EVFTA - Driving Force for Supply Chain Development

9:11:09 AM | 24/9/2020

EVFTA is the most comprehensive and ambitious trade and investment agreement that the European Union has ever signed with a developing Asian country. This trade pact has a positive impact on competitiveness enhancement and market development. However, more than the elimination of import taxes, EVFTA is also the driving force for supply chain development in the coming time.

Vietnam and the EU are considered to be two supportive and complementary markets. EVFTA, which took effect from August 1, 2020, has created opportunities for Vietnam not only to promote trade and investment, but also to form a new supply chain.

Mr. Luong Hoang Thai, Director of Multilateral Trade Policy Department under the Ministry of Industry and Trade, said, as one of the first developing countries in the region to have an FTA with the EU, Vietnam is well-positioned to become a destination of choice for new supply chains. EU investors are capable of accessing and sharing advantages in global value chains such as technology, data, information, skills and networks. This is also an opportunity for Vietnam to develop new supply chains.

In addition, given tax preferences, EVFTA will bring many opportunities for Vietnam's import and export. According to CEL Consulting, a supply chain management training and consulting company, more imports from the EU are expected to be shipped to Vietnam. Tax cuts and simplified administrative procedures will attract new EU companies to the Vietnamese market, thus providing more options for Vietnamese consumers on the one hand and significantly boosting capital investment on the other. This will support local infrastructure and develop employment in areas where Vietnam still needs to catch up: sustainable energy, information systems, logistics, cold supply chains, advanced manufacturing technology and recycling. These areas can be supported by the EU's fund.

Moreover, also according to CEL Consulting experts, EVFTA also stimulates enterprises to apply high technology, adopt long-term investment strategies, and link together to create a closed supply chain. In fact, tough requirements will invite companies to reinvent in supply chains, upgrade standards, identity, and transparency. Besides, they will have more specialized production capacity, more advanced logistics infrastructure, faster and more integrated processes, more sustainable agriculture, and better environmental protection - the things that EVFTA aims for. No one can deny the benefits of such progress for Vietnam.

In addition, the emphasis on rules of origin, one of the core conditions for tariff elimination, will have a positive and profound impact on Vietnam's industrial development. Vietnam is shining with its current manufacturing sector because it can assemble products (footwear, garment and electronic products) with imported parts (apparels, batteries, wood and electronic components). Rules of origin attract companies to invest more deeply in supply chains - more domestically produced materials and components supplied to large-scale assembly plants will be developed in the future, enabling Vietnam to be more self-reliant and resilient as a result.

According to CEL Consulting, Thailand has gone beyond pure assembly and successfully developed a domestic supply base, especially in electronics and automotive sectors - enabling it to be very competitive even when labor costs increase. This agreement will help Vietnam build a more integrated, deeper and more efficient domestic value chain and create more qualified jobs for workers at the same time.

Not only that, EVFTA places an unprecedented emphasis on sustainability. The EU will also encourage Vietnam to innovate or co-innovate to minimize environmental impacts of products and their supply chains. Reducing plastic use, not using chemicals in vegetables and fish processing, preferring air transport to sea transport, not treating animals badly and encouraging recycling and water conservation will all help Vietnam transition to a circular and sustainable economy.

According to Julien Brun, CEO of CEL Consulting, EVFTA brings many new opportunities for companies in Vietnam to provide goods and services to the EU. Given the importance of the EU market to Vietnam's export profile, new benefits of this agreement will surely increase the competitiveness of Vietnamese businesses in Europe. Apart from competition, Vietnam should see this as an opportunity to improve industrial capacity and move toward more efficient, more integrated and more sustainable supply chains.

By Thu Ha, Vietnam Business Forum