Brazil President, Vietnam PM Talk Trade on G7 Sidelines

The leaders of Vietnam and Brazil have discussed negotiating a free trade agreement. We look at what such an agreement might entail and provide an overview of trade between Vietnam and South America’s biggest economy.

Vietnam’s Prime Minister Pham Minh Chinh met with the President of Brazil, Lula Da Silva, in Japan earlier this week on the sidelines of the G7 Summit. The two leaders, among other things, discussed two-way trade and the possibility of Vietnam signing a free trade agreement (FTA) with the South American Common Market (MERCOSUR).

MERCOSUR, which comprises Argentina, Brazil, Paraguay, and Uruguay as full members, along with associate states Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname, represents a significant trading bloc. Venezuela had full membership before it was suspended in 2016.

By entering an FTA with MERCOSUR, Vietnamese businesses and manufacturers could gain increased access to this sizable market, fostering greater trade and economic cooperation between the two regions. It would also align with growing interest in increasing South-South trade among the world’s emerging economies, led by organizations of developing states like the BRICS (Brazil, Russia, India, China, South Africa) grouping.

The South-South trade movement is gaining momentum as countries recognize the mutual benefits of enhanced trade relations within these regions. An FTA between MERCOSUR and Vietnam would not only deepen economic ties but also foster greater collaboration, knowledge-sharing, and technological advancements. It would promote a more balanced and inclusive global trading system, benefiting both parties involved while contributing to the overall growth and development of emerging economies.

As it stands, the only South American country with which Vietnam has a free trade agreement is Chile. This is through the Vietnam-Chile FTA and the CPTPP arrangement, of which they are both members.

But though both leaders agreed a free trade deal between Vietnam and the South American trading bloc should be on the agenda moving forward, free trade agreements can take some time to develop, and a deal may not be forthcoming in the immediate future.

In the meantime, trade between Vietnam and Brazil continues to expand in several key areas.

Vietnam’s imports from Brazil

Bilateral trade between Vietnam and Brazil topped US$6.7 billion last year. A phenomenal figure for two countries on almost entirely opposite sides of the world. These two economies are in many instances complimentary, with Brazil a well-developed agricultural economy and Vietnam at the heart of global manufacturing. With this in mind, Brazil’s key exports to Vietnam are mostly agricultural.

Vietnam’s imports from Brazil in 2022, by value

Source: The Vietnam General Department of Customs

Animal fodder and animal fodder materials

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Vietnam imports a huge volume of animal feed and fodder from around the world to power its growing agriculture sector. With rising wages and a booming middle class, demand for animal products is on the rise and that means demand for animal feed and fodder too.

Countries with lots of land and well-developed agricultural sectors, like Brazil, are well poised to benefit from this increasing demand.

See also: Vietnam’s Agricultural Sector: Rising Star in Food Production

Cotton

Vietnam has become a manufacturing powerhouse for apparel and garments over the last decade or so. But all of those t-shirts and jeans take a huge volume of cotton. Unable to produce enough cotton to service its booming clothes industry, Vietnam imports tons of cotton each year. Brazil is just one of many key cotton-producing nations that it often utilizes.

See also: How Vietnam Became the Biggest Importer of Australian Cotton

Soya beans

Soy is incredibly popular in Vietnam, and Asia more broadly for that matter. Tofu is regularly used in Vietnamese cuisine along with soy oil. Furthermore, soybeans are often used as animal feed.

Vietnam’s exports to Brazil

As a manufacturing powerhouse for some of the world’s biggest brands like Samsung and LG, Vietnam’s main exports to Brazil are mostly electronics.

Vietnam’s exports to Brazil 2022, by value

Source: The Vietnam General Department of Customs

Telephones, mobile phones, and parts thereof

The cost of production in Vietnam compared to many other countries is considerably low, making it an attractive location for manufacturing electronic devices. This helps to keep the prices competitive, which is important in a highly competitive industry like mobile phones.

Brazil is a growing market for mobile phones, and the demand for high-quality, affordable devices is increasing. This rising demand has proven beneficial for mobile phone makers in Vietnam.

Computers, electrical products, spare-parts, and components thereof

Like telecommunications technology, Vietnam produces a broad range of other electrical products. This is in large part due to its low-cost labor force, but also its proximity to the design and innovation hubs of South Korea and Japan.

As a key link in electronics supply chains, often the last link, electronics exports from Vietnam have risen a lot in recent years to other parts of the world, including Brazil.

See also: Semiconductor Manufacturing in Vietnam vs Taiwan

Other means of transportation, parts, and accessories thereof

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Vietnam’s manufacturing industry goes well beyond simply electronics and apparel. It is also a key supplier of parts and accessories for a broad range of industries including transportation. In 2022, it shipped more than US$247 million worth of these goods to Brazil.

The future of Vietnam-Brazil trade

Vietnam and Brazil have had a long and fruitful trading relationship. With over US$6 billion worth of goods exchanged between the two countries in 2022, it is fair to say that trade between the two countries is flourishing.

However, more can be done to drive trade even higher. A free trade deal between Vietnam and MERCOSUR could provide a broad range of opportunities for all parties involved. This may take some time to develop, but with impetus on both sides, it may not be too far off.

For support understanding importing and exporting goods and services to and from Vietnam, contact the trade experts at Dezan Shira and Associates at: vietnam@dezshira.com

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