Vietnam - EU Free Trade Agreement: Expectations and Challenges

Roadmap to official signing

On December 1, 2015, the EVFTA officially concluded negotiations and on February 1, 2016, the text of the agreement was published. On June 26, 2018, the EVFTA was split into two agreements, one on trade and one on investment. In August 2018, the two sides officially announced the completion of the legal review of the Trade Agreement (FTA) and the Investment Protection Agreement (now called IPA).

On the afternoon of October 17, 2018, local time, the European Commission submitted the Vietnam - EU Free Trade Agreement and the Investment Protection Agreement to the European Council for consideration and authorization to sign, with the expectation that by the end of 2018, the Agreement will be officially signed and submitted to the European Parliament for ratification in early 2019. On the afternoon of October 17, 2018,

The European Commission held an official press conference to announce this positive news and affirmed its commitment to promoting the implementation of this Agreement as soon as possible.

On October 19, 2019, on the sidelines of the ASEM Summit in Brussels, Minister of Industry and Trade Tran Tuan Anh and European Trade Commissioner Cecilia Malmstrom issued a joint ministerial statement on the EVFTA. The joint statement welcomed the European Commission's submission of the agreements to the European Council for consideration and approval. The joint statement emphasized that these agreements will open up new export and investment opportunities for European and Vietnamese businesses, while also paying special attention to workers' rights and environmental protection.

The European side is rushing to translate the contents of the two agreements into 24 European languages, while speeding up the procedures before officially signing the EVFTA.

EVFTA - New expectations and challenges for Vietnam

The agreement is expected to bring unprecedented benefits to businesses and people in Europe and Vietnam. The agreement will help European companies gain priority access to a market of more than 92 million consumers, increase investment, create more jobs, and promote trade with one of the most dynamic economies in Asia; Vietnamese exporters will also have easier access to Europe…

Exporting clothes to Europe. Photo: Internet

The EU is currently the third largest trading partner and one of the two largest export markets of Vietnam. The import and export structure between Vietnam and the EU is highly complementary, with little direct competition. Two-way trade turnover has increased more than 12 times, from 4.1 billion USD in 2000 to more than 50.4 billion USD in 2017; of which Vietnam's exports to the EU increased 13.6 times (from 2.8 billion USD to more than 38.3 billion USD) and imports from the EU to Vietnam increased more than 9 times (1.3 billion USD to 12.1 billion USD). Vietnam's main export groups to the EU are footwear, textiles, coffee, wooden furniture, and seafood.

Shrimp is Vietnam's main export item. Photo: Internet

The EU is also a major investor in Vietnam. As of 2017, 24 out of 28 EU countries have invested in Vietnam with about 2,000 valid projects, with a total registered investment capital of more than 21.5 billion USD. The European Chamber of Commerce in Vietnam (Eurocham) emphasized: As soon as the agreement comes into effect, Vietnam will eliminate 65% of import tax on exports from the EU. The remaining tax lines will be gradually removed over the next 10 years. 99% of tariffs on goods traded between the two sides will be eliminated. A 0% tax rate will be applied to export products that both sides have strengths in, such as textiles, footwear, seafood, tropical agricultural products, wooden furniture, etc. from Vietnam and automobiles, machinery and equipment, beer, pharmaceuticals, temperate agricultural products, etc. from Europe (EU).

The Free Trade Agreement includes provisions to address existing non-tariff barriers in the automotive industry, as well as geographical indication protection for 169 European food and beverage products in Vietnam. Overall, the EVFTA will help Vietnam’s GDP increase by 10-15% and increase Vietnam’s exports to the EU by 30-40% over the next 10 years. High-quality capital flows are forecast to flow into Vietnam, and products with European quality standards will be exported with clear origins.

When implemented, the EVFTA will especially remove tariffs, promote investment, promote mutual recognition of standards, improve rules of origin and certification of origin; improve the trade facilitation environment - provide technical support to increase awareness and apply EU market standards... At the same time, the EU will invest in high-tech agriculture, a potential field that many businesses are looking forward to, in which, in addition to focusing on capital, it will also promote the transfer of high technology in the production and processing of agricultural products and food.

Vietnam is facing the opportunity to become a transit area, a gateway for EU trade and investment activities in the Asian region. The investment that EVFTA directs to Vietnam is not only aimed at manufacturing, export and import, but also telecommunications & information technology services, architecture & technical consulting, environmental services. When developing these services to international standards, Vietnam will accelerate on the integration highway, by: (1) Opening a channel to mobilize international investment capital; (2) Shifting the economic structure; (3) Promoting technology transfer; (4) Supplementing goods for the domestic market; (5) Expanding export, import and international integration; and (6) Creating a transition process from a country with a low-skilled to a high-skilled workforce.

Dr. Nguyen Minh Phong