In a boost to Vietnam’s increasing attraction as a Asean manufacturing centre, Vietnam and the European Union (EU) yesterday (August 4) agreed in principle to the signing of a EU-Vietnam Free Trade Agreement (EVFTA).
Vietnamese Minister of Industry and Trade, Vu Huy Hoang, said in Hanoi that he and EU trade commissioner Cecilia Malmstrӧm have concluded negotiations on the EVFTA bilateral free trade agreement.
Chris Humphrey, executive director of EU-Asean Business Council described the forthcoming EVFTA as one of the “most deep and comprehensive FTAs that the European Union has undertaken with an emerging market.”
“European companies are significant investors in Vietnam and will welcome the announcement that an FTA between the EU and Vietnam has been agreed in principle.”
He said that agreement will see almost all tariffs eliminated and will boost the already strong growing trade and investment relationship between the two partners.
The EVFTA comprises ten points:
- Elimination of customs duties,
- Reducing non-tariff barriers to European exports,
- Protecting European Geographical Indications (GI),
- Allowing EU companies to bid for Vietnamese public contracts,
- Creating a level playing field for EU companies and innovative products,
- Opening the Vietnamese market for EU services operators,
- Promoting and protecting investment,
- Establishing an efficient mechanism to resolve future disagreements,
- Safeguarding social and environmental protection standards
- Promoting democracy and respect for human rights.
Propelled by the rapid growth of Vietnam’s economy and its favourable balance of trade, Vietnam gross domestic product (GDP) expanded by 6.28 per cent during for the first six months of 2015 (See: Vietnam H1 2015 GDP A Record – Structural Reforms Lag)
Companies from the EU are one of the largest investors in Vietnam and in Asean. According to figures from Eurocham, in 2013, the country’s exports to the EU increased by €25 billion (US$36.860 billion*) in value, while imports from the EU sat at 29 per cent of total imports.
Two-way trade between Europe and Vietnam in 2014 amounting to €28.3 billion (US$41.725 billion*).
A Blow to Thailand’s Manufacturing Sector
The EVFTA will put Vietnam in the the enviable position of being only the second Asean nation with an FTA with the EU. Last October the EU and Singapore finalised negotiations for a EU-Singapore FTA (ESFTA), the document currently remains unratified.
The EU is still negotiating an FTA with Malaysia, while talks of a EU-Thailand (ETFTA) have all but stalled in the wake of the May 22 2014 coup d’état led by current Thailand Prime Minister General Prayut Chan-o-cha.
For regional manufacturing power house Thailand, news of a EU-Vietnam FTA couldn’t come at a worse time. For the first six month of the year Thailand exports contracted by 4.87 per cent. (See: July Thai Consumer Confidence Down 20% on 2014)
In addition, the end of 2014 saw Thailand lose privileges it was eligible for as a developing nation under the European Union (EU) Generalised System of Preferences (GSP) scheme driving up the cost of Thai imports into Europe.
Some 6,200 Thai products exported to the EU saw their cost increases by up to 90 per cent, with more than US$252 million in tax relief privileges removed.
Particularly hard hit were Thailand exports of automobiles, automotive parts, rubber products, seafood, chemicals, clothing and footwear, and processed foods.
Thailand’s automobile sector saw a 66.66 per cent increase in import taxes, from 6 to 10 per cent rise in taxes while Thai frozen shrimp saw a 185.7 per cent increase from 4.2 to 12 per cent. In 2014 Thailand exported some 90,000 vehicles to Europe.
It is estimated that the EU-Vietnam FTA could see Vietnam exports to the EU expand by up to 40 per cent. It expected the EU-Vietnam FTA will be ratified later this year.
*Euro to US dollar conversions at current rates
- Singapore and Europe: 50 years of relations (New Europe)
- Vietnam, EU basically end negotiations on bilateral FTA (Vietnam+)
- Vietnam, EU chalk out trade deal (Fibre2Fashion)