EVFTA challenges to Vietnamese SMEs

The dialogue on the Challenges from EVFTA to Vietnamese SMEs

The Vietnam Chamber of Commerce and Industry (VCCI), the Ministry of Industry and Trade (MoIT), together with the Delegation of the European Union to Vietnam organised the dialogue on EVFTA and the EVIPA with the theme “Opportunities for business” on July 1 in Hanoi.

Besides the opportunities and spotlight that the EVFTA brings to Vietnam in general and the country’s enterprises in particular, enterprises should also foresee the challenges to prepare the knowledge and financial resources to take advantage of the open, fair, and rules-based trade.

2019 has witnessed two historic deals, first Vietnam's signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) at the beginning of the year, then six months later the EVFTA, opening the doors for Vietnam to conquer the Atlantic and Pacific regions.

According to the calculations of Vietnamese experts, if the EVFTA is implemented immediately, it may increase the total GDP by 2.18-3.25 per cent in 2019-2023, 4.57-5.30 per cent in 2024-2028, and 7.07-7.72 per cent in 2029-2033.

In parallel with economic growth, the EVFTA also helps to increase employment by about 146,000 workplaces per year. On the EU side, according to a European Commission (EC) study, the EVFTA will increase the EU's national income in the long term with an increase of up to €29.5 billion ($37.3 billion). In addition, EU exports to Vietnam may increase by an average of 29 per cent.

The agreement may put fresh wind in the sails of Vietnamese enterprises, especially SMEs that make up a large portion of businesses in both Vietnam and the EU. 97 per cent of Vietnamese businesses are SMEs. Thus, Vietnam should provide ample support and create favourable conditions for SMEs to enter the global market, advised Vu Tien Loc, chairman of the VCCI.

SMEs are still limited in their corporate governance capacity, technology level, scale in finances and human resources, as well as their ability to create and manage brands and access the global market.

As Vietnam becomes a partner to one of the leading markets in the world with a total GDP of over $18,000 billion and a population of over 500 million. Increased partnership with world-leading markets and enterprises will provide valuable lessons to Vietnamese firms, pointing them to the direction of growth and development.

In the present context, the penetration of the European market does not depend on simple tariff barriers. Tariff reductions make for a very basic first step for Vietnamese enterprises, but they will need to overcome the high standards of Europe related to hygiene and safety, as well as working conditions.

In addition, domestic businesses will see increased pressure not only from the EU, but from the domestic market as well, taking competition to the next level in every industry, sector, and product category.

Along with the opportunities set forth, the implementation of EVFTA also poses many challenges, especially with Vietnam being the side scaling up and reaching higher economies, as opposed to the other countries holding FTAs with the EU.