MIMISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS ANALYSIS OF TRANSACTION COSTS IN INTERNATIONAL TRADE AND PRACTICE IN VIETNAM Major: International Economics NGUYEN KIM NGAN Hanoi, 2019 MIMISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS ANALYSIS OF TRANSACTION COSTS IN INTERNATIONAL TRADE AND PRACTICE IN VIETNAM Major: International Economics Full name Supervisor : Nguyen Kim Ngan : Assoc Prof PhD Tu Thuy Anh Hanoi, 2019 ERTIFICATION I hereby certify that the thesis with the title: “Analysis of transaction costs in international trade and practice in Vietnam” is my own research and does not reproduce any other materials The data indicated in the thesis is clear, accurate and are collected from the confident sources of information The Author Nguyen Kim Ngan ACKNOWLEDGMENTS In order to complete this thesis, besides the efforts of myself, I have received the help, encouragement and guidance of my teachers, friends, colleagues and family throughout the course as well as in the period of the thesis research Special thanks to Assoc Prof Ph.D Tu Thuy Anh, who was dedicated to guide and help me in the process of researching and writing this thesis I am grateful to the teachers in the Faculty of Postgraduate Education of Foreign Trade University for interesting and useful lectures, for the enthusiastic transmission of the valuable knowledge and for the best conditions offering in the process of the course I would like to express sincere thanks to my colleagues working on Commercial Department who support me with a lot of data and information related to logistics costs of exporting shipments I am grateful to my family for their encouragement and supports during the course and the period of thesis research This thesis studies on the transaction costs of exporting firms is not a new but a very complicated issues required various knowledge, skills and practical experiences Thus, the thesis has the inevitable shortcomings and limitation I look forward to receiving valuable comments for improving the thesis Sincerely, Hanoi, 2019 The Author Nguyen Kim Ngan TABLE OF CONTENTS LIST OF ABBREVIATIONS ABBREVIATIONS MEANINGS ADB Asian Development Bank APEC Asia-Pacific Economic Cooperation ASEAN Association of South East Asian Nations BRI Belt and Road Initiative FTZs Free Trade Zones FDI Foreign Direct Investment GDP Gross Domestic Product GST Goods and Services Tax GVCs Global Value Chains IADB Inter-American Development Bank LPI Logistics Performance Index by The World Bank LDCs Least Developing Countries MTB Marginal benefit MTC Marginal transaction costs OECD Organization for Economic Co-operation and Development PPP Public-Private Partnership TFA Trade Facilitation Agreement TFAF Trade Facilitation Agreement Facility UPU Universal Postal Union VLA Vietnam Logistics Association WB World Bank WCO World Customs Organization WTO World Trade Organization LIST OF TABLES LIST OF FIGURES Figure 20: Factors contributing to the success of Singapore’s Logistics Industry Source: http://surbanajurong.com Comprehensive Logistics Value-added Services – Singapore has developed a range of comprehensive, high quality logistics value-added services – from finance and insurance, logistics skills development and vocational training, to a strong legal system The ability to offer services along the entire supply chain caters to the various needs of consumers, enhances competitiveness and increases firms’ willingness to locate here Forefront of Technology Advancements – Being at the forefront of technology advancements for the logistics sector is in line with the country’s goal of becoming a Smart Nation By constantly keeping up with the latest technology advancements and embracing changes, Singapore is an early adopter of the one-stop customs clearance service with the introduction of TradeNet, the first trade facilitation electronic platform launched in the world Complementary Development with Goods and Services Producing Industries – As logistics are key to the goods and services producing industries, the growth of the logistics sector is largely attributable to them Singapore is not only one of the top global financial powerhouses, but also the third largest petrochemical and refining hub in the world With Singapore’s direct hinterland boasting of strong economic foundation and advanced manufacturing accounting for approximately 20% of total GDP, this spurs the continuous need for logistics services and growth of the industry Logistics is a product of economic and industrial development, and is also an ingredient for economic growth with a key role in attracting foreign investments From Singapore’s experience, we identified five success factors which are keys in spurring the growth and robust performance of the logistics industry As goods and services producing firms accord greater importance to logistics quality and efficiency to gain greater profits, logistics firms which have undergone in-depth supply chain integration and demonstrated higher degree of logistics professionalism enjoy greater opportunities in the world market • Experience of Singapore’s Customs System Singapore’s TradeNet and TradeXchange systems also offer a full suite of permit services Other than declaration of imports and exports, traders can also amend permit details, cancel unused permits and submit claims for refund of duty and GST erroneously paid The last TradeNet system upgrade was conducted in January 2003 In 2006, the TradeNet system processed over nine millionpermits, with over 90% processed in less than 10 minutes In addition to TradeNet which connects users to government agencies in Singapore, TradeXchange also provides connectivity to commercial systems and regulatory systems in other countries Leveraging on the connectivity and core applications of TradeXchange, a number of value-added service providers