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EU-Vietnam Free Trade Agreement: Key Provisions and Implications for FDI

14/08/2024    1462

As the EU-Vietnam Free Trade Agreement (EVFTA) marks four years in August 2024, we review its implementation progress, highlighting key achievements and remaining challenges, to help businesses identify strategies to optimize their benefits from the agreement.

Alongside the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EVFTA is considered one of the most crucial new-generation free trade agreements (FTAs) that Vietnam is part of. Notably, its signing demonstrated Vietnam’s commitment to enhancing trade relations with the European Union (EU) and addressing concerns over commercial activities and the business environment.

Overview of the EVFTA

Having entered into force on August 1, 2020, the EVFTA aims to stimulate economic growth between Vietnam and the EU by improving the investment climate and providing greater certainty for both European and Vietnamese investors.

To achieve its objectives, the trade agreement outlined a roadmap to:

  • Eliminate customs duties, red tape, and other obstacles facing businesses;
  • Streamline trade in key sectors, such as electronics, food products, and pharmaceuticals; and
  • Open Vietnam’s market for EU service exports and vice versa.

Vietnamese traders have stood to benefit from the EVFTA in several ways, including:

  • Eliminating 99 percent of all tariffs, with the remaining 1 percent being partially removed through limited zero-duty quotas;
  • Reducing regulatory barriers and redundant bureaucracy;
  • Protecting intellectual property rights, including geographical indications for special regional food and drink products;
  • Catalyzing growth in services and public procurement markets; and
  • Ensuring that the agreed-upon rules are enforceable.

EU-Vietnam trade after the EVFTA

Four years into the agreement, Vietnam has established itself as the leading exporter to the EU within ASEAN, driving economic growth, job creation, and greater consumer access to premium European products. According to the Ministry of Industry and Trade (MoIT), Vietnam’s export value to the EU has surged by nearly 50 percent, while imports from the EU have also grown by over 40 percent.

The gradual tariff elimination under the EVFTA has created mutual benefits, offering Vietnamese consumers more affordable, high-quality European goods while fostering the growth of export-oriented sectors.

According to the General Department of Vietnam Customs (GDVC), the two-way trade volume reached US$296.87 billion in 2023. For the first half of 2024, GDVC reported that Vietnam’s exports to the EU totaled over US$24.69 billion, marking an annual increase of 15.37 percent. Vietnam’s key exports to the EU included aquatic products, fruits and vegetables, footwear, apparel, wood, and wooden furniture, with the Netherlands, Germany, Italy, and Spain being the major importers.

Benefits for FDI in Vietnam

According to the European Chamber of Commerce (EuroCham), the EVFTA has significantly contributed to making the EU the sixth-largest source of foreign direct investment (FDI) in Vietnam, even though the EU-Vietnam Investment Protection Agreement (EVIPA) is still pending. EU members have invested €28 billion (US$30.6 billion) in 2,450 projects in Vietnam, many of which are high-quality investments in high-tech manufacturing and services.

The Ministry of Planning and Investment (MPI) projects that Vietnam will become more attractive to foreign investors due to its comprehensive commitments under the EVFTA. The benefits include:

  • Smoother trade with greater freedom for service industries: FDI inflows from the EU to Vietnam will increase as EU service providers gain more opportunities from a more open service sector, particularly in business services, environmental services, postal services, banking, insurance, and shipping.
  • New momentum for high-quality investments: The involvement of developed EU economies provides Vietnam with higher-quality investments, stimulating FDI inflows. Consequently, Vietnam’s investment structure will experience significant changes as new partners enter novel investment areas, offering more opportunities for EU investors in sustainable industries such as green and renewable energy.
  • A more transparent and predictable business environment: The EVFTA supports Vietnam’s ongoing institutional and legislative reforms towards international standards. It promises to enhance the business environment with greater openness, transparency, and predictability, thereby promoting both domestic and foreign investment and facilitating cross-border transactions and services.

Source: Vietnam Briefing

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