EVFTA – Door Open Wide to EU Market

3:02:32 PM | 21/2/2020

“This is a golden opportunity to accelerate the shift of global value chains, but competition is also intense. In theory, competition in EVFTA will be more complicated in the areas where Vietnamese and EU businesses confront each other,” Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said in an interview on advantages and hardships for the business community on the occasion of the EU - Vietnam Free Trade Agreement (EVFTA) and the Investment Protection Agreement (EVIPA) being adopted by the European Parliament (EP) on February 12, 2020.

As a new generation free trade agreement (FTA), the EVFTA is considered a “highway to the West” that leads Vietnam to a broader market space which ranks top in the world by finance, technology and market. What do you think about the EVFTA adopted by the European Parliament?

While the COVID-19 epidemic is exerting a strong impact and the EVFTA is approved, Vietnam will surely step up efforts to restructure the economy and expand market space to enhance autonomy, reduce dependence on neighboring markets and open up a golden opportunity to accelerate the shift of global value chains.

The EP’s adoption of EVFTA and the EVIPA, expected to be ratified by the National Assembly of Vietnam in the upcoming gathering, is a new milestone on the reform and integration course of the Vietnamese economy.

With this ratification, the European Union (EU), a market where the highest standards in the world are applied, officially acknowledges Vietnam’s efforts to reform, build and develop a sustainable market economy and expresses its increased cooperation with Vietnam.

The EVFTA is an important agreement because the EU is a high potential market. Could you please tell us about its practical benefits?

Its benefits are weighable, measurable and countable. For example, the EU will immediately remove 85.6% of tariff lines, which will add competitiveness for 70.3% of Vietnam's exports to this market, while Vietnam will exempt 48.5% of tariff lines, equivalent to 64.5% of imports from the EU, which will help reduce input costs for manufacturing industries, lower prices of goods and services, and open a new flow of trade between Vietnam and the second largest consumer market in the world.

With a deep and comprehensive level of commitment and the high complementarity of the two economies, the EVFTA will generate huge benefits to both sides. The adoption of the agreement is an opportunity for Vietnam to expand its market share and increase its export value. Within seven years, 99% of tariff lines will be exempted. It is clear that Vietnam's price competitiveness will be very good. Furthermore, Vietnam will have access to source technology and develop supporting industries.

The ratio of export duties imposed on Vietnamese goods in the EU will be 73.2% and 100% after three years and seven years since the EVFTA Agreement comes into effect, respectively. The EU will eliminate tariffs on 86.5% of Vietnam's seafood within three years, 90.3% within five years and 100% within seven years. The EU will give tariff rate quotas of 11,500 tons of canned tuna and 80,000 tons of rice to Vietnam (including 30,000 tons of milled rice, 20,000 tons of unmilled rice and 30,000 tons of fragrant rice). In particular, the EU will completely liberalize broken rice, in which some rice products will be levied zero tax after a given time.

After seven years from the effective date of the agreement, the EU will eliminate import duties on 99.2% of tariff lines, equivalent to 99.7% of Vietnam's exports to this block. For the remaining 0.3% of exports, the EU is committed to giving Vietnam a tariff rate quota (TRQ) in which the import duty will be zero.

By taking advantage of opportunities, Vietnamese businesses will have more competitive advantages in the EU market to significantly increase exports, especially in areas where Vietnam has strengths, and get tariff preferences such as garment and textile, leather and footwear, agricultural and seafood products.

In addition, in the context of extremely complicated trade tensions between countries, the EVFTA will help Vietnamese businesses to diversify markets and partnerships, and build a stronger foothold in the very large EU market. Vietnamese people will also gain access to goods and equipment that Vietnam does not have.

In addition to trade flows, investment flows and technology transfers will help upgrade “made in Vietnam” or “made by Vietnam” stages in global value chains that Vietnam is currently striving to join.

With the participation of European partners, Vietnam expects that the added value and technological content of production stages in Vietnam will increase.

Furthermore, its efforts to reach international standards on national governance and corporate governance, labor and environment will also create new energy sources for Vietnam's sustainable development strategy.

Of course, Vietnam will have to make efforts to increase production capacity, effectively restructure industries, and particularly carry out a series of measures in line with EVFTA commitments like legal reforms to meet environment, sustainability and employment obligations.

In general, the economic structures of Vietnam and EU countries are complementary and mutually supportive. So, there is little direct competition. However, competition will still be huge. For you, what sectors will be highly competitive?

Intense competition will only be in some areas where Vietnam is still weak and the EU is very strong such as livestock, food processing, pharmaceutical, transport means, chemical and logistics. Nonetheless, this is not too worrying because market opening commitments in EVFTA are moderate, together with a long enough roadmap and residence of domestic businesses.

Fair competition must be upheld by local companies in the integration period. They should not continue to rely on protectionism. In practice, our highly competitive industries and fields are saying “no” to protectionism and are bravely opening and integrating.

With tariff preferences and EU competitiveness, Vietnamese companies will certainly face high pressure.

It is important to restructure operations of Vietnamese businesses, and ensure the effective competition of Vietnamese businesses, even in areas where there is direct competition with the EU.

How do businesses need to prepare to effectively tap the EVFTA?

First of all, businesses must learn about commitments, challenges and opportunities related to their industries and fields to reposition themselves and restructure markets, customers and supply sources to take advantage of EVFTA opportunities.

Then, they must accelerate efforts and upgrade the competitiveness of their business models, strategies, management, human resources, product and service quality according to European standards. Without a sustainable competitiveness foundation, successful integration would be impossible.

To reach out to the world market, they must stand firm on their own land. While making inroads into the EU and the vast world market, they should not forget the domestic market. Nearly 100 million people in an emerging economy will be a platform for Vietnamese businesses to move to the world market.

In particular, the business community needs to work closely with Government agencies in EVFTA implementation efforts. While coordinating with business associations to inform and guide companies about the EVFTA, the institutional preparation is the most important for the government.

To improve the institutional capacity for integration, the country necessarily conducts legal reforms to ensure compliance with commitments to grab opportunities. Deeper institutional reforms than commitment will open up development space for Vietnam's economy.

Institutional reforms must help strengthen fair, transparent competition platforms and sustainable development to ensure harmonization of economic, social and environmental objectives; support micro, small and medium enterprises; promote the development of supporting industries and create a mutually beneficial ecosystem for FDI and domestic enterprises. There are a lot of things to be done to promote integration.

The key to successful EVFTA integration in particular, and international economic integration in general, must be the government’s efforts to reform institutions, upgrade corporate governance and improve corporate competitiveness.

Thank you very much!

Vietnam’s commitments to open the market

Vietnam is committed to eradicating 48.5% of tariff lines on EU goods, equivalent to 64.5% of the latter’s exports to the country, right after the EVFTA takes effect.

Within seven years after the effective date of the EVFTA, Vietnam will exempt 91.8% of tariff lines, equivalent to 97.1% of EU exports to Vietnam.

Within 10 years, Vietnam pledges to remove 98.3% of tariff lines, equivalent to 99.8% of EU exports to Vietnam.

As for 1.7% of remaining tariff lines, Vietnam vows to spend tariff rate quotas such as WTO commitments, or apply a special exemption roadmap (such as cigarettes, gasoline, beer, and automobile/motorbike components).