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| Gabor Fluit, President of the European Chamber of Commerce in Vietnam (EuroCham). (Photo: Provided by the interviewee) |
How would you assess the effectiveness of the EVFTA after three years?
August 1st, 2023 marks a significant milestone, the third anniversary of the entry into force of the Vietnam-EU Free Trade Agreement (EVFTA). This FTA has been and continues to be a strong link, bringing many positive results for both sides.
Since August 2020, the EVFTA has facilitated trade growth between the two sides, despite the Covid-19 pandemic. Over the past three years, bilateral trade has continuously expanded, bringing significant economic benefits.
From August 2020 to June 2023, the total value of trade under this agreement reached nearly $130 billion. In 2022, bilateral trade was $66.8 billion.
The EU has witnessed an increase in exports to Vietnam in various sectors such as machinery, automobiles, pharmaceuticals, chemicals, and consumer goods. Vietnamese exports such as electronics, textiles, footwear, agricultural products, and seafood have also seen impressive growth in the 27-member bloc.
According to data from the European Statistical Agency (Eurostat), Vietnamese goods currently account for 1.8% of the EU's total import value, surpassing other countries in the region such as Malaysia (1.2%), Thailand (0.9%), Indonesia (0.7%), and Singapore (0.7%).
Currently, the EU is Vietnam's second-largest export market, but we believe that the EVFTA can achieve much more and there is still untapped potential.
In the context of the ongoing tariff reductions under the EVFTA and the continued promotion of trade and investment between the two sides, we need to address all remaining barriers (technical trade and excise taxes) to fully exploit this historic agreement.
According to EuroCham's Business Confidence Index (BCI) results for Q2 2023, half of the businesses surveyed benefited from the EVFTA. Of those, 35% benefited from tariff reductions. So, what advantages are European businesses taking advantage of when operating in the Vietnamese market?
Thanks to the EVFTA, businesses on both sides have gained significant advantages, such as reduced tariffs. Through the gradual elimination of tariffs over 10 years starting from 2020, the EVFTA opens up tremendous opportunities for Vietnamese businesses to access the EU market and vice versa. This is the clearest evidence of the benefits that this FTA brings to European businesses.
According to BCI Q2/2023, the second and third most important benefits of the EVFTA are better access to the Vietnamese market and increased competitiveness for businesses in the country. European businesses are seizing the opportunity to diversify their services when doing business in Vietnam. Over the next seven years, as tariffs continue to decrease, European businesses can reap further benefits, especially in sectors such as electrical equipment and pharmaceuticals.
| Besides the EVFTA, Vietnam has an attractive investment environment. With its strategic geographical location and extensive FTA "map," this Southeast Asian country is an ideal destination to become an export-oriented manufacturing hub. |
In my opinion, besides this FTA, Vietnam has an attractive investment environment, is a country with rapid economic growth, and possesses a young, skilled workforce ready to support economic development.
Furthermore, with its strategic geographical location and extensive FTA "map," Vietnam is an ideal destination to become an export-oriented manufacturing hub. Moreover, it possesses abundant natural resources and agricultural potential, creating a foundation for strong export prospects in many sectors.
Currently, what are the challenges that European businesses face when operating in the Vietnamese market, sir?
Although the EVFTA creates promising prospects for cooperation, European businesses still face challenges that hinder the full exploitation of the agreement's potential. EuroCham's Q2/2023 BCI highlights some of the main obstacles.
Firstly , Vietnam has made efforts to simplify administrative procedures, but EU businesses still face difficulties. Enhancing transparency and efficiency in these processes is crucial to accelerating trade facilitation.
Secondly, some European businesses do not fully understand the agreement. This knowledge gap causes businesses to miss out on valuable cooperation opportunities. A thorough understanding of the agreement allows European investors to optimally exploit the enormous potential of this FTA.
Third, inadequate infrastructure to meet business needs is another barrier, exemplified by the power shortages in June 2023 in some northern provinces of Vietnam. Expanding capacity, especially in renewable energy, is crucial for continued economic growth. Furthermore, upgrading roads, railways, ports, and airports is also key to smooth business operations.
Despite the aforementioned challenges, European businesses remain optimistic about the prospects of the EVFTA.
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| Vietnamese businesses need to improve their understanding of the commitments under the EVFTA. (Source: Gulf News) |
What advice would he give to European and Vietnamese businesses to fully capitalize on the benefits offered by the EVFTA?
