Israel-Vietnam Free Trade Agreement Unlocks Vast Market Potential

The year 2023 marks the 30th anniversary of establishing diplomatic relations between Israel and Vietnam. Making it even more momentous, the two countries signed a Free Trade Agreement (FTA) in Israel on July 26, after 12 negotiations for the last seven years. The Israel-Vietnam FTA is a bilateral trade agreement that promotes economic cooperation and enhances trade relations between the two nations. The agreement includes trade in goods, services, investment, rules of origin, technical barriers to trade, sanitary and phytosanitary measures, customs, trade remedies, government procurement, and the legal and institutional framework. The Israel-Vietnam FTA seeks to reduce or eliminate trade barriers, such as tariffs and non-tariff barriers, and to create a more favorable environment for cross-border trading.

The Israel-Vietnam FTA is expected to remove duties on at least 86 percent of Vietnamese products and 93 percent of Israeli items. The agreement represents a historic milestone for both Israel and Vietnam, as it is the first FTA signed between Israel and a Southeast Asian country, and it is also the first FTA Israel has signed with an ASEAN member state. On the side of Vietnam, it is the first FTA with a Middle Eastern country.

The Israel-Vietnam FTA has several key implications:

Trade Facilitation

The FTA aims to facilitate smoother trade flows between Israel and Vietnam by reducing or eliminating tariffs on many products. This is expected to boost bilateral trade volumes and create new business opportunities to expand their market reach.

Market Access

The FTA enhances market access for goods and services from both countries. For Israeli companies, Vietnam not only opens the door to its local market with a population of nearly 100 million but also paves the way for wider ASEAN market access. It should be noted that for some countries in the region, Israeli-made products are not accepted. With the FTA, Israeli companies can produce Made in Vietnam products and export them to other countries in ASEAN. The FTA also allows Vietnamese exporters greater access to the Middle East and North Africa, as well as southern Europe, where there is a massive demand for Vietnam’s food and agricultural products.

Foreign Direct Investment (FDI)

The FTA is expected to attract more FDIs from both countries. As trade barriers decrease, investors from Israel may find Vietnam an attractive destination for investments in sectors like manufacturing, technology, and agriculture.

From January 1 to March 20, 2023, Israel made significant investments in Vietnam, allocating a total registered capital of USD 60.01 million. This reflects Israel's ranking as Vietnam’s 12th largest investor, among 67 countries and territories during the same year. Israeli investment projects in Vietnam primarily focus on key sectors such as processing, manufacturing, information technology, and agriculture. Moreover, Israeli organizations and businesses are keenly interested in forging partnerships with local entities, particularly those engaged in clean energy production, renewable energy storage technology, and solar power projects. Interestingly, Vietnam also boasts prominent corporations that have invested substantial sums, amounting to tens of millions of dollars, in Israel's research and development (R&D) segment.

Implications to Trade

The Israel-Vietnam FTA is expected to increase bilateral trade significantly, with both countries benefiting from expanded market access and reduced trade barriers. Vietnamese exporters, particularly in sectors like seafood, textiles, and electronics, will likely experience a surge in demand from the Israeli market. In contrast, Israeli exports, including technological products and agricultural goods, may find new opportunities in Vietnam. Additionally, the FTA is expected to attract foreign direct investment from both nations as investors seek to capitalize on the improved trade conditions and tap into each other's growing markets. Overall, the agreement will foster stronger economic ties and create a favorable environment for businesses to explore untapped potential and maximize growth opportunities.

Boost in Exports

Both nations can expect increased exports to each other's markets due to reduced tariffs. Vietnamese exports, particularly in sectors like seafood, textiles, and electronics, are likely to receive a boost in the Israeli market. Similarly, Israeli exports, including technological products and agricultural goods, may find increased demand in Vietnam.

In 2022, computers, electrical products, spare parts, and components valued at USD 1.2 billion comprised Israel's key exports to Vietnam. Fertilizers also constituted a significant export category, amounting to USD 92.8 million. Industrial machines, equipment, tools, and instruments also accounted for USD 59.3 million in exports. Furthermore, there was notable export activity in the fruits and vegetables category, with a total value of USD 3.9 million. As in Figure 1, these numbers highlight Israel’s robust exports to Vietnam across diverse sectors, signifying the depth of their bilateral trade relationship.

In 2022, Vietnam's key exports to Israel demonstrated strong performance across various sectors. Telephones, mobile phones, and parts thereof were a prominent category, contributing USD 293.2 million in export revenue. Footwear was another significant export, reaching USD 92.2 million, highlighting Vietnam's expertise in the footwear industry.

