Better utilising opportunities of EU-Vietnam free trade agreement

However, many challenges have been identified for the next period, requiring the joint efforts of ministries, agencies, local authorities and particularly the business community so that this trade pact can be utilised more effectively.

A fruitful year

Nguyen Anh Duong, an expert at the Central Institute of Economic Management (CIEM), said that the EVFTA has brought about important positive impacts for Vietnam, especially as the economy is facing a great deal of difficulties due to COVID-19, citing Vietnam’s encouraging export performance in the first half of 2021.

According to the General Department of Customs, bilateral trade between Vietnam and the EU reached US$27.67 billion in the first six months, up 18.4% year-on-year. A breakdown of data shows Vietnam exported US$19.4 billion worth of goods to the EU, up 18.3%, while the country imported US$8.2 billion from the union, up 19.1%.

Statistics also shows that many of Vietnam’s key exports are effectively utilising opportunities with EVFTA preferences such as footwear, seafood, garments and leather products.

Chairman of the Vietnam Textile and Apparel Association (Vitas) Vu Duc Giang said the first six months of the year saw the strong recovery and growth of the garment sector, with export revenue reaching US$18.79 billion, up 21.27% against the same period in 2020 and 4.23% against 2019. Of the figure, exports to the EU rose 4.85% to US$2.263 billion, thanks to the EVFTA. Without the trade pact, garment exports to the region could have only been at US$700-800 million.

Under the EVFTA, Vietnam’s timber exports to the EU also jumped by 37% to reach US$300 million during the January-June period. Chairman of the Vietnam Timber and Forest Product Association (Viforest) Do Xuan Lap said that as EU countries are gradually opening their economic, tourism and trade activities, domestic timber enterprises need to seize on this opportunity to look for new orders and ensure transparency in the origin of their products in accordance with international regulations.

In addition to the positive effect in trade, the EVFTA has also bolstered investment activity between Vietnam and the EU. As of June 2021, the EU has invested US$22.216 billion in 2,221 projects in Vietnam, up US$449 million and 142 projects from a year earlier. The EU accounted for 5.58% of total foreign investment in Vietnam.

According to Luong Hoang Thai, director of multilateral trade policy at the Ministry of Industry and Trade, the EVFTA has produced very positive results for bilateral trade and investment, adding that enterprises of both sides are effectively realising the opportunities provided by the trade pact.

Dealing with challenges

Besides the positive results, the utilisation of the EVFTA has not yet met expectations due to numerous challenges, notably the COVID-19 pandemic, which has forced many enterprises to revise their business strategies to adapt to the new situation.

Viforest Chairman Do Xuan Lap said despite enjoying lower tariffs, the export of timber is facing obstacles brought about by the pandemic. He elaborated that timber exports could grow by 20-30% this year, but higher costs mean lower profits and market sustainability is not guaranteed.

In addition, many major timber processing centres in the southern region such as Binh Duong, Dong Nai and Ho Chi Minh City are being severely hit by the raging pandemic and social distancing measures. It is projected that the value of wooden furniture to the EU in the second half of the year will fall by 10-12% compared to the first half.

Rice exporters are also facing a similar problem when the container shipping costs surged by 6-10 times compared to the previous year. Loc Troi Group, for example, was able to export only 4,000 tonnes of rice to the EU in the first seven months of 2021, down 700 tonnes from last year, said its General Director Nguyen Duy Thuan. Notably, the shortage of containers to Europe has left the company unable to fulfil the signed contracts although it has an adequate stock of goods. Therefore, many companies are expecting the quick release and appropriate rotation of containers so that they can have more containers for shipping exports.

Furthermore, social distancing measures in many localities are disrupting the transport of goods, resulting in prolonged delivery times and possible fines by shipping lines or foreign customers. These are the greatest difficulties that Loc Troi Group is facing, especially as it has a high inventory of rice.

There is also another reason involving enterprises themselves as most of them are small and medium-sized businesses whose competitiveness is weak and product quality is lower than international standards. They also pay inadequate attention to the level of administration, workforce quality, and the development of their brands and long-term business strategies.

A survey by the Vietnam Chamber of Commerce and Industry shows that 45% of export enterprises are not aware of EVFTA tax commitments related to their products. As such the communication on the trade deal needs to be more specific and target enterprises in the relevant sectors.

According to the Ministry of Industry and Trade, the effective implementation of the EVFTA requires the efforts of various parties. Ministries, agencies and local authorities should step up their cooperation with trade associations to guide enterprises to expand their export markets by capitalising on opportunities from this trade pact.

At the same time, it is necessary to enhance the capacity for those in charge of international economic integration, focus on administrative reform, support enterprises to increase their competitiveness and facilitate them to develop domestic sources of materials to meet the rules of origin.

For enterprises, they need to proactively learn about commitments in the EVFTA and keep themselves updated on changes to the EU’s trade policies. At the same time, they need to formulate plans to enhance their export capacity, especially in meeting technical standards and sanitary and phytosanitary requirements. Only when such measures are implemented will Vietnamese goods be able to meet the EVFTA’s requirements as well as the EU’s high standards so as to better utilise the opportunities from this trade pact.