November 20, 2017 10:41

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Vietnam-EU Free Trade Agreement (EVFTA): Increasing the export of Vietnamese goods

08:03 | 15/11/2017

VCN- The Vietnam-EU Free Trade Agreement (EVFTA) is expected to come into effect in 2018. The most comprehensive FTA ever, the EVFTA is expected to have direct, positive impact on the Vietnamese economy through the strong promotion of commodity export as well as investment attraction.  

vietnam eu free trade agreement evfta increasing the export of vietnamese goods
Shrimp is the main export item of Vietnam.

Market expansion

Over the past decade, trade and investment relations between Vietnam and the EU have seen positive developments. Two-way trade has grown tenfold from about 4.1 billion USD in 2000 to 41.3 billion USD in 2015, making the EU one of Vietnam's leading trading partners. In particular, Vietnam's exports to the EU reached nearly 31 billion VND and imports from the EU reached over 10 billion VND. On investment, the EU is also one of the leading partners in Vietnam with 1,809 projects from 24 countries in the European Union (EU) effective, total registered capital of 23.16 billion USD, accounting for 8.7% of the projects and 8% of the total registered investment capital of the country.

According to many experts, the EVFTA will have a positive impact on both Vietnam and the EU, with the most significant being the economic impact. On import and export, the strong commitment to open markets in the EVFTA is an important "push" to boost trade relations between Vietnam and the EU, helping to further expand the market for export goods, especially products of which the two sides have strengths such as tropical agricultural products, seafood, textiles, footwear, furniture of Vietnam and machinery, equipment, means of transport and other temperate agricultural products of the EU.

The EVFTA states that Vietnam and the EU will eliminate import tariffs on more than 99% of tariff lines under the 7/10 rule (the EU will eliminate all tariffs on imports from Vietnam for a maximum of seven years under Vietnam will eliminate completely after 10 years with the eradication plan immediately, delete after 3 years, after 5 years, after 7 years and after 10 years). For the very few remaining tariff lines, the two sides will give each other tariff quotas or tariff reductions. This can be considered as the highest level of commitment that Vietnam has achieved in FTA agreements have been signed so far.

Assessing the impact of the EVFTA on the Vietnamese economy, especially the export of Vietnamese goods to the EU, Mr. Truong Dinh Tuyen, former Minister of Trade, said that in the roadmap for reducing tariffs, some Vietnam’s strength export products are eliminated as soon as EVFTA come into effect or shorten roadmap. This is a factor that creates new impetus for Vietnam's export to the EU market. Notably, the EVFTA is of great importance for the development of Vietnam's economy as the United States withdraws from the Trans-Pacific Strategic Economic Partnership (TPP). "Currently, although the EU has 28 member countries and large GDP, the ability to exploit the market of Vietnamese enterprises is low, not to go deep into the potential markets, especially in Eastern European countries. Of the 11 EU countries in the EU, Vietnam exported nearly 1.8 billion USD, accounting for 5.5% of total market share that exporters to the EU market. The EVFTA is one of the moves for enterprises to focus more attention when exploiting the market," Mr. Tuyen analyzed.

Attracting investment

In addition to making good use of tax incentives to promote the export of goods, the EVFTA is also expected to contribute significantly to boosting high-quality investment flows with EU technology and other partners of Vietnam. This is because the EVFTA has clearly demonstrated its commitment to ensuring a more open and transparent investment and business environment.

Regarding this issue, Mr. Truong Dinh Tuyen added: Currently, EU consists of 28 members, which are already the top investors in Vietnam. With broad market commitments for investment in manufacturing and non-manufacturing (services) sectors, and bound by commitments to protect intellectual property, the EVFTA will create a new motive for attracting investment of EU companies to Vietnam.

Some experts said: With the scale and potential investment development of the EU, Vietnam has the opportunity to become a transshipment area for trade and investment of the EU in the region. This advantage is expected to be further promoted with the ASEAN Economic Community being formed by the end of 2015. This will accelerate the process of economic restructuring, the transformation of Vietnam's growth model. in a positive way. In addition, the signing of an FTA with a high development partner such as the EU will open new opportunities for access to modern technology, learn management skills, improve skills and create more jobs for the workers. helping to increase social security for Vietnam etc.

Many challenges

Although it is expected to open a large market for Vietnamese exports as well as other favorable conditions, the Ministry of Industry and Trade wants to make good use of the opportunities provided by the EVFTA, Vietnamese enterprises still have to face with many challenges. First and foremost is the competitive pressure on the domestic market. This is inevitable when European goods, services, and investors, contractors enter Vietnam, compete directly with goods and services as well as Vietnamese enterprises. However, except for a small number of agricultural products, the impact is expected to be localized, short-term and of negligible size. The most important point is that enterprises need to define the competition is inevitable.

One of the major challenges in implementing the EVFTA is the compliance with rules of origin. The EVFTA seeks to eliminate import tariffs by up to nearly 100 percent of the tariffs and trade flows between the two sides. However, in order to enjoy this ideal tariff preference, the key factor is that the goods must meet the rules of origin ratified by the Agreement between Vietnam and the EU. Notably, in each FTA, and for each product group, the rules of origin are different. Therefore, companies need to study the rules of origin for their specific export products in the respective FTA agreements. For example, seafood exporters to the EU, Australia, and India need to study the rules of origin for seafood in Vietnam-EU, ASEAN-Australia-New Zealand and ASEAN-India FTAs. In fact, over the past years, the preferential rates from the FTAs that Vietnam has participated in are not high, only about 35%, which means that 65% of the remaining goods are subject to tax higher than with preferential tariffs from FTAs. One of the main reasons is that Vietnamese enterprises do not have sufficient knowledge about the origin problem. The other reason is that some of the rules of origin in FTAs are firmly matched. "For the first challenge, businesses need to actively learn the basic terms and rules of origin in the Agreements. For the second challenge, enterprises need to have long-term plans to adjust the supply chain and input materials to meet the rules of origin", the Ministry of Industry and Trade recommended.

One of the obvious points is that the EU market has a high demand, strict quality standards, safety for industrial goods and sanitary and phytosanitary standards for imported agricultural products and foodstuffs from abroad. In order to ensure that the products meet the requirements, the EU imposes strict regulations on standards, technical standards, hygiene and quarantine of plants and animals. Apart from pure product quality, the EU is also increasingly interested in other relevant factors such as the degree of environmental friendliness of products, corporate social responsibility etc. EU consumers also have different tastes with consumers from Southeast Asian, East Asia, USA etc, where many Vietnamese enterprises have been concentrating on exporting. In this context, in order to overcome the challenges, the restriction needs to be overcome by Vietnamese enterprises is the lack of information and thorough understanding of EU’s standards and regulations on sanitary and safety, tastes and needs of EU consumers.

By Đức Quang/Huu Tuc