EVFTA - Historic Milestone in Vietnam-EU Cooperation

9:34:42 AM | 9/9/2020

The EU-Vietnam Free Trade Agreement (EVFTA) came into force in the context that COVID-19 continues to take a toll on the global economy, including Vietnam and the EU. The pact is expected to be beneficial for both the Vietnam and EU economy, and acts as an important factor to nurture opportunities for economic recovery. Vietnam Business Forum has the honor of introducing an article by Mr. Giorgio Aliberti, the EU Ambassador to Vietnam, regarding this historic pact.

This year witnesses the relationship between the EU and Vietnam growing closer than ever. The two sides just ratified the EU-Vietnam Free Trade Agreement (EVFTA), which will bring our bilateral relations to an all-time high. The agreement came into force in the context that COVID-19 continues to take a toll on the global economy, including Vietnam and the EU. Undeterred by the pandemic, the governments in Vietnam and EU member States have strengthened their commitments to promote economic growth and to strengthen investment, as well as trade cooperation between the two sides.

Obviously, the trade agreement is an historic milestone in the EU-Vietnam cooperation. It is expected to be beneficial for both the Vietnam and EU economies. Especially for Vietnam, from day one of the effectiveness of the agreements the reduction in tariffs are in some cases very significant at approx. 25% and applicable to 65% of EU exports to Vietnam, and 71% of EU imports from Vietnam. Almost all other tariffs will be eliminated after 10 years. Any reduction in and elimination of tariffs will act like an effort to restart and boost economic development post COVID-19. Therefore, the EVFTA will be an important factor to nurture opportunities for economic recovery.

The bilateral removal of tariffs and of import taxes and the reduction of non-tariff barriers (NTBs) will help to boost trading across borders. By some estimates, export value by EU companies will be increased by €8 billion by 2035, while exports by Vietnam by €15 billion. According to an economic impact analysis conducted in 2018, exports by Vietnam to EU will increase 18% annually. However, these figures cannot reveal all other social and economic benefits the agreements will bring for both sides.

We all know that FDI often follows strong trade relations. More FDI on its turn will further boost the trade potential between partners. In its amazing process to become a middle-income country, Vietnam realized that without more FDI, it will face constraints in becoming a regional hub and an integral part of global value chains.

Together with EVFTA and EVIPA, the current disruptions of global value chains (GVCs) can be opportunities to reshape the trade and investment cooperation of Vietnam. Vietnamese businesses may like to consider if they can diversify the GVCs and their participation in such chains. Vietnam can become more diversified and less vulnerable to similar shocks in the future. 

On the grounds of new trade and investment agreements with the EU, the choice of European partners will become obvious and will open opportunities for Vietnamese manufacturers. This will bring more opportunities and more advantages for local start-ups and SMEs to grow and become global companies.

It is both a possibility and hope that the agreement will activate a new wave of FDI from the EU into Vietnam. European companies will bring high skills and long-term experiences on efficient management, governance, and technology to Vietnam.

European FDI will be accompanied with higher standards in corporate social responsibility regarding labour and environment. It will enable Vietnam to spur economic growth, to create more decent jobs and to ensure sustainable development. Such spill-over impacts are necessary for economies like Vietnam to overcome the middle income trap.

We expect that the understanding among enterprises, business associations, policy makers in Vietnam and also in EU about the EVFTA will be boosted to figure out actions to best utilize EVFTA to support Vietnam to benefit from further integrating into the GVCs post-COVID-19 and for the mutual benefits of Vietnam EU cooperation.

Source: Vietnam Business Forum