For Vietnamese businesses, the top priority is to strictly comply with the terms of the agreement and export procedures through government guidance. At the same time, it is crucial to enhance understanding of the commitments under the EVFTA.
Raising production and service standards is also essential for Vietnamese businesses to meet the high demands of the EU market regarding quality, safety, and sustainability. To maintain competitiveness, businesses must keep pace with the preferences and priorities of European consumers.
Furthermore, partnerships with European companies can offer invaluable opportunities for knowledge transfer and supply chain integration. The EuroCham Green Economy Forum, scheduled for November 2nd, introduces a crucial networking platform for sharing best green practices, boosting exports, and engaging EU consumers.
For European businesses, close cooperation with Vietnamese government agencies and industry partners is crucial. The European side needs to provide feedback on issues requiring implementation and work together to find solutions that foster a more favorable, efficient, and transparent trading environment.
European investors should prioritize partnerships, joint ventures, and relationships with Vietnamese businesses. This helps integrate knowledge about the localities that European businesses want to explore and invest in. Furthermore, building understanding and trust between EU investors and Vietnamese businesses facilitates long-term cooperation.
How do you assess the situation regarding attracting foreign direct investment (FDI) into Vietnam after three years of implementing the EVFTA? What improvements does Vietnam need to make to attract even more European investors?
The delay by all EU member states in ratifying the Vietnam-EU Investment Protection Agreement (EVIPA) has negatively impacted investment flows. This agreement was designed to complement the EVFTA by providing investment protection between the two sides. EVIPA acts as a safeguard for investments by ensuring fair treatment for European investors in Vietnam, creating a level playing field.
However, EVIPA requires dual ratification – from both the European Parliament (EP) and each of the 27 EU member states. Currently, only about half of the EU countries have ratified the agreement.
According to the BCI Q2/2023, over 80% of surveyed businesses faced significant difficulties in securing visas and work permits for foreign workers. These limitations affect the development of skills crucial for FDI and the competitiveness of the workforce. Vietnam needs to address these labor mobility restrictions to fully leverage the EVFTA to attract FDI from Europe and facilitate the transfer of relevant knowledge.
Simultaneously, administrative barriers such as difficulties in obtaining necessary permits and investment project approvals also discourage investors and cause delays.
Furthermore, developing Vietnam's human resources through education, vocational training, and workforce skills development will be a significant opportunity. Improving the talent pool will enable Vietnam to effectively deploy and absorb more European FDI, fostering sustainable growth.
Significant investment in human resource development will make Vietnam far more attractive to investors seeking skilled workers and long-term partnerships.
Vietnam's economy, heavily reliant on manufacturing and exports, is being significantly impacted by the challenging global situation. So, how can Vietnam leverage the EVFTA to improve its export performance?
To improve the export situation, in my opinion, Vietnam needs to raise awareness of rules of origin. Lower tariffs are a favorable factor for businesses to export more to the EU.
The government could open training courses and provide support, especially for businesses in key export sectors such as textiles, electronics, and agriculture. This would help businesses meet EU standards and enhance their competitiveness with their partners.
Furthermore, promoting high value-added production and exporting higher-quality branded goods and services to the EU will help Vietnam's exports stand out. Differentiation through innovation, unique brands, and better quality will appeal to European consumers.
Facilitating partnerships between Vietnamese businesses and EU countries is key to integrating into European supply chains and distribution networks.
Leveraging existing business networks offers Vietnamese exporters the opportunity to significantly expand their access to the 27-member bloc's market. And the EVFTA provides an ideal framework for fostering these crucial business relationships.
Simultaneously, actively addressing European legal issues, improving transparency, and simplifying trade procedures will make Vietnam significantly more attractive to EU manufacturing investment focused on exports. A favorable, efficient, and friendly business environment will bring substantial capital and skills from Europe to Vietnam's export industries.
Above all, Vietnam should fully utilize EU technical assistance and funding to modernize customs and improve supply chain connectivity. Utilizing this support will enhance Vietnam's capacity and global export competitiveness.
Finally, demonstrating Vietnam's commitment to sustainable trade practices, labor rights, and environmental protection highlights the country's responsible business practices towards the EU. This will encourage long-term export growth in the European market.
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