On June 8th, Vietnam’s National Assembly ratified two important economic agreements, namely the EVFTA (European Union-Vietnam Free Trade and EVIPA (European Union-Vietnam Investment Protection Agreements. Both received unanimous approval with nearly 95% of the country’s lawmakers voting in favor of the EVFTA and nearly 96% voting in favor of the EVIPA. These developments followed European Parliament’s ratification of the FTA in February.
About the EVFTA
The EVFTA paved the way for increased trade between Vietnam and the European Union and was signed into law on the last day of June. This aggressive pact provides for the elimination of nearly 99% of custom duties between the two governments. In so many words, the MPI (Ministry of Planning and Investment) stated that the agreement would increase the country’s GDP by nearly 5% and result in nearly a 43% increase in exports to the EU by 2025.
Furthermore, the European Commission is estimating a $29.5 billion increase in their GDP by 2035. The agreement calls for the elimination of 65% of all EU export duties while the remaining 35% will be eliminated over the next 10 years. On the other side of the coin, the agreement calls for the elimination of 71% of the duties on exports to the EU from Vietnam with the remaining 29% being eliminated over the next 7 years. As a new generation agreement, the EVFTA contains important provisions for:
- investment liberalization
- IP or intellectual property rights
- sustainable developments
Additionally, the agreement will include the implementation of standards for the ILO or International Labor Organization and the UN’s Convention for Climate Change. By the end of 2018, EU investors were responsible for investing nearly $24 billion in over 2,000 Vietnamese projects. On a regional scale among ASEAN members, Vietnam is the 2nd most important trading partner to the EU, thereby surpassing Indonesia and Thailand.
Industry Expansion Projections
At its core, the EVFTA removes restrictive non-tariff and tariff barriers for the primary imports from each government over the ensuing 10-year period. The primary export industries that will benefit include:
- Electronic products – the EVFTA will provide the country with a chance to take a lead in electronic production such as smartphones and electronic manufacturing.
- Pharmaceuticals– This sector is attractive to the investors in EU as with the new FTA, more than half of the imports by EU will be duty-free immediately and the rest will become duty free after 7 years. Pharmaceutical companies of EU will be allowed to import authorized medicines to be sold in Vietnam.
- Textiles and Footwear– FTA could significantly increase the volume of trade in textiles and footwear as it is the major export to the EU. In 2018, this export sector contributed nearly US$9 billion.
Recent changes to the EU, such as the exit of the UK or Brexit, could no doubt impact the importance and outcome of the EVFTA. For now, the FTA will go into effect in the UK through year’s end. However, it may be extended for 2 more years based on the agreement between the EU and the UK.
