Japanese Crown Prince in Vietnam to Strengthen Bilateral Relationship

Japanese Crown Prince Akishino is currently visiting Vietnam to mark the 50th anniversary of diplomatic relations with the burgeoning Southeast Asian nation. With this in mind, the Vietnam Briefing takes a look at how the relationship between these two nations has developed with respect to trade and investment.

Japanese Crown Prince Akishino touched down in Vietnam earlier this week on a tour of the Southeast Asian nation to celebrate 50 years of diplomatic relations. Accompanied by Crown Princess Kiko, it’s the first trip by a member of the Japanese royal family to Vietnam in six years.

The crown prince is yet another high-profile leader to visit Vietnam in the past 12 months. The President of the United States was here just two weeks ago, the Australian Prime Minister stopped by back in June, and German Chancellor Olaf Scholz was in Hanoi in November of 2022.

This is in line with Vietnam’s rising star as a key manufacturing hub in Southeast Asia among Western multinationals. Japan, however, has for a long time been utilizing Vietnam’s low-cost workforce and government incentives, with trade between the two countries reaching US$50 billion last year.

Indeed, the two countries have become highly integrated in both trade and investment over a long time, and with this in mind, Vietnam-Japan trade can offer valuable insights into how best to utilize Southeast Asia’s rising star.

Japan FDI projects and ODA in Vietnam

Japan has consistently ranked among Vietnam’s largest foreign investors for an extended period. In 2022, Japan secured the third position in terms of registered capital invested in Vietnam, contributing nearly US$4.8 billion distributed among both existing projects and 203 new ventures. These projects encompass various sectors, including manufacturing, services, and the energy industry.

Renowned Japanese retail brands, such as Muji and Uniqlo, are actively expanding their presence in Vietnam. This is driven by the steady growth of a discerning Vietnamese consumer market and a robust demand for high-quality Japanese products.

In addition to foreign direct investment (FDI) and market expansion, Japan stands as one of the leading providers of official development assistance (ODA) to Vietnam.

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Their support extends to various areas, including infrastructure development, human resource training, poverty reduction, healthcare, water drainage and wastewater treatment, wind power development, and institutional capacity building, among others. The Japan International Cooperation Agency (JICA) has disbursed over US$23.5 billion in financial aid, dispatched approximately 15,000 Japanese experts to the country, and trained 27,000 Vietnamese personnel since 1992. Additionally, MNCs like Mitsubishi are substantial providers of ODA to Vietnam.

See also: Japanese Retailers in Vietnam Continue to Expand: Here’s Why

Vietnam-Japan trade agreements

Vietnam and Japan have complementary economic structures and comparative advantages, which create opportunities for mutual commercial benefits. For example, Japan can supply high-quality and high-tech products, capital, and know-how to Vietnam, while Vietnam can offer raw materials, agricultural products, and consumer goods to Japan.

Further, the two countries can take advantage of their participation in various bilateral and multilateral trade agreements, which we briefly discuss below.

ASEAN-Japan Comprehensive Economic Partnership

The ASEAN-Japan Comprehensive Economic Partnership (AJCEP) covers trade in goods and services, investment, and economic cooperation. It was signed in December 2008.

Vietnam-Japan Economic Partnership Agreement (VJEPA)

In 2007, negotiations for an Economic Partnership Agreement (EPA) between Vietnam and Japan commenced. After nine formal discussion sessions, the VJEPA was officially signed by both parties on December 25, 2008. Subsequently, on October 1, 2009, this agreement came into effect. It’s important to note that this comprehensive economic agreement covers trade in products, services, investment, and economic cooperation, similar in scope to the AJCEP. Further, it operates in parallel with the AJCEP and does not supersede it.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP

On March 8, 2018, 11 countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP in Chile. The agreement represents 13.5 percent of the global economy, a total of US$10 trillion dollars, and 15 percent of the global trade revenue, equal to US$5 trillion. This agreement includes both Japan and Vietnam.

See also: CPTPP Signed: Opportunities for Vietnam’s Enterprises

Regional Comprehensive Economic Partnership

The Regional Comprehensive Economic Partnership (RCEP) agreement officially came into force on January 1, 2022, for Vietnam. This regional agreement promises to build on already existing agreements between its members to further enhance trade in Asia and Oceania. Countries party to the agreement include Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

Vietnam exports to Japan

Vietnam’s biggest exports to Japan in 2022 were textiles and garments; machine, equipment, tools, and instruments; other means of transportation, parts, and accessories thereof. These three groupings saw Japan handover a combined US$9.4 billion last year.

Vietnam exports to Japan in 2022, by value

Vietnam’s imports from Japan

Vietnam’s three biggest imports from Japan in 2022 were: computers, electrical products, spare parts, and components thereof; machines, equipment, tools, and instruments; and Iron and steel. Across these three categories of goods from Japan, Vietnam spent just over US$13 billion.

Vietnam’s imports from Japan in 2022, by value

Prospects for business growth

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The trade and investment relationship between Vietnam and Japan continues to strengthen every year.

Leading Japanese companies are establishing a significant presence in Vietnam, spanning various sectors from manufacturing to sales, providing clear evidence of the immense opportunities in this burgeoning Southeast Asian economy for Japanese firms.

As Crown Prince Akishino visits Vietnam this week, it is expected that the bilateral relationship between these two countries will further solidify.

With offices in Hanoi, Danang, and Ho Chi Minh City, Dezan Shira and Associates is well-positioned to assist Japanese firms in entering the Vietnamese market.

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