Additionally, Vietnam's fishery products played a crucial role, accounting for USD 80.3 million in export value. Cashew nut exports amounted to USD 59.8 million, reflecting the country's position as a major supplier of this commodity. Furthermore, textiles and garments contributed USD 32.8 million to Vietnam's export portfolio, showcasing the country's strength in the textile sector. Finally, coffee, a well-known Vietnamese export, generated USD 24.3 million in revenue, underscoring Vietnam's position as a major global player in the coffee industry. As seen in Figure 1, these export numbers showcase the diversity and strength of Vietnam's trade with Israel, indicating a vibrant economic relationship between the two nations.

Israel-Vietnamese FTA opens Southeast Asia opportunities for Israel

According to Einat Halevy Levin, the president of the Israel-Vietnam Chamber of Commerce, ASEAN is a regional economic integration where Vietnam has emerged as one of its strongest members, acting as a hub. She mentioned that having headquarters in Vietnam makes it easy to access other ASEAN countries. This is particularly beneficial for Israel, as it lacks diplomatic relations with nations like Malaysia and Indonesia. Levin emphasized that by capitalizing on Vietnam's strategic location, Israeli companies can process and sell products as Vietnamese goods to countries that cannot purchase them as Israeli products due to existing trade agreements. With customs tax reductions through the FTA, Israel gains a competitive edge against other countries with which Vietnam already has free trade deals. The agreement is expected to lead to mutual tariff reductions, facilitating trade in various areas, including services, investments, and standardization. Levin attributed the origins of the agreement to Vietnamese interest in Israeli technology. The Vietnamese government and companies are both interested in Israeli technologies, which could open up new markets for Israeli technology companies.

Israel-Vietnam Free Trade Deal: Unlocking Access to the Middle East Market for Vietnamese Products

The Israel-Vietnam FTA has garnered significant attention as it opens up new prospects for Vietnamese goods to access the Israeli market and expand into the extensive Middle East market. Seafood exports, a key product category for Vietnam, have faced recent challenges, experiencing a decline of over 27% compared to the same period in 2022. Thus, the Israel-Vietnam FTA’s signing is significant for seafood enterprises.

Truong Dinh Hoe, General Secretary of the Vietnam Association of Seafood Exporters and Producers, highlighted the potential of the Israeli market, citing its high purchasing power and solvency, despite being a small country with limited natural resources and domestic labor. The market offers ample room for Vietnamese seafood enterprises to operate effectively. Israel holds a prominent position (22 out of 100) among Vietnam's seafood export markets. Key export items to Israel include shrimp, frozen squid, canned tuna, basa, and more.

Many industry experts believe that Vietnam can benefit from Israel’s latest technologies in the framework of FTA. They acknowledge Israel's developed technology and the opportunity for Vietnam to access Israel's high-tech products, complementing Vietnam's status as a key agricultural producer. The agreement is expected to bolster bilateral trade and tighten economic ties, fostering mutual benefits for businesses in both countries. As Vietnam's import and export activities with Israel show steady growth, reaching USD 2.6 billion in 2022, the Israel-Vietnam FTA is poised to further expand export opportunities for Vietnamese goods to Israel.

However, Vietnamese businesses must address challenges to leverage the benefits of the FTA fully. Understanding and adhering to Israel's market regulations and standards are essential for long-term cooperation. To cater to Israel's discerning consumers, businesses should meet buyer standards, such as Global Gap for fresh fruit and Kosher Certification for processed food. Considering the distance between the two countries, enterprises need appropriate preservation technology to ensure export quality.

In conclusion, signing the Israel-Vietnam Free Trade Agreement (FTA) is an important development in inter-regional trade. The following free trade deal aims to promote economic cooperation and enhance trade relations, benefiting both countries in multiple ways. For Vietnam, the FTA opens doors to the Israeli market and beyond, providing access to the vast Middle East market. For Israel, the FTA will likely lead to increased exports to Vietnam and the wider ASEAN region. Reducing and eliminating trade barriers are expected to facilitate smoother trade flows and create new opportunities for businesses in both countries to expand their market reach. With increased trade opportunities, both Israel and Vietnam can diversify their economies. To fully leverage the advantages of the FTA, Vietnamese businesses must adhere to Israeli market regulations, ensure product quality, and exhibit professionalism in import and export activities. For Israeli businesses as well, it is crucial to understand the local market and the region deeply. Overall, the Israel-Vietnam FTA represents a significant step towards enhancing trade relations and fostering economic growth between the two nations.