Free trade zones set as a logistics saviour
Free trade zones set as a logistics saviour
While free trade zones are expected to be a new driving force for Vietnam’s logistics industry to grow, short term barriers remain challenging.
Free trade zones set as a logistics saviour |
Last week, Danang People’s Committee submitted a document to the prime minister proposing a number of contents related to the construction of a free trade zone (FTZ).
The investment and policies plans are being gathered from relevant ministries and agencies. There are 20 new policies proposed for application, including two on support for administrative procedures and operations under the authority of the PM, and seven others under the authority of the government.
In addition, there are 11 policies under the authority of the National Assembly, including three preferential policies on tariffs, six supporting administrative procedures and operations, and two others supporting human resource development and market development.
Expected to be the first trial model in Vietnam, the zone has a proposed area of over 2,300 hectares. It will include production areas, logistics centres, trade-service areas, and other types of functional areas attached to Lien Chieu Seaport and Danang International Airport.
“There is a lot of work, and while there is no clear legal framework, by 2027 Danang must form at least one functional sub-zone in Danang FTZ. Thereby, there is a basis to summarise the plans and continue to propose stronger policies so that the zone can compete with others in the region,” said Tran Chi Cuong, Vice Chairman of Danang People’s Committee.
New driving force
Vietnam has numerous advantages for the development of FTZs, driven by stable economic growth, many free trade agreements, the rise of the middle class, domestic consumption demand, and upgraded transport and logistics infrastructure, connecting economic zones with FTZs and international airports, facilitating international trade.
“The important factor for logistics to develop is to optimise the flow of goods. And FTZs can be an important driving force for logistics, helping improve its competitiveness, attract investment, optimise the flow of goods, and enhance Vietnam’s position in the global supply chain,” logistics expert Thuyen Nguyen told VIR.
Enterprises in an FTZ can enjoy incentives on warehousing and storage costs, simple customs procedures, and quick clearance times, thus helping reduce costs. FTZs also allow integration of activities such as storage, distribution, and production at a single location, thereby improving supply chain management efficiency.
For instance, most of the regulations and policies proposed for the Danang FTZ include the duration of projects, incentives on corporate income tax (10 per cent for 15 years), exemptions and reductions in land rent, import and export tax, VAT, and special consumption tax such as duty-free zones in economic zones.
Besides Danang, Vietnam has other areas of potential for FTZs. The southern province of Ba Ria-Vung Tau is aiming to develop an FTZ associated with the Cai Mep-Thi Vai port cluster, aligning with socioeconomic development and ensuring national defence and security in the southeast region.
Ba Ria-Vung Tau is known as the hub of seaports, as it is home to an advanced deep-water seaport system, in which the Cai Mep-Thi Vai port cluster plays a key role. The province is also home to many modern industrial parks and export processing zones, including Phu My and My Xuan, which attract many domestic and foreign enterprises, especially focusing on oil and gas, chemicals, and logistics.
Nguyen Thanh Binh, general director of Gemadept, the investor of Gemalink Port, said that the combination of a gateway seaport and an international airport is a great opportunity for Ba Ria-Vung Tau to become an important economic centre in the region. To take advantage of the opportunity and fully develop its potential, the province needs a true FTZ.
“If the FTZ in Ba Ria-Vung Tau is implemented, it will attract goods to the ports in the area, contributing to diversifying logistics services, enhancing international transit and logistics capacity, and increasing competitiveness of Cai Mep-Thi Vai, while connecting with the Long Thanh airport,” he noted.
Short-term challenges
An FTZ is a popular model worldwide, but Vietnam currently does not have any. Up to now, Vietnam’s legal system has no regulations on the order, procedures, authority, management models, operating mechanisms, and more. Meanwhile, existing relevant legal regulations mainly focus on economic zones and export processing zones.
Expert Le Quang Trung said, “To develop FTZs in Vietnam, specific steps are needed. First of all, it is necessary to complete the legal framework, and develop specific legal regulations on the order, procedures, and authority to decide on investment, establishment, management, and operating mechanism of FTZs.”
He added that it is necessary to raise awareness of management agencies, businesses, and the community about the benefits and opportunities from FTZs.
“Vietnam also needs to learn experiences of countries that have successfully developed FTZs such as the United States, South Korea, UAE, China, Brazil, Singapore, and Panama, while implementing pilot projects in some potential localities to evaluate the effectiveness and learn lessons before expanding nationwide,” Trung said.
