According to the Vietnam Logistics Report 2024 from the Ministry of Industry and Trade (MoIT), while free trade zones (FTZs) are a familiar model around the world they are still a relatively new concept in Vietnam. The country has, however, been steadily laying the groundwork for their development, by establishing small-scale zones like export processing zones, non-tariff areas within economic zones, bonded warehouses, and duty-free shops. With four export processing zones as of the end of 2023, Vietnam is gradually shaping its own path towards a more dynamic FTZ landscape.

Opportunities from local strengths

Vietnam’s strategic location and economic advantages position it as a prime candidate for developing FTZs. With a coastline stretching 3,260 km and proximity to major international shipping routes, Vietnam serves as a vital trade gateway connecting global markets. This geographic advantage allows for efficient import, processing, and export activities within FTZs, enhancing Vietnam’s role as a key player in global supply chains.

Situated at the heart of Southeast Asia, Vietnam enjoys close economic ties with major economies, including China, Japan, South Korea, and ASEAN nations. This connectivity facilitates seamless trade flows and strengthens Vietnam’s potential as a regional logistics and transshipment hub.

The country’s deep-water seaports, such as Hai Phong in the north, Da Nang in the central region, and Cai Mep - Thi Vai in southern Ba Ria-Vung Tau province, are fully-equipped to accommodate large container vessels, making them ideal locations for FTZ developments. Recent upgrades to road, rail, and air transport infrastructure further enhance the efficiency of Vietnam’s logistics network, ensuring smooth connectivity between industrial parks, ports, and export processing zones.

Recognizing these advantages, the Vietnamese Government has introduced a range of incentives to attract investment in FTZs. These include corporate income tax reductions, import duty exemptions for goods entering FTZs for production and trade, and VAT exemptions for goods and services consumed within these zones. Additional policies, such as land use incentives and preferential loan programs, further enhance Vietnam’s appeal among both domestic and foreign investors.

Its robust economic growth, coupled with its extensive participation in international trade agreements, provides a strong foundation for FTZ expansion. Vietnam is actively engaged in various free trade agreements (FTAs) with key global partners, including the EU, Japan, South Korea, and ASEAN, further integrating the country into the global economy and boosting its competitiveness.

Ba Ria-Vung Tau’s Cai Mep - Thi Vai port complex, one of Vietnam’s largest deep-water ports, has an annual capacity exceeding 18 million TEUs. The province is also home to major industrial parks and export processing facilities, reinforcing its role as a critical logistics and manufacturing hub.

Hai Phong, a leading northern economic center, similarly benefits from extensive industrial and export processing zones. Its strategic location and well-developed port infrastructure make it an attractive destination for international businesses looking to leverage Vietnam’s trade advantages.

Beyond these key locations, the MoIT has also identified northern Lang Son and southern Dong Nai and Binh Duong provinces as potential sites for the development of FTZs. Known for their strong economic performance and strategic locations, these provinces offer additional opportunities for expanding Vietnam’s FTZ network.

As the country continues to refine its economic policies and infrastructure, the development of FTZs presents a significant opportunity to enhance its trade efficiency, attract foreign investment, and solidify its position as a global trade hub.

Lack of mechanisms and resources

Despite the potential benefits, establishing and developing FTZs in Vietnam remains challenging. According to the MoIT report, Vietnam has yet to develop any FTZs, as the country’s legal framework is still to include regulations on investment approval procedures, establishment decisions, management models, operational mechanisms, or the governance structure for FTZs.

Meanwhile, Vietnam faces intense competition from regional countries that have already established well-developed FTZs, such as Singapore, Thailand, and Malaysia. These nations benefit from a comprehensive legal framework, modern infrastructure, and attractive incentive policies, which place significant competitive pressure on Vietnam in attracting investment and fostering FTZ growth. Additionally, their extensive experience in managing and operating FTZs further amplifies the challenge for Vietnam.

A key concern highlighted by the MoIT is the limited quality of human resources in the logistics and FTZ management sectors. Though Vietnam has a young and abundant workforce, its skill levels and professional expertise do not yet fully meet the demands of businesses operating within FTZs. Investing in workforce training and development is essential, to ensure that enterprises and investors can operate efficiently while enhancing the overall performance of FTZs.

Despite ongoing improvements, Vietnam’s logistics infrastructure still requires further investment, particularly in support services such as warehousing, cargo handling, and auxiliary services, to optimize FTZ operations. Enhancing transportation networks between key economic regions and FTZs is also crucial to ensure smooth and efficient goods movement, facilitating trade, and strengthening Vietnam’s position in the regional and global supply chain.

Finalizing the legal framework

The report suggests that developing FTZs in Vietnam requires concrete steps. First, it is essential to finalize the legal framework by formulating and issuing specific regulations on investment procedures and the establishment, management, and operational mechanisms of FTZs. Next, efforts must be made to enhance awareness, by promoting FTZs among regulatory bodies, businesses, and the public to highlight their benefits and opportunities.

Vietnam should also study and learn from the experience of countries that have successfully developed FTZs, such as the US, South Korea, the United Arab Emirates (UAE), China, Brazil, Singapore, and Panama. At the same time, pilot FTZ projects should be implemented in localities with potential to assess their effectiveness and learn lessons for future expansion. International cooperation should also be strengthened by signing new FTAs and economic partnership agreements to facilitate FTZ development.

According to Mr. Tran Thanh Hai, Deputy Director of the Agency of Foreign Trade at MoIT, one of the key challenges for FTZs in Vietnam is the regulatory framework and policies. There are no precedents for how FTZs should interact with regular economic zones and industrial parks, including governance structures, operational frameworks, and delegated authority. As a result, legal adjustments are needed, as there are currently no explicit regulations guiding the approval process for FTZ establishment.

Therefore, cities and provinces should proactively propose draft pilot mechanisms for FTZs through an amendment resolution for National Assembly (NA) approval. They should also seek input from relevant ministries regarding functional zones that align with their strengths. Policies should be established to provide incentives for investors, streamline customs procedures, and improve regulatory oversight, including licensing, labor permits, and zoning approvals.

At the same time, investment in modern transportation infrastructure, such as road networks, seaports, airports, and industrial facilities, should be prioritized. Cities and provinces should also explore ways to simplify customs and administrative procedures to reduce costs and processing times, thereby fostering investor confidence. Furthermore, policies should be developed to attract next-generation investment, focusing on high-tech industries, financial services, and environmentally-friendly industrial sectors.