Formal exports, cross-border trade complement each other

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Nguyen Dang Hien, general director of Ho Chi Minh City-based Bidrico Beverage, said his company started exporting its products to Cambodia ten years ago, but then the cross-border trade was not done formally.

It was only in 2005 that the company decided to officially enter the market with more professional promotion and marketing strategies. Official trade has allowed Bidrico's products to enter large retail channels in Cambodia and eliminate risks caused by informal exporting, Hien said.

"Since the change in the form of trade, sales in Cambodia have increased by 5-10 percent every year," he said, noting that the market now accounts for 8 percent of his company's annual export revenues.

Bidrico is among the few companies that have changed the way they export products to neighboring countries with shared borders.

For many others, cross-border trade still means they only have to bring goods to the border gates and collect money from merchants, having no idea where their products will end up in the foreign market or how they will be sold.

In fact more than 90 percent of Vietnamese goods in Cambodia are traded informally this way every year across the border between the two countries, which stretches nearly 1,137 kilometers, according to the Ministry of Industry and Trade. Of the 10 Vietnamese provinces bordering Cambodia, Tay Ninh, An Giang and Kien Giang are where most of the goods are traded.

Many agricultural products are also sold to China the same way.

Tran Van Tron, a trader at Tan Thanh Border Gate in Lang Son Province, said he has sold dragon fruits to China for ten years and the upper hand has always been held by Chinese merchants.

According to the authorities in the central province of Binh Thuan, one of the country's largest dragon fruit growing areas, informal trading without signing export contracts is widespread along the Vietnam-China border. The practice has left local exporters with no power in terms of pricing; and spur-of-the-moment trading also means Vietnamese fruit and vegetables can be left to rot at border gates without buyers.

The high road

Analysts say that compared with informal trade, official exports are the more credible form of cross-border trade in which goods are checked for quality before being imported and distributed among consumers. Businesses can avoid having their products treated as illegal and can create plans to expand their market easily. This in turn will also enhance the reputation of Vietnamese products, they add.

Moreover, unlike informal cross-border trade, which is mostly unrecorded, official exports give the government better control over tax collection and policy making. Many cross-border trade policies so far have not been really effective only because of a lack of official statistics on these activities, analysts say.

But while many companies understand the benefits of official trade, it is not an easy matter to make the switch.

Hien of Bidrico said there are many kinds of costs that Vietnamese businesses have to bear, including taxes and other unwritten fees that make their products less competitive.

Beverage products, for instance, are taxed at 7 percent, but if all other unofficial costs are included the rate can be as high as 26 percent, he said.

Inconsistent tax policies also dishearten many Vietnamese producers. Nguyen Van Bon, director of electric fan maker Bifan, said electric fans are only taxed US$2 apiece when brought over the Vietnam-Cambodia border. But if the fans are officially exported to Cambodia, customs will impose duties based on the total product weight and that can mean taxes of up to $16 per fan.

Two of a kind

Vu Huy Hoang, minister of Industry and Trade, said trading activities on a small scale along borders, which he described as the "traditional" form of trading, have an important role to play as it complements formal trade.

"For the Cambodian market, I believe formal trade and traditional trade activities are supporting each other."

"When discussing this issue we need to take into consideration the distinct characteristics of cross-border trading activities between Vietnam and each neighboring country," he said in an interview published by Thoi Bao Kinh Te Saigon late last week.

"People living along the Vietnam-Cambodia border have been trading with each other for a long time, some of them are even relatives and they share many customs and traditions.

"Of course the general trend now is to have all trade and investment activities formalized. The government always encourages local businesses to export their products. Official trade will make it easier to check and control cross-border exports."

But he said attention should also be paid to traditional cross-border trade between the two countries. "The point is the government needs to tighten control over this form and provide enough information to residents to help them avoid the negative side of border trading."

Cross-border trade has to be directed toward healthy development, avoiding smuggling and trade fraud, Hoang said.

The Ministry of Industry and Trade estimates cross-border trade between Vietnam and Cambodia in 2009 topped $1.4 billion despite the global economic crisis.

In the first three months of 2010 trade turnover reached $432.47 million, up 127 percent from the same period last year. The two countries have set a two-way trade target of $2 billion for this year.

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