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EVFTA: High expectations, serious concerns

16/08/2019

The recently inked EU-Vietnam Free Trade Agreement (EVFTA) has made Vietnam the second ASEAN country and the first developing nation in the region to have an FTA with the European Union (EU). This high-standard FTA is expected to open unprecedented business opportunities for both sides. However, it will also require them to cope with challenges.

Opportunities and challenges

According to Pham Quynh Mai, Deputy Director of the Multilateral Trade Policy Department of the Ministry of Industry and Trade (MoIT), the fact that the EU chose Vietnam to be the first developing country with which to sign an FTA reflects the EU’s appreciation of Vietnam’s role and international integration process, especially economic integration. The agreement also reflects the EU’s confidence in Vietnam as a reliable partner in implementing its FTA commitments and its potential as a market with nearly 100 million consumers.

Ahead of the pact’s implementation, Vietnam has prepared for tariff cuts to zero percent under a 10-year roadmap. For its part, the EU will implement its tariff reduction plan for Vietnam within seven years. Many commitments made by the Vietnamese government require it to take specific measures in the context of sustainable development.

The textile and garment sector will be a major beneficiary of the EVFTA once it takes effect because taxes applied to its EU exports will drop from 11.9 percent to zero within seven years. Nguyen Phuong Thao, Head of the Market Division 1 of the Garment 10 Corporation - Joint Stock Company (Garco 10), said the EU is Garco 10’s second largest export market, after the US, with export value accounting for 35 percent of the total. She believes that after it takes effect, the EVFTA will provide many opportunities for Vietnamese textile and garment companies and help them enhance their competitiveness. She expects Garco 10’s exports to the EU will increase 10-15 percent and account for 45 percent of its total export value.

Nguyen Ton Quyen, Vice President and Secretary General of the Vietnam Timber and Forest Product Association, said that until 2018 the sector exported to the EU US$700-750 million worth of goods annually, and in the first half of 2019, the export value reached US$440 million, up 15 percent compared with the same period last year. The wood sector’s annual export value in 2019 is expected to reach US$900 million. Nguyen Ton Quyen believes that when the EVFTA comes into force, Vietnamese companies will have opportunities to access diverse and high-quality material resources meeting the EU’s legal requirements. The agreement will also create favorable conditions for them to access information about the EU’s equipment, market and technology. “I believe the Vietnamese wood sector’s exports to the EU market will reach US$1 billion or higher next year,” Quyen said.

However, the opening of the Vietnamese market to European goods and services means domestic companies will face fiercer competition in the home market. This is a big challenge because EU companies are stronger than Vietnamese ones in terms of competitiveness, marketing experience and ability to take advantage of FTAs.

What should be done?

In the opinion of economist Vo Tri Thanh, businesses need to grasp information about the market and be aware of integration commitments in order to make the most of opportunities and minimize risks. Thanh advises firms to: (1) meet technical standards and abide by rules on the environment, labor, origin, localization and distribution to enjoy zero percent taxes; (2) invest in human resources to protect company interests and deal with disputes - a potentially difficult task for small and medium-sized businesses, but they can seek state support; and (3) bring into play the role of business associations in promoting connections.

According to the leadership of the MoIT, the ministry will create a master action plan to provide information for state authorities and businesses about EVFTA commitments so that they can be aware of its opportunities and challenges. At the same time, the ministry will set a specific schedule to implement the agreement and create suitable mechanisms to maintain the connection between the state, business and the people throughout the implementation process. Necessary policy adjustments will also be made to ensure that the EVFTA will have positive effects on the Vietnamese economy.

The MoIT is accelerating steps towards the ratification of the EVFTA, while at the same time implementing Vietnam’s commitments in other FTAs, as well as within the WTO and the ASEAN Economic Community, in order to boost exports and effectively control imports.

Source: VietNam Economic News