EVFTA Boosts Trade Surplus with EU

9:34:53 AM | 6/15/2022

After coming into force, the Vietnam-EU Free Trade Agreement (EVFTA) has produced positive effects and opened a highway for many Vietnamese products to penetrate deeply into 27 EU member markets.

Export surge to Europe

Despite mounting difficulties due to the ongoing COVID-19 pandemic and the Russia-Ukraine conflict that caused prices of inputs, fuels and freight to go up steeply, Vietnam's exports to and imports from the European Union (EU) still expanded significantly. Commodity exports to the EU continued to grow impressively, with a trade surplus of US$13.4 billion, up nearly 47% year on year in the first five months of the year.

The competitiveness and market share of Vietnamese goods picked up in the EU. Vietnam is currently the EU's 15th trading partner and has risen to become its largest merchandise trading partner in ASEAN. The country is ranked in the Top 10 merchandise suppliers for the EU.

Given preferential tariffs from the EVFTA Agreement, many exports are likely to increase their market share in the EU - the world's largest market, including steel, agricultural products and seafood.

Among four steel export markets of over US$1 billion, the EU had the biggest growth in both volume and value. Its shipment soared 532% to 1.63 million metric tons worth nearly US$1.9 billion, up 845% year on year.

Vietnam's vegetables and fruits are the biggest beneficiaries of preferential tariffs in the EU, with 94% of the total 547 tax lines on fresh and processed vegetables and fruits slashed to zero. This is a huge competitive advantage over agricultural products from other Asian countries, especially from two major rivals Thailand and China, which do not have a free trade agreement with the EU. Besides, market capacity and consumer demand for unique tropical fruits and vegetables in the EU have increased, with fresh fruits and vegetables rising by 15-20% annually and processed products by more than 30%. In 2021, the export value of vegetables and fruits to Europe climbed 17.4% year on year to US$303 million.

According to the Vietnam Cashew Association, the EU is the second-largest importer of Vietnam's cashew nuts. Vietnam's cashew exports reached 153,350 tons, worth US$913.5 million in the first four months of 2022, accounting for 23% of the sector’s output and 22% of the value, data from the General Department of Vietnam Customs showed. Notably, the Netherlands, Germany, the UK and Italy are currently Top 10 importers of Vietnamese cashew nuts. Shipments to the UK grew by 16.4%, to Germany by 12.9%, and to Italy by more than 110%.

The EVFTA has opened up unprecedented opportunities for Vietnamese rice. Vietnam’s rice shipments to the EU counted over 30,000 tons valued at US$23 million in the first four months of 2022, including more than 22,500 tons worth nearly US$18 million in the March quarter, up nearly 4 times in volume and 4.3 times in value over the same period in 2021.

Meanwhile, seafood shipments to the EU also accelerated. According to the Vietnam Association of Seafood Exporters and Producers (VASEP), seafood export value to this market totaled US$422 million in the first four months, up 47.3% year on year. In 2021, seafood exports to the EU climbed 12.3% to US$1.077 billion, making the EU the third-largest importer after the US and Japan.

Europe has increased apparel and footwear imports from Vietnam. From January to April, its apparel and textile exports to the EU jumped 34.6% year on year to US$1.3 billion, while its footwear shipments expanded 19% to US$1.77 billion.

Catching market trends

According to the Ministry of Industry and Trade, exporters need to grasp new market trends to make products that match European consumer needs and tastes as well as satisfy the EU’s strict import standards. At the same time, it is necessary to study better utilization of the EVFTA Agreement in the near future because there is still a lot of room for development.

Agricultural and aquatic products need to be further processed, invested for better quality and added more value to keep the market share while focusing on the wholesale segment. For example, the consumer demand for white fish in Europe is increasing strongly and Vietnamese exporters should find opportunities to boost their market share of pangasius to fill this demand.

Mr. Vu Anh Son, Vietnam Trade Counselor in France, said that organic products are very popular in Europe in general. Growers and processors must be assessed by a licensed European certification body such as Fairtrade and Rainforest sustainability certification schemes. Investing in organic products is a key for businesses to unlock the door to the EU market.

In addition, they should attentively update market information amid the ongoing Russia-Ukraine conflict. Specifically, trade associations and businesses should apply hedging measures when entering into contracts with foreign customers, as well as selecting payment banks when the U.S. and the EU are imposing sanctions on many Russian businesses.

By Huong Ly, Vietnam Business Forum