EVFTA: A bright spot in Vietnam's economic recovery roadmap

Update: 11:40 | 19/05/2020
Sharing with The World and Vietnam Report, Chairman of the European Chamber of Commerce in Vietnam (EuroCham) Nicolas Audier affirmed that, in the context of trade uncertainty, EVFTA is considered a bright spot in Vietnam's economic recovery roadmap.
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evfta a bright spot in vietnams economic recovery roadmap
Chairman of the European Chamber of Commerce in Vietnam (EuroCham) Nicolas Audier.

In your opinion, what does EVFTA mean in the context of uncertain international trade?

The COVID-19 pandemic has put the brakes on trade and investment activities around the world. Normal business operations have been suspended as lockdowns and social distancing measures have been introduced to stop the spread of the virus. Of course, Vietnam is one of the international success stories of fighting COVID-19, and, as one of the few countries now open for business again, it should be a model for others to follow. However, Vietnam’s future growth prospects depend on free, fair, and rules-based trade – not least exports – with important markets around the world such as the European Union.

In this light, the EVFTA should be seen as a roadmap to recovery in uncertain times. Once ratified and entered into force, this agreement will phase out tariffs while also opening up new sectors to investment and innovation. Over its decade-long implementation period, the agreement will see a gradual elimination of almost 99 percent of tariff lines and barriers to trade. In doing so, it will give Vietnamese companies privileged access to a European market of around 500 million consumers, and Vietnamese citizens better access to innovative, high-quality European goods and services. In time, it will help to boost trade, investment and economic growth and cement Vietnam’s position as an attractive destination for European investors in Asia.

Seriously affected by the COVID-19 pandemic, the business community is expecting the EVFTA to be the great support for enterprises after COVID-19. Could you please tell us the opportunities and challenges of the EVFTA for Vietnamese enterprises when this Agreement is put into effect?

The EVFTA contains huge opportunities for Vietnamese enterprises. Over 70 percent of tariffs on Vietnamese exports to the EU will be eliminated the moment the EVFTA enters into force, rising to 99 percent within seven years. Vietnamese products such as seafood, agricultural produce, textiles, footwear, furniture and leather goods will, therefore, become more competitive in the EU marketplace. This should help to boost the sale of Vietnamese goods to the EU and, in turn, contribute to Vietnam’s export-led economic growth.

The challenge now is to ensure a smooth and successful implementation of this historic agreement. This requires all those involved in the EVFTA – governments, local authorities, as well as domestic and international business communities, to work together to raise awareness of the EVFTA and its provisions. Before COVID-19, EuroCham had been participating in events across Vietnam to help local enterprises understand this agreement, and we hope events like this can resume soon.

Other challenges could include the continued reform of Vietnam’s legal framework to ensure it is consistent with the provisions of the EVFTA and also ensuring that local goods meet the high standards of the European market. However, whatever challenges lie ahead, I am confident that Vietnam will rise to them as it has done so often in the past.

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For new companies, or those who are doing business in Vietnam or the EU for the first time, the most important preparation will be to build relationships with potential suppliers and consider potential partnerships in advance of the EVFTA entering into force. This would help enterprises to hit the ground running by tapping into networks and supply chains that already exist.

In this light, EuroCham was proud to co-organize a “Meet Europe” conference in 2018 with the Ministry of Foreign Affairs, bringing European enterprises together with government leaders, and we hope to organize similar such events again in the future to help build bridges between our two sides.

What about the opportunities and challenges of the EVFTA for EU businesses?

Vietnam is a fast-growing nation with rising disposable incomes and a large and growing middle-class consumer market. So, there are significant opportunities for European companies to tap into the demands of Vietnamese consumers for high-quality goods and innovative services. For instance, a reduction in tariffs for European products such as cars, pharmaceuticals, and wines & spirits should help to make EU goods more competitive in the marketplace.

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On top of the trade-in goods, the EVFTA will also open up new opportunities for EU companies in service industries. Vietnam has agreed to open up sectors such as higher education, financial services, and telecommunications – to name just a few – and European businesses will be keen to invest in these.

But this free trade agreement is about more than just trade in goods and services. The EU and Vietnam have also negotiated an Investment Protection Agreement (EVIPA) which will give European investors greater confidence to invest here. The EVIPA will take longer to enter into force – as it also requires ratification in each individual EU member state – but it also represents another significant opportunity for European enterprises.

How do you evaluate Vietnam and EU economic growth after the EVFTA?

Despite the significant short-term impact of COVID-19 on business operations, the Prime Minister of Vietnam has set a target for GDP growth of 5 percent in 2020. While this is a slight fall in growth rates in recent years, it is nevertheless far higher than in other countries in the region and elsewhere in the world. There is no doubt that the EVFTA will contribute to Vietnam’s positive trend of economic growth.

However, this will happen over time rather than overnight. This is because, although some tariff lines will be eliminated as soon as the agreement enters into force, others will be phased out over a decade-long implementation period. Therefore, the impact of the EVFTA on economic growth should be measured in decades, not days.

Even so, EU academics have predicted that the EVFTA could add up to 7-8 percent to Vietnam’s economic growth over the agreement’s implementation period, boosting workers’ wages and household incomes in the process.

Thank you so much!

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