will be offering application services to the trade and logistics community in areas such as trade documentation preparation, supply chain management, logistics and freight management, trade finance and insurance TradeXchange is the first IT project in Singapore to be implemented as a PublicPrivate Partnership (PPP) CrimsonLogic Pte Ltd has been appointed by the Government through a competitive tender to develop, operate and maintain TradeXchange Singapore Customs is working with other government agencies, including the Economic Development Board and the Infocomm Development Authority of Singapore to promote the adoption of TradeXchange services As Singapore’s lead agency in trade facilitation, Singapore Customs will continue to find more and new ways to ensure the integrity of the trading system, and support Singapore as a global trade hub Commenting on the launch of the upgraded TradeNet and TradeXchange systems, Director-General of Customs, Mr Teo Eng Cheong said, “This is a major upgrade of the TradeNet system Together with the launch of TradeXchange, we hope to better meet the needs of the trading community and enhance its competitiveness” Table 15 is the references for Features and Benefits of Singapore’s TradeNet System Table 15: Features and Benefits of Singapore’s TradeNet System New Features Benefits The processing fee and transmission fee per declaration will be reduced from the current $2.00 and $0.40 (per kilobyte) respectively to $1.80 and $0.18 (unlimited size) respectively under the new Version 4.0 Statutory fee of $0.90 per declaration remains unchanged This will result in savings of $0.42 per declaration due to reduction in cost New Reduced Fee from $3.30 to $2.88 Permit amendment, cancellation and refund will only be charged a flat transmission fee of $0.18 (unlimited size) Traders would be able to enjoy the cost savings effective from 30 October 2007 with the commencement of the parallel run of the new Version 4.0 to be held concurrently with the existing Version 3.1 from 30 Free Certified True copies and permit listings Free Government front-end TradeNet module October 2007 to 30 November 2007 A portal for self printing of Certified True Copies (CTC) of permits and permit listings free-of-charge Currently CTCs and permit listings are obtainable from SC at $15 per copy of CTC and $105 per 12-month listing of permits Free access to a “no frills” version of the Government front-end TradeNet module to submit declarations Traders could also acquire TradeNet® software from the registered A simpler permit vendors for a more customised approach A simpler permit structure defined by the movement of the structure goods and whether duty/GST payment is to be made rather than by codes eg joint IESGP-Customs permits, pure Customs permits as per TN3.1 There will be reduced number of fields, for example, the Reduced permit fields fields for GST and duty amount payable for outward and transshipment permits applications have been removed The convenience of declaring a single permit to cover Single permit for multiple transactions, an example is the “import for re- multiple transactions export” permit which may be used to cover the import and Information on export movements of the goods exported as one shipment The option for traders to request for a copy of the permit permits declared declared using their CR number Interactive E-learning modules to guide users on how to file their TradeNet declaration using the new upgraded E-learning TradeNet version 4.0 and a search engine for the new permit structure Please visit www.tradexchange.gov.sg to experience the e-learning module Users can now apply for a “stand-alone” Certificate of Application for Origin (CO) without the need to apply for an outward “stand-alone” permit To facilitate the export of goods, an export permit Certificate of Origin would still be required, if it has not been previously declared A single gateway access for Amendment and Cancellation New Amendment and services Currently, traders have to access the e-filing Cancellation services option on the Customs website to apply for amendment or Convenient refund cancellation Application for refunds of duty and GST via TradeNet application Do-It-Yourself registration Additional mailbox service instead of by e-filing A portal for a DIY registration to administer access rights Additional recipient mailbox for all types of permit Today, this feature is only available for certain kinds of permits (outward and pure IE-SGP permits) Source: Singapore Customs Meida Release 3.2 Recommendations for Vietnam’s reduction transaction costs in export 3.2.1 Recommendations for Vietnam’s reduction trade costs in export Ways to reduce logistics costs in Vietnam were once again discussed at a national conference on April 16, showing the strong determination of the government to increase the competitiveness of the economy The event revolving around cutting logistics costs and increasing transport connectivity attracted the participation of Prime Minister Nguyen Xuan Phuc, ministers, and hundreds of domestic and international logistics providers The conference was broadcast live to all cities and provinces nationwide In his opening remarks, the PM said that though ministries and agencies have been paying attention to logistics, reasonable solutions have not been taken yet to cut down logistics costs that are currently higher than in regional countries The government leader asked ministries and businesses to focus on dealing with the challenging issues of development planning, infrastructure development, infrastructure connectivity, warehouse development, and business and human resources development According to Deputy Transport Minister Nguyen Van Cong, despite having an annual growth of 16-20 per cent on average, the industry is facing many challenges Transport infrastructure is