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Trade - Service
Nov 15, 2017 / 13:45

EVFTA: Key for Vietnam's economic growth

Ngoc Thuy

The negotiation of Vietnam – EU Free Trade Agreement (EVFTA) was concluded at the end of 2015. There are numerous reasons for Vietnamese enterprises to anticipate the EVFTA coming to effect. In which, benefits in trade and investment are considered the most important motivation.

EU is an important market for Vietnamese' fruits.
EU is an important market for Vietnamese' fruits.
Firstly, opportunities for Vietnamese goods to export to EU market will be clearer more than ever. EU is a big market with 500 million customers and high level of income in the world. This is also one of Vietnam’s biggest export market in recent years. However, in reality, the Vietnam’s export value of 34 billion USD in 2016 to EU is equivalent to only 1.5% of the total import value of EU. Besides, less than half of Vietnamese goods exported to EU are having the benefit of zero import tariff. These numbers can be reasoned with different factors, such as EU’s high import tariffs impose on some Vietnamese goods, high requirements on product quality and food safety compared to other markets, high logistics costs due to geographic location. With this being said, with the advantage of removing import tariffs for goods and new mechanism with regard to non-tariff barriers, EVFTA will tremendously help Vietnamese enterprises in exporting goods to EU. 

Secondly, EVFTA will establish preferential tariff treatment for Vietnamese enterprises. At present, one of the reasons why Vietnamese enterprises can export a high number of goods to EU is due to the preferential access to the EU market through the EU’s Generalized Scheme of Preferences (GSP). The GSP allows vulnerable developing countries to pay fewer or no duties on exports to the EU, giving them vital access to the EU market and contributing to their growth. However, due to its unilateral nature, this scheme is controlled periodically by EU with its own criteria and whether Vietnamese goods are still under GSP category is depended on EU’s decision. Besides, goods are deemed sensitive and important to EU will not be received preferential import tariff treatment. However, when the EVFTA comes into force, a bilateral preferential treatment will be established. As such, import tariff to EU market will be gradually reduced in accordance with the two parties’ commitment. After 7 years of implementation, more than 99% goods, even some sensitive goods will have 0% import tariff. 
 
Trading mechanism in EVFTA is of supportive nature.
Trade arrangement in EVFTA is of supportive nature.
Thirdly, domestic enterprises will have other resources of imported goods with reasonable price and high quality. In addition to exporting, Vietnamese enterprises have high demands for imported equipment and materials for industrial and agricultural production. Vietnamese customers are having a higher standard for consumption and living, which focus on high quality products with limited quantity in Vietnam such as cars, cosmetic products, medicines. EU products are always on top of the world with regard to quality, however, their prices are still higher than products from other regions. With the removal of import tariff in EVFTA, Vietnamese enterprises and customers will have opportunities to use these products with a more reasonable price. Other important advantage from EVFTA is the EU market will help domestic enterprises diversifying import markets, and avoiding the overdependence on some familiar markets. 

Fourthly, EU is a high developed region with the most advanced technologies. Therefore, domestic enterprises will have chance to cooperate and partner with EU’s enterprises, including through EU’s investment to Vietnam, thus improving creative capabilities, learning management skill and taking advantage of modern technologies. 

However, in addition to massive benefits, Vietnam will face challenges from EVFTA. In which, Vietnamese enterprises are concern about the competition from EU’s enterprises. However, this aspect of EVFTA is expected not to be so overwhelmed, as the trade arrangement between Vietnam and EU is of the supportive nature. In other way of saying, Vietnam will mainly import from EU equipment and input materials with the purpose for production, or high quality products with limited supply from domestic market, so that there is expectation that not many competition will take place between enterprises from both sides.  

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