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11 Jul 2005

International Economy

Vietnam: Trade Partner & Rival...Beware Declining Trade Surplus


Vietnam is Thailand's latest oil supplier in ASEAN, as it has just begun to develop its energy sources for commercial purposes only recently. In 1986, Vietnam opened the country to trade and began adopting market reforms. Currently, the country has an oil supply adequate to allow exports. Over the first five months of this year, Thailand imported USD65.8 million in crude oil from Vietnam. Oil ranks second to electrical appliances on the list of Thailand's top imports from Vietnam. Thailand has purchased a large amount of Vietnamese crude oil, causing overall Thai imports from Vietnam to rise sharply. During the first five months of this year, Thailand's imports from Vietnam topped USD306.3 million, almost doubly, year-on-year.

On the contrary, Thailand's export growth to Vietnam dwindled to 18 percent during the first five months of this year, against the record high of 49 percent in 2004. The slowdown in Thai exports could be attributed to the large amount of Chinese products shipped to the Vietnamese marketplace after Vietnam recently strengthened trade ties with the Mainland. Presently, China has become Vietnam's largest source of imports, while Thailand ranks sixth on the list of top exporters to the Vietnamese market behind China, South Korea, Japan, Singapore and the US.

Thailand's exports to Vietnam grew 18 percent, whereas its imports from Vietnam skyrocketed by 98 percent earlier this year. As a result, Thailand's trade surplus with Vietnam dropped by 3.9 percent to USD530.7 million over the first five months of this year. It is expected that Thailand will continue to rely on Vietnamese crude oil over the remainder of this year, while its exports to Vietnam may be sluggish. Given this, Thailand may encounter a trade deficit with Vietnam in the future, though it has always enjoyed a trade surplus with Vietnam in the past.

After Vietnam opened the country to trade and began adopting market reforms over the past twenty years, its economy has developed and become prosperous and stable. Currently, Vietnam can produce products similar to those of Thailand, be they agricultural or industrial goods. Thus, Vietnam is regarded as Thailand's rival in world markets, particularly, in the US, the largest importer of both Thai and Vietnamese goods. Exports from Thailand and Vietnam to the US market account for 15 and 20 percent of the total exports from the two countries, respectively. Important and high potential exports from Vietnam (apart from crude oil) include garments and other textiles, shoes, electronic products, seafood, wooden furniture, rice, rubber and other agricultural produce such as coffee, tea, pepper, cashew nuts, etc.

Vietnam has the ability to export many types of goods that are so similar to Thailand's that it has become a rival. KRC therefore holds the view that Thailand and Vietnam should develop a relationship of being 'economic partners' rather than 'rivals' for mutual benefit by encouraging closer economic cooperation in aspects such as:
  1. Export allies for agricultural produce ? particularly rice and rubber. Strengthening cooperation will help maintain the stability of rice and rubber prices in the world market, which would be advantageous to Thailand and Vietnam, as well as other rice and rubber exporting countries.
  2. Develop border economic zones Although Thailand and Vietnam do not share a common border, transportation routes between the two countries can be linked via through Laos using highways 9 and 12. These routes are expected to help invigorate the economies of the three countries because they through rapid, convenient and cheaper transportation.
  3. Liberalize cross-border tourism Softening the rules and regulations for cross-border travel between Thailand-Laos-Vietnam is expected to help stimulate cross-border tourism among the three countries. It is forecast that the Thai and Vietnamese authorities could permit tourists to drive across borders soon.
  4. Joint investments with Vietnam Vietnam is a newly-opened economy and potential investment locale that is not too far from Thailand. Moreover, the Vietnamese authorities have instituted tax promotions such as collecting import tariffs on Chinese raw materials that are lower than Thailand's, plus Vietnam has rather low wage scales. If Thai businessmen can adjust, learn and understand the market in Vietnam, it could make Thai businesses successful in expanding there.

International Economy