still asynchronous, particularly with a lack of connectivity between seaports, roads, and railway networks as well as post-seaport supporting services In addition to this lack of connectivity, the asynchronous development of the five transport segments has hindered the development of multimodal transportation and logistics services Logistics businesses proposed relevant ministries to further reform administrative procedures and cut unreasonable business conditions to facilitate their activities "The government should allow investments in the development of more new deepwater seaports and inland container depots (ICDs), while introducing policies to attract cargo for transshipment seaports, improving connectivity among transport segments, as well as ensuring the channel depth at the Cai Mep-Thi Vai port area and others," said Phung Ngoc Minh, vice executive president of Saigon Newport, Vietnam’s largest port operator "To further facilitate the development of the logistics industry, I is necessary to check overall business conditions so as to remove size-related forcible conditions that hinder businesses from entering the market and the conditions that intervene financially in market-oriented issues, while paying more attention to the training of human resources to meet market development demand," said Tran Thi Lan Anh, vice president of the Vietnam Chamber of Commerce and Industry (VCCI) At the meeting, Prime Minister Nguyen Xuan Phuc stressed the need to drastically reduce transport logistics costs, which would help to enhance the competitiveness of both businesses and the whole economy He emphasised that the cost burden is the biggest barrier to Vietnamese companies at present, with the high logistic costs affecting the competitiveness of the economy In that spirit, the PM asked the leaders of ministries and localities to be fully aware of the functions of the logistics industry, which are not only the delivery, reception, and freight of goods, but also include warehousing, storage, packaging, rotation, and handling of damaged goods He asked participants to focus discussions on removing legal and policy barriers with the optimal goal of reducing transport costs for businesses He stressed the need for specific action programmes to improve competitiveness and develop logistics services in each sector, especially transport, industry, and trade He also called for five major task groups, including the finalisation of policies on logistics services, the completion of logistics infrastructure, the enhancement of firms’ capabilities and service quality, the development of the logistics services market, and the enhancement of the quality of human resources Additionally, logistics companies should proactively apply modern science and technology in order to improve competitiveness, increase the quality of services, and reduce service costs 3.2.2 Implementing Trade facilitation Agreement International trade is the engine of the global economy More people, goods and services are crossing borders than ever before and products and the services that go with them are sourced from all over the world As goods cross borders many times fast and efficient customs and port procedures are essential Unduly complex processes and documentation raise costs and cause delays, and ultimately, businesses, economies and consumers bear the cost Vietnam could draw considerable benefits in terms of trade volumes and trade costs from significant improvements in the areas of information availability, advance rulings, fee & charge, automation, and governance & impartiality Some indicators Vietnam has quite good improvement are advance ruling, fee & charge, information availability We should remain and keep continue to improve in next time With Information Availability Indicator As above of this document, we mentioned so many regulations, websites of related department which are established to provide not only basic related domestic trade policies but also international The availability of information expresses the transparent of administration and customs department as well The Decision below as a good example: Decision No 3899 / QD-TCHQ of the General Department of Customs attached to the Regulation on the management and use of hotlines and the receipt and processing of information via hotline, effective from November 15, 2016 This regulation is promulgated to improve the discipline of public duty and prevent and stop corruption and harassment; to effectively support organizations and individuals in export and import activities; exit, entry or transit; timely processing of law violations General Department of Customs received information through hotline 19009299 Hotline’s ensured smooth operation, continuous 24/24 hours in the day and days in week Hotline call are recorded, stored and managed in FREQUENCY mode; Ensuring the confidentiality of the names, telephone numbers, addresses and contents of organizations and individuals reporting and information confidentiality of state management agencies In additional, the website of the General Department of Customs is carrying out very well the information, updated legal documents, customs procedures, policies, and notices on classification of goods More and more complete the forms and documents required for borderlines available online Advance rulings indicator: Vietnamese law has met pre-determined commitments that include a predeterministic mechanism The Vietnamese law provides for three issues that can be identified in advance (code, origin, customs value), more than mandatory (code, origin) And the pre-defined publicity mechanism on the Internet is doing very well The most important task in near future is continued efforts in the areas of involvement of trade community, documents, internal border agency cooperation and appeal procedures would bring further benefits