According to industry insiders, while waiting for the operation of FTZs, the logistics industry needs to deal with its existing challenges. According to the Vietnam Logistics Business Association, the main barriers include high logistics cost, a lack of breakthroughs in policies, weak connection between transport modes and warehouses, and poorly developed logistics infrastructure.
Many countries have made a success with the FTZ model. Among them, the most successful is Jebel Ali in the UAE. Established in 1985, it boasts 8,600 businesses from 140 countries. Its success is attributed to the world’s most competitive incentive policy system, with various taxes at rates of zero, no foreign exchange controls, and no restrictions on hiring foreign workers.
In South Korea, the central budget supports part of the capital for basic infrastructure investment depending on each project and period, the rest comes from the local budget or selected and agreed with enterprises investing in infrastructure works.
Elsewhere, one of the highlights of Singapore’s FTZ development policy is the preferential tax on goods and services. When goods are imported and stored in FTZs, businesses can enjoy the deferral. Businesses will not have to pay this tax if they re-export goods out of the FTZ, and only have to pay tax if the goods leave and enter the customs territory for consumption.
Expert Thuyen Nguyen noted, “It is time for Vietnam to develop FTZs without any delays because the logistics industry needs a new driving force for future growth amid the traditional rooms becoming limited. Success of countries in development of FTZs proves its effectiveness and importance. Vietnam should learn about them.”
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Pham Minh Chinh, prime Minister International trade continues to grow, as does international integration. However, the world is facing many universal and comprehensive problems that no single country can solve. At home, development of marine space, the underground, outer space, digital transformation, infrastructure, and human resources also pose new requirements, while creating conditions to strongly boost the logistics industry. The industry must follow new trends such as digital transformation, green transformation, the circular economy, sharing economy, and knowledge economy in the spirit that resources come from thinking and vision, motivation comes from innovation and creativity, and strength comes from individuals and businesses. To contribute to the country’s double-digit GDP growth, it is necessary to reduce logistics costs from 18 to 15 per cent in 2025; increase the scale of logistics in GDP from 10 to 15 per cent, striving to reach 20 per cent; increase the scale of Vietnam’s logistics globally from 0.4 to 0.5 per cent, striving to reach 0.6 per cent; and boost the growth rate of the logistics industry from 14-15 to 20 per cent. There are several solutions for the logistics industry. First is further raising awareness of the role and importance of the industry and about Vietnam’s position in the Asia-Pacific region to maximise potential and competitive advantages in the world logistics chain. Vietnam must create institutional breakthroughs in an open direction, and build modern logistics infrastructure to reduce costs and increase product competitiveness, especially building up the aviation, maritime, and high-speed railway industries. It must also build smart governance and train high-quality human resources, utilise diplomacy, ensure free trade, and strengthen the close connection between modes of transport and the world’s free trade zones. The government will continue to promote its constructive role, focusing on strategies, institutions, and policies, creating an open environment and designing tools for resource mobilisation, monitoring, and inspection. Tran Thanh Hai, deputy director Agency of Foreign Trade Ministry of Industry and Trade There are clear trends emerging around the world. The first is fierce competition to compete in geopolitics. Vietnam is one of the countries considered to have that advantage. In this context, surrounding countries are making very strong moves. For example, Thailand is building a railway network connecting China and Laos. Meanwhile, Cambodia is building expressways and Funan Techo canal. The second trend is the shift and reshaping of the supply chain, with businesses diversifying their supply chain and finding new potential markets. Third is the trend of forming alliances among enterprises to take advantage on a large scale. This has been clearly seen in the maritime business when shipping lines form alliances, as well as mergers being made to increase their scale and footprint in the market. There is now also the trend of applying technology to enhance automation, which increases productivity and efficiency, and utilising a green logistics supply chain and greener services. We have set targets for the period towards 2035, including 8-12 per cent growth, the number of professionally trained manpower to increase to 70 per cent, and logistics costs to reduce to 12-15 per cent from the current 15-16 per cent, among others. We propose some groups of solutions to enable the country to achieve such targets. These include completing the legal framework, developing infrastructure, increasing business competitiveness, developing the market, boosting tech application and green logistics, and developing personnel. Some solutions for the upcoming time include building transhipment ports, developing national fleets, and establishing free trade zones (FTZs) and logistics centres. FTZs have strong advantages, but we have not had a legal framework for them. Besides Danang, many localities like Haiphong and Ba Ria-Vung Tau and others expect to build an FTZ, but as yet they cannot. We expect that the country will amend rules about economic zones and industrial parks, and thus we can add regulations about FTZs. |
- 11:35 27/02/2025
