Green trade the priority for growth

Last month, Nguyen Van Hai, marketing manager of a domestic company producing textile fabrics, worked with two potential partners from Singapore, who eventually pulled out after his company’s product samples were examined. The Singaporeans said the products failed to meet the standards of the city-state, where customers tend to pay more heed to environmentally-friendly products that are both locally produced and imported.

“Our company is now focusing on the domestic markets and several foreign markets with less strict requirements, such as Cambodia and Laos,” Hai said.

He added that if the Singaporean partners accepted the products, his company could have raked in about $500,000-800,000 in profits.

An expert from the Ministry of Industry and Trade’s Department of Science and Technology said that not only customers in Singapore, but also those from many other markets throughout the world do not tend to use products not meeting environmental standards.

“Many markets are also planning to impose stringent barriers on production enterprises and imported products in order to protect the environment, and if Vietnamese companies fail to meet the standards, they can easily lose their markets,” the expert said.

For example, Singapore’s Ministry of Finance on February 18 said the carbon tax rate in Singapore will be raised from the existing $5 per tonne of emissions to $50-80 by 2030, a move that will help the nation dwindle to net zero emissions by or around 2050. The carbon tax hike will be done in phases to give businesses more certainty.

The current rate of $5 per tonne of emissions, applied since 2018, will be in place until 2023. It will rise to $25 in 2024 and 2025, before hitting $50 to $80 per tonne by 2030.

Green commitments

According to the World Bank, many companies in Vietnam and the country’s trade sector are facing great pressures from the international market that are increasingly requiring environmentally-friendly products.

While trade serves as an important impetus for Vietnam’s economic growth over the past two decades, it is also a big emitter of greenhouse gas emissions, responsible for one-third of the country’s total emissions. This includes agriculture, manufacturing, and transport services, the World Bank said.

“Thus, greening the trade sector should be the priority to ensure sustainable and strong growth going forward. It will also help the country keep its pledge to reach net-zero emissions in 2050,” said Carolyn Turk, country director for Vietnam at the World Bank.

“Vietnam has started decarbonising its trade, but increasingly, customers in destination markets and multinational companies demand greener products and services. Also, many foreign-invested enterprises are part of value chains where the central corporations have committed to greener practices as part of their corporate social and environmental commitments.”

For instance, Apple is transitioning its entire supply chain to 100 per cent clean energy. Foxconn, one of Apple’s major suppliers, which has recently moved its assembly lines to Vietnam, will be subject to Apple’s environmental-social-governance and decarbonisation requirements. In the garment industry, Nike is implementing an initiative to reduce emissions by 65 per cent.

“More than 100 of Nike’s suppliers in Vietnam will be affected. To remain competitive and stay ahead of the game, Vietnamese authorities and Vietnamese exporters need to do more,” Turk stressed.

According to a World Bank report on Vietnam’s economy released in January, the nation’s export competitiveness could be affected by the mitigation policies of its major trading partners. Consumers in Vietnam’s major export markets, such as the US or the EU, are increasingly demanding more environmentally-friendly goods and cleaner production processes.

For example, the EU Green Deal, signed in 2019, includes a plan to implement a border carbon tax adjustment that could affect its trading partners, including Vietnam. The deal plans to cut emissions by 55 per cent in 2030 relative to 1990 levels through a gradual increase in carbon tax rates within the EU.

Concurrently, there are also plans in the EU to implement a carbon border adjustment mechanism (CBAM) to bring the level of emissions per unit of imported output to the average sectoral level in the EU. The CBAM would only be applied to commodities that correspond to the EU’s Emissions Trading Scheme sectors, which correspond to a small share of total exports for Vietnam.

“Despite small macro impacts, select products could be impacted significantly by carbon taxes on their exports to the EU. Furthermore, as CBAMs coverage is expanded to other sectors and as more countries introduce them, their total impact on Vietnam exports will become stronger,” said the report.

The EU is one of Vietnam’s main export destinations. An analysis of Vietnam’s relative emission intensity and trade exposure of key products to the EU finds that Vietnam’s exposure is in inorganic chemicals and machinery, given the high export share of these products, such as petroleum, fertilisers, iron and steel, non-ferrous metals, textile fabrics, and general industrial machinery and equipment.

Moreover, many countries like Singapore are contemplating setting higher tariffs on polluting goods and services to reduce emissions by raising the price of carbon. Such decarbonisation policies can impact global markets and cause shifts in technology, fuel availability, and trade dynamics from changing consumer preferences or tariffs on emission-intensive goods.

Emissions from production in Vietnam rose from 82 million tonnes to 173 million tonnes between 2005 and 2015, a much faster rate of growth than in other ASEAN member states. The share of total emissions embodied in gross exports in total emissions from production grew from 60.9 per cent in 2005 to 75.8 per cent in 2015, according to the World Bank which said, “The rapid development of manufacturing and the type of manufacturing has led to increased greenhouse gases indirectly, as the sector uses electricity, steam, heat, or cooling to function.”

Stronger opportunities

Owing to its increased international economic integration through a series of free trade agreements, Vietnam’s trade with the world increased annually. Last year, the export-import turnover hit $668.5 billion, up 22.6 per cent on-year and nearly doubling the country’s GDP. In which the export and import values totalled $336.25 billion and $332.25 billion, up 19 and 26.5 per cent on-year, respectively. The total trade surplus stood at $4 billion.

In the first two months of this year, Vietnam’s total trade hit $108.52 billion with export and import turnover of $53.79 billion and $54.73 billion, up 10.2 and 15.9 per cent on-year, respectively. This resulted in a trade deficit of $937 million.

However, not all goods exported can refer to emissions. In Southeast Asia, Vietnam has emerged as one of the top three countries trading in environmental goods. In 2020, Vietnam was the third-largest exporter of environmental goods after Singapore ($21.6 billion) and Malaysia ($9.6 billion), and the second-largest importer, following Singapore ($15.6 billion).

Between 2000 and 2020, Vietnam’s annual average growth of environmental goods exports was 48 per cent, and of imports 22 per cent, higher than other neighbours except for Cambodia.

According to the World Bank, environmental goods and services are generally captured by broad concepts and include all “products that are manufactured or services that are rendered for the main purposes of achieving environmental objectives.”

Vietnam’s environmental trade has mainly been driven by trade in renewable energy products. Exports of these products increased from $3.5 million in 2002 to $5.1 billion in 2020, accounting for more than 50 per cent of total environmental goods exports on average. This sharp increase is associated with the strong demand for solar panels in the US. According to the US Energy Information Agency, demand for solar panels increased by one-third in 2020.

Relatedly, solar cell and heliostat exports registered compound annual growth rates of 81.6 and 71.2 per cent, respectively, from 2010 to 2020. Wind-powered electric generating sets registered about 38 per cent compound growth, while exports of heliostat parts grew 42 per cent.

“Such economic transformation and the emergence of new sectors are promising in that they will create new jobs in sectors that will continue to grow into the future as the world shifts to more climate-friendly trade, production, and consumption,” said the World Bank.

“The photovoltaic cell sector is a niche sector that is often embedded in complex value chains. Therefore, access to inputs is critical to maintaining a sustainable growth rate for the sector in the coming years,” the bank said.