Vietnam – EU Free Trade Agreement: Mixed Blessing

Since the establishment of diplomatic relations in 1990, especially after the signing of the Framework Agreement on Cooperation in 1995, the relations between Vietnam and the EU have thrived in many aspects. The EU has become a leading economic partner of Vietnam. In the past 11 years, the two-way trade turnover between Vietnam and the EU has expanded 5.9 times from US$ 4.1 billion in 2000 to US$24.29 billion in 2011. Particularly, Vietnam’s export to the EU increased 5.9 times to US$16.5 billion and its imports from the EU also leaped 5.9 times to US$7.74 billion. In the first three months of 2012, Vietnam exported US$4.34 billion worth of goods to the EU, up 25 percent year on year, while spending US$1.8 billion on imports from the EU, up 18 percent. But, according to Mr Jean Jacques Bouflet, EU Minister Counsellor in Vietnam, Vietnamese enterprises have not yet made good use of support policies and tax reductions; thus, their imports to the EU are still facing many challenges and barriers.

 

VCCI - HCM Director Vo Tan Thanh said negotiators together with relevant authorities of Vietnam and the EU have completed preparatory stages for Vietnam - EU FTA negotiations. Once the agreement is signed, it will bring the bilateral trade and investment relations to a new plane, create the framework for cooperation, and help businesses anticipate opportunities and challenges in developing marketing strategies with clearer orientations.

 

In recent years, the EU's policies applied to Vietnam, despite many positive changes, are still less favourable than ACP (African, Caribbean and Pacific) countries, underdeveloped countries (countries given Generalized System of Preferences tariffs at almost zero percent on all items). At present, the EU has signed the FTAs with South Korea, Chile, Mexico and Caribbean countries but they are yet to be effective. Only three FTAs between the EU and Colombia, Peru and Central American countries already took effect. It is now negotiating FTAs with Ukraine, Canada, Mercosur states, Gulf countries, India, Singapore and Malaysia. It is considering FTA negotiations with Russia, Japan and some East European countries. In the ASEAN bloc, the EU offered more incentives for the five most developed countries (Singapore, Thailand, Indonesia, Malaysia and the Philippines) which it recognises as market economies. Speaking of FTA opportunities, Mr Tran Ngoc Quan, Deputy Director of European Market Department under the Ministry of Industry and Trade, said, the agreement would lower EU tariffs, particularly on Vietnam’s key exports like apparels, seafood and footwear, while slashing Vietnam’s duties on imports from the EU. Accordingly, Vietnam will import cheaper high-quality goods and services from the EU which will help local economies to enhance competitiveness in the long term.

 

According to experts, as Vietnam’s exports to the EU are mainly raw materials and commodities like foods, fruits, vegetables and seafood, a domino effect will appear if some commodities are found violating food safety requirements. The EU applies very high technical, hygiene and quality requirements to products and not all companies satisfy them. For example, many residue requests from the EU cannot be performed by some labs. And, annually, the block grants export permits to seafood exporters.

 

Once the FTA is signed, Vietnam’s service sectors will confront their biggest challenge because of the EU’s inherent advantages in service supply. However, coupled with potential challenges are huge opportunities, especially the manufacturing sector will benefit from competition in service and logistics industries. In future trade, logistics will play an important role in improving the competitiveness of manufacturing enterprises. Negotiations will be based on WTO practices and regulations. At present, Vietnam’s offering version in WTO is relatively open, even more open than the EU’s current service market requirements in some aspects. If Vietnamese enterprises are confident enough, they can explore the EU market and supply Vietnam’s advantageous services like manpower supply, nursing service supply, etc.

With the Vietnam - EU FTA, both Vietnamese and EU enterprises will enjoy benefits. But, they will also encounter competitive disadvantages and market sharing in the wake of tax cuts. According to Mr Quan, despite opportunities or challenges from FTA, the decisive factor is the activeness and competitiveness of enterprises. Hence, Vietnamese businesses must prepare suitable preparations and roadmaps before the FTA is signed.

 

Basically, in the long term, Vietnam will enjoy FTA opportunities with the EU through mutually supplemented economic structure. Vietnam's position will be heightened when it shifts to partnership. Especially, opportunities come from the promising ASEAN - EU free trade area where capital and goods are liberalised. But, in the short term, favourable external factors may not be improved much because the EU still faces difficulties, especially the euro zone crisis. Therefore, Vietnam’s exports to this market face a high risk of serious declines.

To lesson difficulties facing enterprises, the Ministry of Industry and Trade is working with the European Commission (EC) on barriers Vietnam may face, step up promotion activities, and disseminate regulations, market opportunities and FTA negotiations with the EU, with development difference taken into account.