How to Reap Benefits of EVFTA?

9:47:19 AM | 31/5/2021

Agricultural products, apparels and services are entitled to a lot of advantages from the EU - Vietnam Free Trade Agreement (EVFTA), according to the Ministry of Industry and Trade.

Data from the Multilateral Trade Policy Department (Ministry of Industry and Trade) showed that the EVFTA is expected to increase Vietnam's export value to the European Union (EU) by 42.7% in 2025 and 44.37% in 2030, as compared to the non-EVFTA scenario. Regarding Vietnam’s global exports, the value is expected to rise by an average of 5.21-8.17% in the first five years of enforcement, by 11.12-15.27% in the next five years, and by 17.98-21.95% in another five-year period.

Overall, the EVFTA will help diversify Vietnam's markets to reduce dependence on a single market, thus ensuring Vietnam's economic security.

According to the “Report on EVFTA impacts on listed industries and companies” released by SSI Securities Corporation, rice, fruit and vegetable, chemical, cashew, coffee, seafood and apparel products are expected to benefit from the EVFTA. The timber industry will receive light impact, while the dairy industry will be a little negatively affected.

Agricultural products

The Ministry of Industry and Trade forecast that, among agricultural products, rice will expand by 65% ​​by 2025, sugar by 8%, pork by 4%, forest products by 3%, meat by 4%, and beverages and tobacco by 5%.

The EVFTA will give a strong boost to Vietnamese seafood exports. However, there are a lot of short-term and long-term difficulties (input source, broodstock, illegal fishing and antibiotic) and high non-tariff barriers in the EU are very challenging.

Seafood exports to the EU will expand by an average of 2% a year in 2020-2030, while imports from the EU may grow higher (by 2.8%-5%).

The import tariff reduction will encourage rice companies in Vietnam to build a closed rice production model, improve quality and boost their brands globally. Before the EVFTA, import duties on Vietnamese rice were from 5-45%. According to the roadmap for tariff elimination under EVFTA, the rate will be slashed to 0%. In addition, import tariffs will be eliminated on broken rice after five years and rice-originated products after 3-5 years.

Before the EVFTA, Vietnamese vegetables and fruits exported to Europe enjoyed the GSP preferential tax rate but the tariff was still as high as 0-20%. According to the EVFTA implementation roadmap, tariffs for about 94% of the total 547 tax lines for fresh and processed vegetables and fruits will be slashed to zero. The EVFTA has no restrictions on the value and quotas of fruits and vegetables, as long as they meet all standards, including Global GAP and origin.

Processing and manufacturing

The Ministry of Industry and Trade estimated that the processing and manufacturing sector will expand by 67%, with textile by 67%, apparel by 81%, and footwear by 99%, as compared to that before EVFTA.

The textile and garment export value to the EU market will increase rapidly by about 67% by 2025 as compared to the non-EVFTA scenario. On output, the EVFTA will have a positive impact on output, with 6% for the textile industry and 14% for the garment industry by 2030. The pact will substantially expand leather footwear exports to the EU. The export growth to the EU is expected to double by 2025, with an increase in the leather shoe shipment by 34% and the output by 31.8%.

Before the EVFTA, Vietnam's textile-garment and leather-footwear exports to the EU were granted GSP preferences, with garment and footwear imports from Vietnam being imposed 9.6% duty and 11.9% duty, respectively. Most textile and garment products will be imposed zero tax according to the EVFTA’s 5-year roadmap (77.3% of the export value) or 7-year roadmap (22.7% remaining). Right after the EVFTA came into effect, most leather and footwear products were immediately reduced to zero tax.

For the electronics and computer industries, according to the EU's current tariff schedule, import duties on computers and electronic products will be almost 0% or below 10%. The EVFTA is also a driving force to attract FDI from the EU and other countries to Vietnam when the country has underdeveloped supporting industries and focuses on high-tech industries.

Regarding the machinery and parts industry, Vietnam is a large importer of machinery and equipment and the EU is the fourth-largest supplier of machinery and equipment for Vietnam. Therefore, Vietnam's removal of import tariffs on EU machinery and equipment will boost imports from this market. As EU machinery and equipment are more advanced than some other traditional markets, this could create an opportunity for Vietnam to improve its domestic production technology.

EVFTA commitments on pharmaceutical tariffs may not make any major changes in the near future for the export and import of pharmaceuticals between Vietnam and the EU. However, pharmaceutical commitments in other aspects will have a significant impact on the market and Vietnamese pharmaceutical companies in the following direction: EU pharmaceuticals will enter Vietnam more smoothly, easily and directly; intellectual property protection for pharmaceuticals will be strengthened, causing a slower pace of price reduction of some drugs; competition will be fiercer in bidding packages to supply drugs to Vietnamese hospitals (in sectors committed to opening to EU contractors).

Services

The Ministry of Industry and Trade estimated that the shipping industry has room to expand by 100%, air transport by 141%, finance and insurance by 21%, other business services 80% (excluding effects caused by the COVID-19 pandemic).

For financial, banking and insurance services, the EVFTA will open up opportunities to foster the liberalization of Vietnam's financial, banking and insurance services. The opening of these sectors will boost demand and cooperation opportunities with EU businesses. By 2025, Vietnam's exports of financial and insurance services will increase by about 21% and imports will be boosted to 9.65%. However, competitive pressures are heavy and, at the same time, pressures on macro stability will be even greater because the opening of these services make Vietnam more sensitive to external shocks.

The EVFTA may affect logistics development prospects in two ways: Vietnam and the EU's commitment to opening the transportation market; and commitments on sectors that affect the logistics service market capacity in terms of scale, quality, demand for capacity expansion and service performance.

By Huong Ly, Vietnam Business Forum