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Vietnam Today

Making the most of the EVFTA

Released at: 10:20, 03/12/2015 EU - Vietnam Free Trade Agreement

Making the most of the EVFTA

Experts and industry insiders share their thoughts with VET on the newly-signed FTA with the EU.

by Linh Huong - Anh Tuyet

After three years and 14 formal negotiation sessions, on December 2 in Brussels the Minister of Industry and Trade Vu Huy Hoang and the European Trade Commissioner Cecilia Malmstrom signed a joint statement officially concluding negotiations over the EU-Vietnam Free Trade Agreement (EVFTA).

The agreement is of high quality, complete, and balanced in terms of interests, in which the EU and Vietnam have pledged to abolish over 99 per cent of import duties. Vietnam will liberalize its tariff regime over a ten-year period and the EU over a seven-year period.

The opportunities presented by the FTA are accompanied by great challenges, in particular the strict non-tariff barriers that remain a persistent concern of exporters in Vietnam.

How can enterprises and State management agencies adapt to this high-quality agreement? After the joint statement was signed VET sought an answer from experts and industry insiders.

Formulating strategic action plans

Mr. Bui Huy Son, Director of the EU-MUTRAP project, Head of the Trade Promotion Agency at the Ministry of Industry and Trade

This is an important time for Vietnam to enhance its competitive capacity to identify the key to success at home and abroad. In particular, reform of the economic system and policies to facilitate trade is a major concern for the government in preparing the implementation of the agreement.

Officially concluding negotiations over the EVFTA and other important FTAs will boost and enrich trade promotion activities in Vietnam as many potential markets have emerged for the country. Regarding the EU, the Trade Promotion Agency at the Ministry of Industry and Trade has brought trade promotion activities into sharp focus as this market is Vietnam’s second-largest trading partner and fifth-largest investor.

When the EVFTA comes into effect Vietnamese commodities exported to the EU will be entitled to tariff exemptions, enhancing their price competitiveness. In order to maintain competitiveness we need to focus more on quality to ensure that products meet EU standards and regulations.

Trade promotion activities should be associated with product branding strategies to improve goods quality, as such tasks not only help major distributors in the EU know about Vietnamese goods but allow for an easier approach to consumers.

Take the initiative in all situations

Mr. Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises

Vietnam has experienced 20 years of regional integration (entering ASEAN in July 1995, signing the US-Vietnam Bilateral Trade Agreement in 2001, among others), achieving success in addressing the challenges to liberalizing trade.

Although a number of domestic enterprises are small-scale they have also been positive. I believe that most companies have gathered information on the trade agreements Vietnam has signed to date to prepare for when these come into effect.

I also understand that there are persistent challenges. The challenges presented by the EVFTA, however, are not as complex as those faced when Vietnam joined ASEAN and the WTO and signed the BTA.

I think that improving competitiveness and appreciating technological innovation and human resources are general approaches and not linked to the unique situation of each business. Therefore, instead of teaching enterprises what they already know, we should give them what they need to know.

Based on my experience, Vietnamese enterprises should be provided with useful information in a timely manner on each market to actively handle all situations.

Enterprises in all business lines confront particular problems, so each company, business association, and State management agency needs to study and exchange information to identify feasible solutions for each enterprise as well as the industry as a whole. They should also work together to resolve all problems.

The experience from integration has demonstrated that trade agreements have a positive impact on the process of creating institutions and laws in Vietnam to meet international rules and regulations. This has led to the business and investment climates being frequently improved. The content of the EVFTA will accelerate the process of perfecting institutions and laws.

Opportunities won’t automatically become benefits

Former Minister of Industry and Trade Truong Dinh Tuyen

Any agreement with balanced characteristics will have positive and negative impacts, bringing both opportunities and challenging. In the case of the EVFTA, Vietnam will have major opportunities in trade.

Firstly, trade in goods between Vietnam and the EU is complementary rather than competitive. Complementary products include pork, chicken, milk, paper, automotives, confectionery, alcohol, and other products. Secondly, as Vietnam is a developing country, tariff eliminations by the EU will be higher.

However, opportunities will not automatically turn into benefits and greater competitiveness will depend on the government and enterprises. For example, many agricultural products and food from Vietnam imported to the EU will see tariffs eliminated immediately after the EVFTA takes effect. However, if these products do not meet hygiene standards and disease prevention measures or use certain types of chemicals they will not be allowed to be imported into the EU.

Vietnamese enterprises must therefore be conversant on Sanitary and Phytosanitary (SPS) measures as well as standards for products using chemicals. This is a major challenge for the country’s agriculture sector, which has a small production scale. Challenges are also opportunities, however, forcing agricultural producers to link together. 

