EVFTA Boosting Trade and Investment through Combination of Eliminating Tariffs and Opening up Markets

10:06:13 AM | 7/9/2020

The EU-Vietnam Free Trade Agreement (EVFTA) is a historic deal – the most comprehensive and ambitious ever agreed between the European Union and a developing nation. Over the next decade, almost 99% of tariff lines will be phased out on a wide range of goods. It will take time to unlock the full potential of this agreement, as tariffs on some goods will be phased out over the course of its implementation period. With respect to how EVFTA will benefit EU-Vietnam trade, Vietnam Business Forum would like to introduce this article by Mr. Nicolas Audier, Chairman of the European Chamber of Commerce in Vietnam (EuroCham Vietnam).

Vietnam’s trade and investment environment

In a world where normal business operations remain fragile and economic growth is under threat, Vietnam is a rare bright spot for global trade and investment. The government’s handling of Covid-19 has been recognized around the world as a model of effective public health management. Meanwhile, stimulus packages and policies to support business have prevented an international pandemic becoming a national financial crisis.

Back in the spring, when the Covid-19 pandemic first hit, social distancing and travel restrictions brought business to a standstill. This sudden interruption caused the EuroCham Business Climate Index, a regular barometer of our members and their perceptions of the trade and investment environment, to fall to 27% in quarter 1 of 2020. However, after the Government implemented its world-leading public health and economic response, Vietnam was able to return to business-as-usual much sooner than other countries.

In the months that followed, the confidence of European business leaders began to return. In quarter 2, our BCI saw a 7% jump to reach 34.5%. Meanwhile, around a quarter of enterprises saw an improvement in their business operations last quarter, performing much better than predicted during the height of the pandemic.

Of course, these are uncertain times and Covid-19 will remain a cloud over global trade for some time. However, despite these challenges, Vietnam’s long-term prospects remain bright. Strong economic growth, estimated at around 4% in 2020, will outstrip that of the Eurozone and other major economies. Coupled with its demographic dividend, strategic location, growing middle class and increasing integration with global markets, this will help Vietnam continue to grow and attract foreign direct investment, in particular from the European Union.

Vietnam has proved itself to be a robust and resilient market, and one which remains attractive and open for business while other countries continue to struggle with the impact of the pandemic. But Vietnam also has one important advantage over others in the region: The recent implementation of the EU-Vietnam Free Trade Agreement – or EVFTA.

How the EVFTA will benefit EU-Vietnam trade

The EVFTA was implemented on August 1 after almost a decade of negotiation. This historic deal, the most comprehensive and ambitious ever agreed between the European Union and a developing nation, will boost trade and investment through a combination of eliminating tariffs and opening up markets.

Over the next decade, almost 99% of tariff lines will be phased out on a wide range of goods. It will take time to unlock the full potential of this agreement, as tariffs on some goods will be phased out over the course of its implementation period. However, the moment the EVFTA entered into force, 65% of EU goods sold to Vietnam became tariff-free overnight, as did 71% of Vietnamese goods sold to the EU.

This has a real and tangible impact on European companies and their products. For instance, pharmaceuticals make up almost 10% of EU goods sold to Vietnam. Since the 1st of August, around half of these products are now tariff-free. On the Vietnamese side, products like non-processed shrimp can now be sold to the EU with no import duties at all. While others, such as broken rice, have had their tariffs cut in half.

Considering the size of the EU market and the scale of tariff reductions, the EVFTA will have a more significant impact on economic growth and trade than Vietnam’s previous free trade agreements. The World Bank predicts that a complete implementation of the EVFTA over the next decade would see GDP increase 2.4%. It would also see exports grow 12%, and standards of living rise for some of the poorest people.

Over and above tariff reductions, the EVFTA will also bring a wide range of other important benefits that will boost trade and investment. It will tackle barriers to trade, such as those affecting the automotive sector, while 169 EU food products from champagne to feta cheese will benefit from legal protections known as Geographic Indications (or GIs). Meanwhile, greater protection of IP rights will increase investor confidence in the market. Vietnam has also agreed to open up attractive sectors – such as telecommunications, higher education, and financial services – to European investment and innovation.

In short, the EVFTA is a roadmap for economic growth over the next decade. European goods will become more competitive in Vietnam’s domestic market while Vietnamese companies will have privileged access to Europe’s large and high-income consumer class. This will create even greater incentive for Europeans to invest in and trade with Vietnam, and for Vietnamese companies to grow their footprint in the European Union.

Vietnam’s importance to the European market

Vietnam is just the second ASEAN member state to sign a free trade agreement with the European Union. This shows how important Vietnam is to the EU not just in economic terms but also as a strategic member state in ASEAN and as a leading voice in the region.

Trade and investment have been growing ever since Vietnam and the EU established formal diplomatic ties. In the last decade alone, the value of Vietnamese goods sold to the EU has risen from €5 billion to €35 billion. Over the same period, the value of EU imports has more than doubled to over €10 billion. Vietnam is now the EU’s second-largest trade partner in ASEAN and 17th-largest in the world. The EU is also one of the biggest investors in Vietnam, with FDI projects in all sectors and industries.

Furthermore, our two markets complement each other. Vietnamese products from electronics and accessories (US$4.7 billion in sales in 2018) to footwear (US$4.6 billion) and textiles (US$4.1 billion) are in high demand from EU consumers. Likewise, high-tech electrical equipment and pharmaceutical products are some of the most popular EU products sold in the Vietnamese market.

Now that the EVFTA has entered into force, economic ties between Vietnam and the EU will continue to go from strength to strength as companies and consumers on both sides take advantage of new opportunities in trade and investment.

Promoting trade and investment in the future

EuroCham has been an enthusiastic supporter of the EVFTA ever since talks first began. During the negotiations, we shared on-the-ground insights from European companies to get the best-possible text agreed. Then, throughout the ratification process, we lobbied first the EU Commission and later the European Parliament to highlight the benefits of the EVFTA and to ensure the deal got over the line.

However, even though the agreement has now entered into force, this does not mean our work is finished. The next task is to secure a smooth and successful implementation and to ensure that the provisions agreed to in principle are now realized in practice. The EU-Vietnam Investment Protection Agreement (or EVIPA) also needs to be ratified in each EU Member State. This is important as once it enters into force it will better protect EU capital, increase investor confidence, and boost FDI from European enterprises.

Our political leaders have given us the tools to unlock a new wave of trade and investment. But it is up to us, the foreign and domestic business communities – to make it a success. That means building bridges between both sides in order to share our knowledge, contacts, and networks. In this spirit, EuroCham hopes to soon establish a new organization with VCCI: The EU-Vietnam Business Council (or EU-VBC). This EU-VBC will bring together European and Vietnamese companies in sector-specific working groups, giving them a forum in which to raise concerns and a tool with which to resolve them. We have also signed an MoU agreement with Vinamarine to ensure closer coordination in the fields of transport, logistics, and maritime trade. And we continue to work with both national ministries and local provinces to raise awareness of the EVFTA and to help companies access the European market.

This has been our role ever since EuroCham was first established. Over the last two decades, we have promoted the opportunities of the Vietnamese market in Europe and the advantages of European investment in Vietnam. In this new chapter of stronger trade relations, we will continue to support companies and consumers on both sides to unlock the full potential of the EVFTA. This will not just help to boost trade and investment – essential though this is. It will also improve livelihoods and living standards, accelerate legal reform, increase environmental protections, and promote sustainable development. In doing so, it will help Vietnam to build on the success of the last three decades and to go further and faster on its path of economic growth and development.

Source: Vietnam Business Forum

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