EVFTA - Acceleration and expectations

Tuesday, 2018-10-23 17:56:54
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Minister of Industry and Trade, Tran Tuan Anh, and EU Trade Commissioner, Cecilia Malmstrom, discussed the EVFTA on the side-lines of the ASEM Summit in Brussels
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NDO - The EU-Vietnam Free Trade Agreement (EVFTA) is a new-generation FTA between Vietnam and the 28 EU member States, which includes the highest level of commitments from Vietnam so far.

The negotiations on the EVFTA officially concluded on December 1, 2015 and the preliminary text of the agreement was announced on February 1, 2016. The EVFTA was split into two Agreements, one for trade and one for investment, on June 26, 2018. Vietnam and the EU formally completed the legal review of their EU-Vietnam FTA and the IPA (the Investment Protection Agreement) in August 2018.

On October 17, 2018, the European Commission sent a dossier to the European Council to ask for authorisation to sign the EVFTA and IPA. After the signing, the agreement is scheduled to be submitted to the European Parliament for approval in early 2019.

The European Commission held a press conference on the afternoon of October 17 to announce this positive information and confirmed its commitment to promote the implementation of the agreements as soon as possible.

Vietnamese Minister of Industry and Trade, Tran Tuan Anh, and EU Trade Commissioner, Cecilia Malmstrom, issued a joint ministerial statement on the EVFTA on the side-lines of the ASEM Summit in Brussels on October 19, 2018. The joint statement welcomed the European Commission's submission of the FTA to the European Council for approval.

The statement stressed that the agreements would open up new opportunities for exports and investment for European and Vietnamese businesses, while also paying special attention to the rights of workers and environmental protection.

Europe is rushing to translate the two agreements into 24 EU languages and accelerate other process before the official signing of the EVFTA, scheduled for late 2018. President of the European Parliament and President of the European Parliament's International Trade Commission also confirmed that efforts would be made to finalise the ratification of these two agreements early next year in the interests of both sides and for trade benefits between Europe and Asia.

The agreements are expected to bring about unprecedented benefits to businesses and peoples of both Europe and Vietnam. The agreements will help European companies gain better access to a market of more than 92 million consumers, while increasing investment, creating more jobs, and boosting trade with one of the Asia's most dynamic economies. Vietnamese exporters will also have easier access to the European market.

The EU is now the third largest trading partner and one of the two largest export markets of Vietnam. The import and export structure of Vietnam and the EU complements each other with less direct competition. Two-way trade revenue between Vietnam and the EU increased more than 12 times from US$4.1 billion in 2000 to US$50.4 billion in 2017. Of which, Vietnam's exports to the EU increased by 13.6 times (from US$2.8 billion to US$38.3 billion) and Vietnam's imports from the EU increased by nine times (US$1.3 billion to US$12.11 billion). Vietnam's main export items to the EU are footwear, garments and textiles, coffee, furniture and seafood.

The EU is also a large investor in Vietnam. As of 2017, 24 of the 28 EU countries had invested in Vietnam with roughly 2,000 valid projects worth over US$21.5 billion. EU investors are present in all most of Vietnam's key economic sectors with the focus on industry, construction and service sectors.

The European Chamber of Commerce in Vietnam (Eurocham) emphasised that when the agreement comes into force, Vietnam will eliminate 65% of duties on EU exports to Vietnam. The remaining tariff lines will be gradually removed in the next 10 years, resulting in the elimination of 99% of duties on goods traded between the two sides.

A tax rate of 0% will be applied to export goods of both sides such as garments and textiles, footwear, seafood, tropical agricultural products, and wood products of Vietnam and automobiles, equipment, alcohol, pharmaceuticals, temperate agricultural products of the EU. The EVFTA also contains provisions to address the existing non-tariff barriers in the automobile industry as well as the protection of geographical indications for 169 European food and beverage products in Vietnam.

In general, the EVFTA is expected to increase Vietnam's GDP by 10-15% and raise Vietnam's exports to the EU by 30-40% in the next 10 years. High quality capital is also anticipated to pour into Vietnam and products with European standards will be exported to Vietnam with clear origin.

Regarding trade and services, the EU and Vietnam's commitments go beyond the rules set out in the WTO framework. EU businesses will enjoy more incentives when investing and doing business in Vietnam, especially in areas of their strengths such as financial and banking services, distribution, transportation, and others.

The EVFTA also deals with other aspects including national treatment commitments in the area of investment; the settlement of disputes between investors and the State; competition, sustainable development, and capacity, legal and institutional building; the generation of an open, favourable and equal investment environment for enterprises of the two sides; among others.

The effectiveness of the EVFTA, especially the removal of tariffs and the improvements to the business environment, will bring about huge opportunities for Vietnam to expand exports, attract investment and participate more broadly in the global value chain.

EVFTA's investment in Vietnam will not only aim at production and import and export, but also in telecommunications and information technology, architecture and technical consulting, and environmental services. The EU's FDI is also expected to create new impetus for Vietnam to promote its international integration, economic restructuring, technology transfer, exports, and others.

However, experience in implementing WTO commitments and previous FTAs shows that the expected benefits of an agreement will not automatically materialise. Therefore, greater efforts are needed to realise the commitments and benefits while addressing the challenges involved.