EU trade pact expected to spur Vietnam’s economic recovery

Monday, 2020-06-08 16:57:08
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Bilateral trade between Vietnam and the EU in 2019 was nearly US$57 billion.
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NDO - The EU-Vietnam Free Trade Agreement (EVFTA) is expected to open the door wider for Vietnamese exports to the EU and help the Vietnamese economy regain its growth momentum following a difficult period due to the coronavirus outbreak.

Wider door

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EVFTA are two important new-generation free trade agreements to which Vietnam is a party, the former being inherited from the Trans-Pacific Partnership after the United States unilaterally withdrew from it.

At the time, many economists believed that the implementation of the CPTPP would not be as effective as expected without the world’s largest economy. But in fact, the CPTPP has indeed brought about positive changes to Vietnam’s trade activities.

Data from the Ministry of Industry and Trade (MOIT) showed that Vietnam’s exports to CPTPP economies in the first year of its implementation were estimated at nearly US$40 billion, up 7.2% from a year earlier. It is worth mentioning that exports to Canada and Mexico, with which Vietnam has yet to enter into a trade agreement, grew sharply by 29.9% and 27.6% respectively. It is apparent that Vietnam’s export revenue of US$260 billion and trade surplus of US$10 billion in 2019 saw a fair amount of contribution from the CPTPP.

Similarly, if the EVFTA is soon fully implemented, it will create a great deal of exports opportunities since the EU is one of Vietnam’s most important trading partners with a population of 508 million and gross domestic product of US$18 trillion.

Bilateral trade in 2019 was nearly US$57 billion, of which Vietnamese exports accounted for US$42 billion. But such a figure, according to the MOIT’s Department of Export and Import, remains modest given the fact that the EU is the world’s second largest import market with an annual value of US$2,338 billion.

Vietnam’s exports to the EU account for just 2% of this market as only 42% of Vietnam’s shipments to the region are enjoying zero tariffs under the Generalised System of Preferences.

For years, Vietnamese enterprises have been struggling to establish a firm foothold in the EU market due to strong competition from other countries, especially China, as the price of Vietnamese products are usually 10-20% higher than theirs. As such, with the EVFTA’s strong commitments to market liberalisation, there is now a greater opportunity for Vietnam to increase its exports, especially garments, footwear, farming and timber products.

With the coronavirus outbreak affecting Vietnam and the global economy, economists have projected that Vietnam is unlikely to meet its growth target for 2020. Against this background, the EVFTA is expected to play a significant role in compensating losses incurred due to the economic slowdown. For enterprises, the pact will give them the opportunity to diversify their markets and regain a growth pattern after the epidemic.

Capitalising on opportunity

Tran Van Tac, director of Tuan Viet Footwear Company, has been anticipating the EVFTA for a long time as his firm’s exports are mainly to the US and EU. As the coronavirus pandemic has disrupted the global supply chain, he now hopes for brighter prospects for footwear exports with the implementation of the EVFTA as well as the containment of the coronavirus.

The company is exporting its products to 50 countries, mainly Italy, therefore this is an opportunity to expand its market share and increase its competitiveness. Tuan Viet Footwear has informed its EU partners of the upcoming full ratification and implementation of the trade deal in order to prepare new orders in the future.

Tac stated that his European partners are also looking forward to the Vietnamese National Assembly’s ratification of the agreement so that Vietnamese footwear products imported into the EU will be more competitive.

Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) Vu Tien Loc compares the EVFTA to an expressway for Vietnam to speed up its integration with the EU, helping to realise ambitions of economic breakthrough in the post-coronavirus recovery period.

He stated that opening such an expressway is just the beginning and much needs to be done so that the “economic caravan” can move smoothly and effectively. The government needs to formulate various laws, decrees and circulars to act as approach roads so that enterprises can gain access to the expressway.

In order for the EVFTA to be truly effective, it is necessary for the government to fine-tune institutions, upgrade infrastructure and enhance the quality of human resources. For enterprises, they need to learn about the opportunities and challenges brought about by this trade pact and make investments to restructure their sources of supply and the production chain in order to meet the pact’s standards. Enterprises may also have to ensure a higher level of compliance in order to meet stricter requirements on labour and environmental protection. The EVFTA merely opens a more favourable trading route but will not automatically bring success to enterprises failing to compete.