Vietnam policymakers should focus their reform efforts to maximize impact On the areas where Viet Nam has not yet reached best performance, Viet Nam must continue improvements in the following: Involvement of trade community Further improve the provision of adequate and timely information on regulatory changes Improve the private sector’s opportunity to comment prior to the introduction or amendment of trade-related regulation and the inclusiveness of related consultations Enterprises need to know their rights, so updating information on TFA should be proactive and cooperate with Customs, VCCI, and Industry Association Businesses need to actively participate in the reform of customs procedures to detect, reflect, contribute innovations and create reasonable pressure Enterprise based on TFA can find out: The regulations are not suitable for TFA; the facts are not consistent with the TFA; Issues limiting the effectiveness of TFA Enterprises reflect follow the TFA’s mechanisms and innovate under TFA: Proposed ways to solve inadequacies; Comment on how the agency proposes; Collaborate with others to propose, considering to issue a regulation periodical dialogue meeting between the customs authorities at local level with enterprises Formalities – documents Vietnam has had "bad reputation" in the regulations on administrative procedures and the types of documents required They take time and sometimes conflict with others The lacking in harmony with domestic regulations and international business practices also be a big issue Therefore, one of the aspects that Vietnam should overcome when applying TFA is the paperwork and documents We need simplification and harmonisation of required systems documents of Vietnam with international With purpose to pursue efforts to comply with international standards for facilitating trade, but must be also protect the suitable rights of domestic trade market We should verycarefully and built up risk management when expanding the acceptance of copies ofdocuments In ASEAN region, we should continue the development of ASEAN e-Customs to cut down time, simplification customs procedure In domestic customs procedure: Further reduce the number of documents required for import and export, as well as the time necessary for their preparation Border agency co-operation For purpose to minimalize cost of the business consistency of information and equality between enterprises, we should pursue the development of national Single Windows and fully implement the ASEAN Single Window; Pursue efforts to reduce clearance times and physical inspections across member countries; Expand and consolidate the implementation of pre-arrival processing for import documentation; Expand the possibility to have goods released prior to final determination and payment of Customs duties Now, some import and export goods in principle can be implemented in accordance with the national Single Window mechanism but in reality there are many obstacles, including the problem that the papers are not granted the same The different customs departments have different paperwork requirements Moreover, the forms, electronic document types are not friendly and easy for using so that submission and presentation of electronic forms is very difficult) Therefore, besides adjusting the legislation to implement this commitment we should establish some mechanisms to support and supervise the implementation The issue of cooperation between customs agencies, as committed in the TFA, requires substantive cooperation, so we should improve the capacity and ability of customs officer and legal corridors to allow for obvious requirements such as external investigations, risk management, automatic While the global trade has been working in 24 hour in a day and seven day in the week, the Vietnamese customs office works in working time will limit the amount of trade and will affect economic returns So we should ensure that the working hours of Customs personnel are fully adjusted to commercial needs Expand the use of Authorised Economic Operator programs Vietnamese law requires criteria and conditions to be enjoyed Priority mechanism, including conditions on export turnover annual With this condition, almost SME businesses will not be able to approach to procedural priority customs) In the near future, with this condition we should decrease in required export turnover for suitable with averaged ability of Vietnamese Enterprises In additional, we need to continue to improve other indicators on the Automatic & appeal procedure and other indicator through the development of telecommunication, electronics, administrative reform, customs and law improvement Better and more fulfilling TFA commitments 3.2.3 The role of government in educating and communicating changes Training policies typically require the support of the government to be successful, and training in customs is no exception Since trade facilitation Catalyzes economic growth, educating stakeholders to adopt trade reforms effectively should be a central government priority Education, training and communication can support the successful implementation of trade-related regulatory reforms India has supported its ambitious reform agenda by providing regular training to both customs officials and private sector agents, as well as by establishing Customs Clearance Facilitation Committees which bring together actors involved in international trade at regular meetings Similarly,the Islamic Republic of Iran has invested in training customs officials, setting up “expert pools” of customs officials with existing technical training who are responsible for electronic goods clearance, as assigned by the national single window.Governments are tasked with designing and implementing their national trade facilitation programs Because of this, they are often best placed