Duong also earn nearly 1,000 billion VND. 3.4.

Opportunities and challenges of Vietnam after the lychees’ exportation to Japan

Exporting a large amount of lychees to Japan, a demanding market with an emphasis on not only quality but also shape and size, along with customs that have been passed down for hundreds of years, not only helps to increase our production volume but also help the Japanese and other neighboring countries to know about the promotion and consumption of Vietnamese products as a premise for exporting products fruits and others products. However, there are many things to deal with in the short-term and long-term future. Recently, the major agricultural export markets of Vietnam have continuously made changes in requirements for agricultural imports. The market is stricter, the export is more difficult. For example, China...