Vietnam is continuing to feel the economic impact of Covid-19 – as is every country around the world. Since August, however, the country has been boosted by the signing of a new free trade deal with the European Union (EU). For the Vietnamese government, this agreement came into effect at a critical time, with public health concerns given precedence over economic growth.
The European Union-Vietnam Free Trade Agreement (EUVFTA), however, has already started to deliver real and encouraging benefits on both sides. For Vietnam, the deal is helping to mitigate the loss of important tourism revenue. But, for EU nations too, the agreement is a positive step – not least at a time when the ongoing Brexit saga showing no signs of immediate resolution.
The EU-Vietnam agreement in summary
The EUVFTA is ambitious and promising in its outlook. It removed 65% of duties on EU exports to Vietnam with immediate effect. The remaining duties are to be removed “gradually” over the next 10 years. For Vietnamese exports to the EU, meanwhile, the agreement will see almost all (99%) tariffs removed over a seven-year period.
The limited number of tariffs that remain in place will be partly removed via zero-duty quotas.
As a result, Vietnam is expecting to achieve an increase of €15 billion worth of extra exports to the EU – a lucrative arrangement for Vietnam. After all, the European trading bloc is one of the largest export markets for Vietnamese goods. What this new agreement now does, however, is make it possible for both sides to increase the flow – and value – of trade in the future.
Other elements of the EUVFTA include a pledge by Vietnam to increase the use of international standards in its regulations. European products of specific geographic origin like Parma ham or Greek feta cheese now receive greater protection in the Vietnamese market too.
EU trade commissioner Phil Horgan said: “Vietnam is now part of a club of 77 countries doing trade with the EU under bilaterally agreed preferential conditions. The agreement strengthens EU economic links with the dynamic region of South-East Asia and has an important economic potential that will contribute to the recovery after the coronavirus crisis.”
A surge in Vietnamese export activity
The positive impact of the EUVFTA was already starting to show, based on data released from Vietnam’s Ministry of Industry and Trade. It is reported that total exports to the EU in August and September 2020 were up by 4.2% compared with the same period last year. For the month of September in isolation, that growth in exports from Vietnam stood at more than 14%.
One market in which the deal has seen a surge in exports is Vietnamese fish produce. Figures from the Vietnam Association of Seafood Exporters and Producers (VASEP) show a 65% lift in tuna exports to the EU during the first half of August 2020 – compared with that same period in 2019. Shrimp exports are also reportedly up considerably since the agreement was signed.
The benefits of ‘new’ relationships for Europe
For EU nations, the uplift in exports might not be as significant as those from Vietnam. This is, however, an agreement that offers many tangible benefits already. EU companies can now bid for internal public contracts, while there is a commitment in place for more vigilant protection of Intellectual Property Rights. In a fast-growing economy like Vietnam, such access is critical.
It is perhaps no surprise that Vietnam is seen as an important future partner for the EU. After all, the country is one of the few in the world not expected to enter recession in the aftermath of Covid-19. Vietnam posted a 2.62% increase in GDP for the third quarter of 2020 and is still on course to record positive growth for a year in which many economies have stuttered.
For European firms already operating in Vietnam, the signing of the EUVFTA is bringing fresh optimism. Business confidence is at its highest level among those firms since the outbreak of Covid-19. But that’s not all. The trade deal also creates new opportunities. And now it seems that leading European nations are opening their eyes to the investment appeal of Vietnam.
Existing challenges to trade potential
The conclusion, ratification and implementation of the EUVFTA is extremely welcome on both sides of the negotiating table. But we are still only at the first stages of this new relationship. As such, there are still some challenges to overcome to realise the deal’s full potential.
There are, for example, concerns that only 2% of 8,600 local businesses knew what the deal means for them. That means the fear is that there’s a large number of potential beneficiaries who have been slow to respond and prepare.
There are also reports claiming that Vietnam is not doing enough to stop illegal activity by its fishermen. The EU issued Vietnam with a ‘yellow card’ under its IUU regulations back in 2017. It is an official warning that Vietnam is working hard to rescind.
Escalation, however, to a ‘red card’ would mean Vietnamese fish is barred from EU markets.
One other pressing concern is China’s presence as a neighbouring country. Investors may be finding Vietnam increasingly attractive. But China still holds its allure that could threaten to shift attention away from emerging economies in the region – such as Vietnam and Thailand.
The future prospects and outcomes
Such challenges can be overcome, however. For Vietnam, the EUFVTA is recognition that it’s a growing force on the world economic stage. With the UK expected to follow with its own, post-Brexit free trade agreement later, the Vietnamese economy is well-placed. Not only will it help to underpin gains made pre-Covid-19 – but it is shaping its post-pandemic prospects too.
The country’s growing global presence and response to the Covid-19 pandemic now means the International Monetary Fund (IMF) predicts economic growth to be 2.4% for the year. A strong recovery is also forecast on into 2021. With the tailwinds of trade agreements like the EUFVTA and potential others to follow, Vietnam could be about to enter a brand-new era of prosperity.
