State by State: Vietnam and Illinois Trade

By Andrew Salzman, Charles Small, and Phuong Anh Chu, Dezan Shira & Associates

As the 5th most populous state in the U.S, Illinois is the economic engine of the Midwest region and a hub for global commerce. The state owns the third largest intermodal port in the world, after Hong Kong and Singapore. As the state of innovation, Illinois is home to 32 Fortune 500 companies, involved in everything from agribusiness to life sciences, aerospace and financial services. In 2013, the GDP of Illinois was US$720.7 billion and ranked 5th in the U.S.

Vietnamese Exports Leading The Way

Imports from Vietnam to Illinois shot up 70 percent from 2013 to 2014, reaching a total of US$2.32 billion and making Vietnam the eighth most important exporter to Illinois by value. This figure, over five times the level of imports in 2011, represents a booming interest in Illinois for Vietnamese products, and exceeds the already impressive growth of Vietnamese imports to the United States – U.S. goods imports increased 21.6 percent from 2012 to 2013. In comparison, Illinois’ exports to the entire ASEAN region, in which Vietnam is a constituent member state, reached US$2.6 billion in 2013. The balance is clearly in Vietnam’s favor.

RELATED: State by State: ASEAN and Illinois Trade

With the Trans-Pacific Partnership under negotiation, Illinois is posed to continue receiving a wave of Vietnamese exports. As the U.S. remains Vietnam’s top textiles export market, Vietnam is set to benefit from a reduction in U.S. tariffs on man made fiber shirts, which faced an average rate of 32 percent in 2013, and women’s synthetic fiber pants, which had an average 27.1 percent rate. In 2014, Vietnam was the origin of 9.3 percent of the U.S.’ textile imports, almost half of the ASEAN total.

The benefits of trade relations are of course not all one-way: Illinois’ top exports to ASEAN are agriculture and related products, reaching $0.7 billion in 2013. These could also benefit from the Trans-Pacific Partnership, as average tariffs on corn imports from the US were 30 percent in 2012, and tariffs on frozen beef were 15 percent.

RELATED: State by State: China and Illinois Trade

Low labor costs, deep water ports and transportation infrastructure bring Vietnam-manufactured products from the factory floor to an Illinois door in a matter of weeks. The development of this infrastructure does not only benefit Illinois firms using it to extract products from Vietnam, but also Illinois companies involved in infrastructure development. This includes the Illinois-based global giant Caterpillar, which distributes its machinery in Vietnam through Phu Thai Industries.

High-Level Strategic Partnership

The success of the bilateral relationship has caught the eye of policymakers. In May 2013, Ambassador Nguyen Quoc Cuong paid a working visit to Missouri and Illinois to promote ties between Vietnam and the Mid-west of the U.S. The Ambassador conveyed a message on great potentials for solidifying U.S.-Vietnam ties, particularly in economic, trade and investment cooperation as Vietnam and the U.S. negotiate the Trans-Pacific Partnership.

How to Make the Most of Vietnam

For Illinois firms to take advantage of Vietnam as a source of imports to the home state, a local presence is advisable.

RELATED: How to Establish a Trading Company in Vietnam

The Representative Office approach gives the presence necessary for supervising distribution lines and product quality control, and is best for those needing a presence for conducting marketing activities on behalf of the parent company. For those who would be directly involved in the import and export of goods, and potentially distribution within Vietnam, a Trading Company is the way to go. As the establishment procedures can take several months, and granting of the necessary investment certificate and distribution license is not guaranteed, it pays to have local experts guide you through the process.

Import and Export: A Guide to Trade in Vietnam
In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.

Using Vietnam’s Free Trade & Double Tax Agreements
In this issue of Vietnam Briefing we explore how Vietnam’s Free Trade Agreements – and especially those via its membership in ASEAN – will affect foreign investment into Vietnam. We also go a step further and examine the specific, bilateral Double Tax Agreements that Vietnam has enacted, and how these can be further used to minimize profits and withholding taxes that would otherwise be levied upon foreign investors.

Developing Your Sourcing Strategy for Vietnam In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.

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