Vietnam’s Trade with Japan: Longer-Term Prospects for the Vietnamese Agricultural Sector
Over the past decade, Japan has been Vietnam’s most important trading partner, its largest donor, and a primary source of investment. Although surpassed by the United States in 2003 as Vietnam’s largest trade partner and export market, Japan remains an important destination for Vietnamese exports and a critical source of inputs for modernizing its economy. This relationship plays a particularly important role in Vietnam’s agricultural sector, which accounts for 22 percent of Vietnam’s GDP and employs 60 percent of its population (World Bank, 2005). Agricultural exports comprise nearly a quarter of Vietnam’s total exports to Japan, and maintaining and expanding these exports will be a key component of sustaining economic growth and reducing poverty in Vietnam.
Vietnam’s trade relations with Japan are developing against a backdrop of dramatic change in East Asian regional trade. Japan has been a net agricultural importer since the mid-1980s, but became a primary export market for East Asian agricultural exporters in the mid-1990s. The rapid rise of efficient Asian agricultural producers, such as China and Thailand, will spell greater quality and price competition for Vietnamese farmers and businesses in Japanese markets. In addition, Japanese sanitary and phytosanitary regulations for agricultural product imports have grown more stringent over the past five years. A strong collaboration among Vietnamese policymakers, farmers, businesses, and scientists will have to improve the country’s agricultural system to respond to increasing competition and meet higher standards for agricultural exports.
While growing competition and rising standards present challenges for Vietnam, opportunities are equally abundant. A rebound in economic growth, domestic agricultural reforms, and a growing dependency on agricultural imports in Japan could provide greater access for Vietnamese agricultural goods. Additionally, Japan’s role as a major donor, source of investment and inputs, and export market provides potential advantages for Vietnam in Japanese markets. To exploit these opportunities, however, Vietnamese policymakers and businesses must couple domestic improvements with a more active and effective system for promoting international trade.