The FTA and the TPP are high quality and comprehensive agreements that require institutional reforms and improvements to the business environment to facilitate trade and investment. The role of the government is decisive and important. In my opinion, policymakers are well aware of these new free trade agreements and must leverage the opportunities.

Enterprises need policy support

Ms. Phan Thi Thanh Xuan, General Secretary of the Vietnam Leather, Footwear and Handbag Association

The EU is the largest importer of footwear in the world, accounting for 38 per cent of total global imports and its manufacturing accounts for 3 per cent of the 24.3 billion pairs produced in 2014. The EU is also the largest market of Vietnam’s footwear exports, with $3.6 billion in 2014, or 33 per cent of total turnover. Meanwhile, Vietnam imports a very small amount of footwear and high-grade raw materials from the EU.

These figures show there are possibilities for Vietnamese footwear enterprises to expand their export markets to the EU. However, tariff exemptions will follow a seven-year timetable from when the EVFTA takes effect, depending on the type of goods.

The greatest concern does not come from tariff barriers. The EU requires high quality products that comply with regulations on safety, standards, labeling, and wildlife protection. In particular, the use of chemicals in footwear production is strictly controlled under a list of banned or restricted chemicals in all EU countries. Notably, some importers in the EU have their own specific requirements, which are usually higher than the general standards.

With the EVFTA the technical and consumer safety standards will be tightened to protect consumers’ health, the environment, and footwear production in certain EU countries. Vietnamese enterprises must therefore stay updated on information regarding consumer safety regulations and technical standards in the EU and carefully work with EU importers to avoid errors or violations of EU rules.

In the two years before EU countries ratify the EVFTA and it takes effect, Vietnamese enterprises have sufficient time to secure information and be updated on regulations and technical standards in the EU market. Businesses also need to invest in technological innovation and equipment to increase production capacity and improve product quality.

Local authorities should support exporters with policies and provide detailed information on the EVFTA to businesses as quickly as possible. The government should also introduce specific programs and policies to support businesses to access the EU market, such as preferential credit and support for the production of industrial products.

Facing non-tariff barriers

Ms. Nguyen Thi Thu Trang, Director of the WTO and Integration Center under the Vietnam Chamber of Commerce and Industry (VCCI)

Within ASEAN, the EU has now concluded FTA negotiations with Singapore and Vietnam and is continuing negotiations with Malaysia and is mulling over a restart to negotiations with ASEAN as a whole.

Vietnam therefore possesses advantages compared to other ASEAN countries in terms of easier market access thanks to the preferential tariffs under the EVFTA. It will also have advantages compared to China, as the country has no FTAs within the region. This increases the competitiveness of Vietnamese goods compared to other countries that do not have an FTA with the EU.

We all understand that tariffs are not the determining factor in competitiveness, so advantages from tariff eliminations do not mean we can beat all other competitors in the market.

In fact, our greatest barrier in the EU is its high quality requirements in product design, standards, food safety, and technical standards, and these issues are barely addressed in FTAs. This is why China and other ASEAN member who don’t have an FTA with the EU will still have market share in this region.

In contrast, Vietnam already enjoys low tariffs under the EU’s Generalized Scheme of Preferences (GSP) but it still struggling to meet the requirements and standards of the market, and in many cases its goods have not been able to compete with those from China and many other countries.

The tariff elimination commitments under the EVFTA, within a clear schedule, will help Vietnam’s export enterprises secure long-term benefits in the market. Importers may fear competition from “Made in EU” products, which are preferred by Vietnamese consumers.

However, looking at the product structure between Vietnam and the EU, most of the advantageous products the EU exports are those that Vietnam cannot produce and so mostly imports. Competitive pressure will therefore not be that great. Vietnamese enterprises will also benefit when importing materials, machinery and equipment of good quality at a more affordable price.

The EVFTA aims not only to cut tariff barriers but also to eliminate, restrict, and improve the transparency of non-tariff barriers such as export and import licensing, technical barriers to trade (TBT), SPS, or trade remedies (TR).

In principle the EVFTA will help to reduce these barriers, but FTAs mainly focus on transparent mechanisms or cooperation to settle complaints rather than handling core problems such as restricting new barriers or simplifying standards. The existence of new measures is the main obstacle for Vietnamese products accessing difficult markets such as the EU and the US.

It also predicted that there will be no more commitments from the EU on promulgating regulations on SPS, TBT, or TR proceedings, so the EVFTA will not reduce non-tariff barriers.

The EU has so far conducted ten cases of TR against Vietnamese goods. To overcome these types of barriers Vietnam must identify ways to abide by product quality standards, controlling processes to ensure products comply with requirements, and also be more cautious with TR cases.

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