After 2 years of implementing the EU-Vietnam Free Trade Agreement (EVFTA), Vietnam has thrived in many fields, especially in attracting foreign direct investment (FDI) and promoting trade between Vietnam and the European Union bloc.
EVFTA Free Trade Agreement
The EU-Vietnam Free Trade Agreement (EVFTA) is a new-generation FTA between Vietnam and the 27 EU member states. The EVFTA, along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), are two FTAs with a wide range of commitments, the highest level of commitment of Vietnam so far.
On December 1, 2015, the terms of the EVFTA were officially negotiated and completed. On February 1, 2016, the text of the agreement was published. On June 26, 2018, the new policy of the EVFTA was agreed, in which, the EVFTA was split into two agreements, the EU-Vietnam Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement (EVIPA).
In August 2018, the legal review process for EVIPA was completed. The two Agreements were signed on June 30, 2019. EVFTA and EVIPA were ratified by the European Parliament on February 12, 2020, and ratified by the National Assembly of Vietnam on June 8, 2020. On March 30, 2020, the European Council also approved the EVFTA.
As for the EVFTA, due to the completion of the ratification procedure, this Agreement has officially taken effect from August 1, 2020. For EVIPA, on the EU side, the Agreement will still have to be ratified by the Parliaments of all 27 EU member states.
Impact of the Free Trade Agreement EVFTA
Effective from the beginning of August 2020, up to now, the EVFTA Free Trade Agreement has been in effect for more than two years. However, the period of the end of 2020 is the time when the Covid-19 pandemic broke out in Vietnam, lasting to the present, making the expected breakthroughs of Vietnamese businesses and government after the official effective date of the Agreement has been seriously affected.
The quarantine order due to the widespread COVID-19 epidemic, complex logistics, and supply chain crises, and geopolitical fluctuations in Vietnam and internationally, have had a significant negative impact on the implementation of the EVFTA.
However, as of the latest, on December 19, 2022, during the second meeting of the Trade Committee within the framework of the Free Trade Agreement between Vietnam and the European Union (EVFTA), the representative of the EU, Deputy President of the European Commission and High Commissioner for Trade of the European Union Valdis Dombrovskis said that despite these difficulties, Vietnam has still shown remarkable results, from the continuing efforts of the management agencies and enterprises in Vietnam.
According to a report by VCCI, in the two years of implementing the EVFTA, the total export turnover from Vietnam to the EU reached 83.4 billion USD, an average of 41.7 billion USD per year. Total export turnover to the EU increased by an average of 24% compared to the period from 2016 to 2019.
In which, the proportion of Vietnamese enterprises’ exports taking advantage of EVFTA tariff incentives in 2020 reached 14.8%, increasing to 20.2% in 2021 and 24.5% in the first six months of 2022. This number is expected to continue to increase from 2023 onwards as more and more Vietnamese businesses know and understand the content and benefits of the EVFTA Agreement. According to the survey, up to 94% of businesses know about EVFTA, about 30% of businesses know well about EVFTA and 10% of businesses have a thorough understanding of EVFTA as well as how to exploit benefits from the agreement for their business activities.
Regarding attracting foreign direct investment (FDI), according to data from VCCI, FDI from the EU into Vietnam in 2020 reached nearly 1,376 million USD, down 8.6% compared to 2019, ranking 8th and accounting for 4.8% of total FDI into Vietnam. In 2021, the situation of FDI attraction is improved, with a total investment of more than 1,405 million USD, up 2.2%, helping the EU rise to 5th place, but the proportion of total FDI decreased slightly, accounting for 4.5%.
In particular, the average total investment capital in 2017-2021 increased by 86% compared to the previous period of 2015-2016. However, investment capital in Vietnam currently accounts for only a very modest proportion of the EU’s total outward investment.
Regarding the impact on specific industries and fields of the Vietnamese economy, in the two years of implementation, the total export volume of Vietnamese enterprises to the EU market increased sharply. In which, iron and steel increased by 739%; cameras, camcorders and components increased by 260%; machinery and equipment increased by 82.3%; rice, bamboo and rattan products, sedge mats increased by over 50%; ceramic and porcelain products increased by over 25%; vegetables, electric wires and cables increased by more than 15%.
Rice, sedge, rattan and bamboo products, ceramics, porcelain, and vegetables are relatively ‘new’ export items to the EU market and are expected to continue to grow in the coming time, as Vietnam gradually ensures high-quality management according to the standards of the EU’s ‘difficult’ market.
According to a survey report on Vietnamese businesses’ perspectives on the impact of the EVFTA and other FTAs in the next three years (2023-2026), the majority of surveyed businesses said that the agreement will maintain a positive impact on Vietnam’s business activities.
However, businesses also said that in the present time and in the near future, it will be difficult for Vietnam to develop at a rapid pace as in the past two years if the current operating policy is unchanged or changes made are insufficient or inadequate.
In addition to international market fluctuations affecting the Vietnamese market, businesses said that their main concern comes from the fact that Vietnam’s export products as well as their business methods are not competitive enough in the Europe market, making it difficult to compete with domestic and international enterprises which have deep roots in these markets.
The recent increase in quality control of products imported into EU markets by the EU has also created significant difficulties for Vietnamese exporters. In many cases, Vietnamese products have been refused at the Customs border, to be shipped back to Vietnam or ‘liquidated’ at a cheap price. Typically, Acecook Vietnam’s Hao Hao spicy and sour shrimp noodles were recalled in large quantities in EU markets such as France and Ireland due to too high EO (ethylene oxide) concentration. Germany, Sweden, Netherlands, Norway, … all issued warnings about this product and similar products of Vietnam.
The EU market is one of the most ‘difficult’ markets in the world. Therefore, if Vietnam can meet EU standards, it will be much simpler to expand business in other markets around the world such as the US, Japan, Australia, Canada, etc. with experience and lessons learned in the EU to overcome the difficulties in these markets.
Along with improving product quality and production lines, Vietnam also needs to focus more on developing and amending legal documents to implement specific commitments of the EVFTA Free Trade Agreement.
In the two years since the EVFTA came into effect, Vietnam has adjusted nine legal documents related to the implementation of the EVFTA. However, a few documents were issued slowly, not following the commitments of the EVFTA. This blank period makes it impossible for businesses to effectively take advantage of the incentives and opportunities from the EVFTA, leading to great economic losses.
Not only the EVFTA but also the internalization of regulations guiding the implementation of EVFTA and other free trade agreements that Vietnam has signed in a timely manner is also something that Vietnam needs to consider and focus on in the coming time.