to lead stakeholder education and communication strategies through their customs administrations and National Trade Facilitation Committees They are also well positioned to provide standardized, harmonized training programs Furthermore, governments have a stake in educating service providers and users, since the effective implementation of trade reforms will ultimately boost trade volumes Providing adequate training - especially to firms with limited trading experience - can, for example, result in fewer errors when firms are completing customs documents, contributing to time savings and increased trade volumes Governments provide traderelated training to customs clearance officials in 98% of economies measured by Doing Business and to customs brokers in 87% Education and training support the professional development of customs clearance officials Such training provides an opportunity for customs agencies to emphasize the importance of integrity at work, deliver anti-corruption messages and promote the agency’s code of conduct Customs employees should meet the educational requirements defined by customs authorities to qualify for and effectively perform the role of clearance official For their part, governments should take advantage of training changes.Broadcast refers to using television or radio transmission to relay changes programs offered by international organizations – both for newly recruited employees as well as for experienced customs officers and executives Figure 21: Economies that offer regular training for customs clearance officials have shorter customs clearance times than thoses that not Source: Doing Business database Providing regular training to customs clearance officials is positively related to customs efficiency Doing Business data indicate that the average time required to clear customs (for both exports and imports) is about 34% lower in economies where clearance officers receive regular training compared to those where no regular training is provided ( Figure 21) Vietnamese government should attach special importance the education and training support for customs emplyees, learning experiences from developed countries like Europe countries such as open trade facilitation centers equipped with Internet-connected computers to assist and train users or apply customs single window … to improve the qualification of customs From that, reducing document preparation time, border compliance time… CONCLUSION The global pattern of trade and specialisation in production is heavily influenced by transaction costs or trade costs They limit the extent to which countries can profitably engage in specialisation by comparative advantage One more reason trade costs matter in terms of the post-2015 development agenda is that they affect national trade and income performance, including in poor countries Net effects, as well as distributional issues, are both important from the perspective of sustainable and inclusive growth This section examines the ways in which trade cost reductions can be associated with changes in trade flows and national incomes Import-export have important role in Vietnam’s economy development Transaction costs tend to decrease but remain high compare with other countries in the region (Singapore, Thailand) In order to continue impression by state economic growth, Vietnam needs to pass challenges to reduce transaction costs by different ways such as reforming its regulatory environment and legal framework and, equally important, improving the infrastructure for the transportation and logistics sectors, …Well-designed aid-for-trade interventions can be effective in reducing trade costs in areas that partner countries and donors agree are priorities, such as infrastructure, trade facilitation and non-tariff measures like product standards There are positive reasons to believe that Vietnam is taking the area of trade costs seriously and that action in this area builds from solid practical and theoretical foundations REFERENCES The Science of Algorithmic Trading and Portfolio Management DOI: http://dx.doi.org/10.1016/B978-0-12-401689-7.00003-9 © 2014 Robert Kissell Published by Elsevier Inc David Bywaters, (2012), the role of transaction costs in economic growth, at: https://www.researchgate.net/publication/292975520 Frauke Eckermann, Alistair Hunt, Marcus 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Bureaucracies: A Transaction Cost Economics perspective, Journal of Law, Economics & Organisation, Vol 15, No.1 18 Vietnam General Customs Organization, https://www.customs.gov.vn/default.aspx 19 General Customs Department, 2015, Final result of negotiating TFA HCC-WTO, 2014, Trade Facilitation Agreement of WTO and its roles to Vietnam, at: http://www.hoinhap.org.vn/tin-tuc/tin-trong-nuoc/8044-hiep-dinh-thuan-loi-hoathuong-mai-cua-wto-va-vai-tro-cua-no-doi-voi-viet-nam.html General Statistics Office of 20 Vietnam, https://www.gso.gov.vn/Default.aspx?tabid=217 21 Doing Business Report, at: http://www.doingbusiness.org/reports 22 WTO Database, 2018, Notification Status of Vietnam, at: at: https://www.tfadatabase.org/members/viet-nam 23 WTO Database, Detailed Notification Breakdown of Vietnam, at: https://www.tfadatabase.org/members/viet-nam/measure-breakdown ...Hanoi, 2019 MIMISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS ANALYSIS OF TRANSACTION COSTS IN INTERNATIONAL TRADE AND PRACTICE IN VIETNAM Major: International Economics... BACKGROUND OF TRANSACTION COSTS 1.1 Definition of transaction costs 1.1.1 Definition of transaction costs according to economits’s viewpoint What are the transactions and what are the transaction costs? ... exporting firms in practice The objectives of the thesis are analysis the overview of transaction costs and the important of transaction costs in trading growth in whole economy, particular in exportation;