Better coordination for optimal results from EVFTA

September 17, 2021 | 08:00
Over one year after the trade agreement between the European Union and Vietnam came into force, the deal’s positive impacts are clearly visible. However, faced with today’s hurdles, both sides are required to work out further solutions on how to profit the most from the historic agreement.
Better coordination for optimal results from EVFTA
Thanks to the EVFTA, more European goods can find themselves on store shelves in Vietnam now. Photo Le Toan

The EU-Vietnam Free Trade Agreement (EVFTA) is helping businesses in member countries to enjoy many tariff benefits. Alain Cany, chairman of the European Chamber of Commerce in Vietnam (EuroCham), on August 28 said that 65 per cent of EU exports to Vietnam and 71 per cent of the latter’s exports to the EU are duty-free since last August, when the EVFTA came into effect.

Cany believed that a decade from now, this number will grow to nearly 99 per cent, which will make Vietnam a more attractive destination for European investors. The possibility of the EU signing an FTA with another country in the region, besides Vietnam and Singapore, is also becoming likely. Nevertheless, Vietnam is holding the first-mover advantage to assert itself against competitors in the European market.

By signing the EVFTA, Vietnam hopes to boost trade with its Western partners and also import more high-tech goods and services to support other economic sectors.

Luong Hoang Thai, director of the Multilateral Trade Department under the Ministry of Industry and Trade (MoIT), said that the advantages from the EVFTA are better than those of other signed agreements, as reflected in the export turnovers of both partners.

Utilising advantages

Trade between Vietnam and the EU has achieved decent results thanks to the EVFTA. According to the MoIT’s statistics, the import-export turnover between Vietnam and the EU in the first six months of 2021 reached over $27.6 billion, up 18.4 per cent over the same period in 2020 when the agreement was not effective yet. Of this, exports to the EU increased by 18.3 per cent, reaching $19.4 billion, while imports into Vietnam climbed by more than 19.1 per cent, hitting $8.2 billion.

Textiles and garments have been proving the positive impact of the EVFTA, as this sector’s export turnover reached $2.26 billion, up 4.85 per cent over the same period last year. This result is especially positive amid the current resurgence of the pandemic.

Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association (Vitas), claimed, “Without the EVFTA, this figure could have only reached about $700-800 million.”

According to Giang, in the long term the EVFTA will continue to drive Vietnam’s textile and garment industry. This agreement creates an open and comprehensive market, thereby attracting domestic and foreign investors to develop the supply chain.

At the same time, the trade deal promotes technology development in automation and digital management, creating competitive advantages in the global apparel market. The EVFTA also helps diversify investment flows into the industry, especially from Europe to Asia, which is expected to add value to domestic textile and garment products exported to the EU and other markets.

However, the growth rate of trade between Vietnam and the economies in the EU is uneven. For example, although the export turnover of goods to the EU market in the first six months of 2021 was $19.4 billion, about $3.6 billion of which was to Germany reached $3.59 billion, up 9.15 per cent. Meanwhile, trade between Vietnam and other economies in the EU remained low, with turnovers of only a few hundred million for several economies.

Vietnam has spent a lot of effort negotiating with the EU to establish high standards and hopes for many benefits for both sides.

Assoc. Prof. Dr. Pham Tat Thang, former director of the Institute for Trade Research under the MoIT, said that the main beneficiaries of EVFTA are large corporations. However, the Vietnamese business community is lacking links between these large and small- and medium-sized enterprises for them to also benefit from this agreement.

“We cannot enter the EU market if we cannot place our goods in a reputable distribution system located over there,” said Thang.

According to him, many local businesses have not invested in thorough market research to offer the most suitable products and services for this market. “In particular, if they encounter technical barriers in trade, they will no longer have the opportunity to return to this market,” Thang added.

Efforts required from both sides

The EVFTA is not only aimed at taking advantage of short-term market opportunities, but also long-term market-oriented institutional reforms – the basis for Vietnam to develop in the long-term.

EuroCham’s Cany said, “Administrative procedures in Vietnam are the most common barrier for EuroCham members. The EVFTA will not be successful without coordination between the government and the private business community. Efforts of both sides are necessary to ensure the smooth and successful implementation of the EVFTA.”

The EU has many high standards in terms of environment, agriculture, and sustainability. Thai of the Multilateral Trade Department said that there are many issues discussed and implemented by both sides.

He cited the automotive industry as an important example. “The EU standards applied to protect the environment are equivalent to the standards of the United Nations. Through the EVFTA, Vietnam is strongly moving to apply international standards with a high level,” Thai explained.

One advantage of these standards, however, could be that once Vietnam has sustainably reached these, goods that meet EU standards are also fully capable of meeting the standards of other markets.

Amid the pandemic, the production and export of domestic enterprises has been significantly affected since April. In the last months of 2021, the country’s import and export growth will depend greatly on the control of the crisis, as well as vaccination rollouts for the domestic workforce.

The pandemic, along with the effects of the current yellow card for illegal, unreported, and unregulated fishing by the European Commission, will continue to have impacts on Vietnam’s seafood exports to the EU.

This partially reduces the European market’s access to the recovery trend in the last months of 2021, although special tariff preferences from the deal will continue to facilitate trade. Vietnamese seafood products increased their competitiveness in the EU, with the export turnover in the first six months of 2021 accounting for 11.8 per cent of Vietnam’s total seafood export turnover.

On the EU side, although there have been some positive signals, in general, the bloc’s economy still deals with the health crisis. Meanwhile, the unemployment rate in the EU, despite being improved, remains still high, with energy price spikes and pressure on inflation further bothering the member states. In addition, the increase in transportation costs to record highs also made it difficult for businesses to trade.

The EVFTA is helping to strengthen the bloc’s economic links with Southeast Asia. The European economy may now need every opportunity to recover from the crisis. Trade agreements, such as the EVFTA, are giving European companies access to emerging markets and are creating jobs for Europeans.

According to Cany, the deal is now more important than ever. “Once the vaccinations are through, and the pandemic is under control, the economy needs to be reopened and restored. Free, fair, and rules-based trade will help combat the global economic crisis,” said Cany.

However, COVID-19 is and will continue to affect the implementation of the EVFTA for both sides. Thai said, “Fortunately, some problems were resolved in the first year of the agreement’s implementation. For example, in agriculture, a variety of documents had to be prepared by both parties to meet certain phytosanitary regulations amid the new context.”

The EU trade commissioner, the Vietnamese minister of industry and trade, and a technical team had to discuss carefully to reach an agreement and mutually accept several principles to facilitate trade in the coming time.

One improvement was that, instead of a printed licence for the inspection of goods, the two sides agreed on the usage of permits in electronic form. “There are still a lot of other issues related to the implementation of commitments that need to be handled by both sides,” Thai said at the first meeting of the EVFTA’s Joint Committee in July.

At that meeting, Vietnamese Minister of Industry and Trade Nguyen Hong Dien and other participants agreed on regulations to handle and respond to problems arising in the implementation of the agreement, especially those that create barriers to trade and investment of both parties.

By Van Nguyen

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