As a new free trade agreement (FTA) with the deepest integration levels ever, the EU-Vietnam Free Trade Agreement (EVFTA) will be an important impetus to foster Vietnam's exports to the EU. At the same time, the FTA will be a "key" for Vietnamese enterprises to penetrate deeper into one of the largest markets with the most potential in the world. However, unlocking the full benefits and opportunities from this deal is not easy.
|Vietnam’s garments and textiles will benefit directly from EVFTA. (Illustrative image)
A potential market
With a population of more than 500 million people and a combined GDP of over US$15 trillion, accounting for about 22% of the world's GDP, the EU is an extremely large market and also the largest exporter and importer in the world with an annual foreign trade turnover of about US$3.8 trillion .
However, import and exports from and to Vietnam in the EU only focus on several countries including Germany, France, the UK, Netherlands and Italy. Thus, there remains huge potentials and opportunities for Vietnamese enterprises to seize when EVFTA comes into effect as Vietnam has strengths in tropical agricultural products, fisheries, textiles and garments, footwear, and furniture.
General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP) Truong Dinh Hoe said that the EU is committed to eliminate 50% of tariff lines imposed on fishery products except for canned tuna and fish balls (equivalent to 840 tax lines with most of tax rates from 6 to 22%) immediately after the EVFTA takes effect.
The remaining 50% of tax lines will be reduced to 0% in three to seven years after the effectiveness of the trade deal.
Meanwhile, seafood export to the EU are still growing impressively. Vietnam posted US$105.2 million worth of tra and basa fish exports to the EU in the first five months of this year, up 31.5% compared to the same period of 2018.
With tax incentives from EVFTA, the exports of tra and basa and other seafood products, particularly shrimp to the EU will surely gain momentum for strong growth. A seafood company in Sa Dec Industrial Park in Sa Dec city, Dong Thap province said that its export revenue to the EU only accounts for 10% of its total seafood export turnover of about US$90 million per year, noting that the effectiveness of the EVFTA will create opportunities for exporters to penetrate into this market. With preferential conditions from EVFTA, the company will boost exports to the EU to diversify its market by not only focusing on the Asian market.
Chairman of Board of Directors of TNG Investment and Trading JSC Nguyen Van Thoi said that EVFTA is a very good opportunity for textile and garment enterprises and taking advantage of such opportunities depends on the capability of enterprises.
Enterprises who have made preparations for the trade deal will meet the standards set out by the deal while enterprises that have just approached the deal will have to wait about five to six years to take advantage of opportunities.
Thoi said that TNG is currently cooperating with a large EU customer, accounting for more than 40% of TNG’s production capacity as the company has made preparations and could take advantage of the trade pact immediately after its effectiveness.
The deal is not all roses
Like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EVFTA offers an opportunity to expand the market for a number of Vietnamese export products in addition to big challenges for businesses. Participating countries can reduce tax rates but raise non-tariff barriers and take more stringent controls, requiring enterprises to meet higher standards on quality, food safety, environmental protection, energy saving, and others.
Therefore, enterprises should actively learn the key information about EVFTA and Vietnam's commitments, particularly on tariff incentives, product quality, origin of goods, and others. Director of the WTO Integration Centre under the Vietnam Chamber of Commerce and Industry (VCCI) Nguyen Thi Thu Trang said that it is not easy to enjoy preferential tariff treatment in EVFTA, especially for agricultural products.
Trang noted that commitments to EVFTA do not mean granting export license to goods, nor do they eliminate technical barriers to trade, traceability and food safety. In addition, integration will increase competitive pressure from imported products while raising production costs and costs on obeying rules on labour, environment, and others.
Expert on foreign economics Bui Kim Thuy said that both CPTPP and EVFTA are new generation FTAs, but EVFTA has more stringent regulations than CPTPP. Members of CPTPP can also hold many bilateral or multilateral FTAs with other members. Therefore, enterprises may choose to apply rules in bilateral FTAs or rules in CPTPP. For example, to export goods to Japan, Vietnamese enterprises can apply provisions in CPTPP or in Vietnam – Japan FTA or even in ASEAN – Japan FTA. It means that enterprises have many options to enjoy preferential tariffs that are best suitable with their shipment.
However, to export goods to the European markets, enterprises must comply with only EVFTA without other options. In addition, EVFTA regulates even more stringent rules than in CPTPP such as rules of origin applied to shrimp products, an industry that Vietnam has attached great importance to. Therefore, EVFTA is actually not all roses.
Acting General Director of Dong Tien JSC (Dovitec) Nguyen Van Hoang said that the EU market currently accounts for about 80% of the total export revenue of Dovitec. The number of orders and prices of products are expected to increase soon but the company will have to face many challenges and pressure from foreign firms, Hoang said. Thus, the State should have strict supervision and management mechanisms to avoid unequal competition in order to facilitate domestic enterprises, he noted.
The EU is a fastidious market that has strict policies to protect consumers, thus Vietnam's export products to this market must meet demanding requirements. To take full advantage of benefits from EVFTA, businesses should strive to better themselves while developing new strategies and solutions to building brands and creating high-value products capable of competing with imported goods.
Furthermore, enterprises should improve their competitiveness through innovating technological equipment, improving product quality, and proactively approaching EU enterprises to learn and enhance the qualification to penetrate into the EU market.
Co-chairman of the European Chamber of Commerce in Vietnam (EuroCham) Nicolas Audier said that EVFTA will be the most important FTA ever signed. Vietnam’s seafood and garments and textiles are export sectors will benefit directly from this agreement while European cars, pharmaceuticals and alcohol production will benefit mostly from the deal.
So far, the Netherlands and France have obtained investment protection in Vietnam and with the rest of the European countries also wishing to gain the same protection. The EuroCham now has about 1,000 members, therefore, when EVFTA is effective, a large amount of capital flow will continue to flow into Vietnam. Nicolas Audier thinks that EVFTA not only makes EU goods easily accessible to the Vietnamese market, but it will also be a gateway for EU goods to penetrate the Asian market.