It took eight years to complete the entire process of negotiation, signing and approval. The Vietnam-EU Free Trade Agreement (hereinafter referred to as the “Agreement”) finally came into effect on August 1, 2020.
Vietnam has thus become the first emerging market country among Asia-Pacific countries to establish free trade relations with the EU , and it is also the second ASEAN country to establish free trade relations with the EU after Singapore. Vietnamese companies will have the opportunity to enter the EU market with a population of 500 million, and Vietnamese consumers will also have the opportunity to obtain cheaper EU products and services.
After August 1, tariffs on 71% of Vietnam’s exports to the EU and 65% of EU exports to Vietnam will be immediately exempted. According to the agreement, about 99% of tariffs in bilateral trade in goods will be gradually reduced until eliminated.
Vietnamese economists have compared this free trade agreement to “a highway connecting Vietnam and the European Union.” Thanks in part to the free trade agreement with the EU, Vietnam has set its economic growth target for 2020 at around 5%.
In an interview with reporters, Professor Huang Xingqiu from the Vietnam Institute of Guangxi Normal University said that the entry into force of the agreement will vigorously promote the development of Vietnam’s economy. At the same time, there are opportunities and challenges for Chinese-funded enterprises in Vietnam. Chinese companies can use Vietnam as a base to increase exports to the EU, but in turn they need to compete with EU goods that enter duty-free in the local Vietnamese market.
Vietnam has become the first country in the Asia-Pacific to establish free trade relations with the European Union
Vigorously boost Vietnam’s economy
Vietnam and the EU officially launched free trade agreement negotiations in 2012 and reached a principled agreement on the agreement in 2015. On June 30, 2019, the two sides signed an agreement in Hanoi, the capital of Vietnam. Since then, the EU Council approved the agreement at the end of March 2020, and the Vietnamese National Assembly also passed the agreement in June.
The bilateral trade relationship between Vietnam and the EU has developed rapidly. After entering the 21st century, the bilateral trade volume increased nearly 13 times, from US$4.1 billion in 2000 to US$4.1 billion in 2019. $56 billion. Among them, Vietnam’s exports increased nearly 14 times, from US$2.8 billion in 2000 to US$41 billion in 2019.
At present, the EU is Vietnam’s second largest export market after the United States and an important source of Vietnam’s trade surplus. Vietnam’s main exports to the EU include telecommunications equipment, clothing, footwear, and agricultural products. The EU mainly exports electrical equipment, aircraft, automobiles, and medical products to Vietnam.
Take agricultural products as an example. After the agreement came into effect, Vietnam’s export tariffs to the EU were reduced from the previous 5%-20% to zero. For Vietnam’s rapidly developing textile and garment industry, 42.5% of taxes have been eliminated, and the remaining taxes will be reduced within 3-7 years.
According to the Vietnamese government’s report, the agreement will increase Vietnam’s gross domestic product (GDP) by 2.18%-3.25% in the first five-year period and by 2.18%-3.25% in the second five-year period. Increased by 4.57%-5.3%. According to World Bank estimates, the agreement will boost Vietnam’s GDP by about 2.4% by 2030.
Vietnamese media believe that with the implementation of the agreement, Vietnamese companies will have the opportunity to participate in new supply chain links, which is a great opportunity for Vietnam to fill the gaps in regional and global supply chains. German media also stated that the EU hopes to diversify the supply chain through the agreement and get rid of over-reliance on a single country.
In an interview with reporters, Huang Xingqiu said that the entry into force of the agreement is of greater significance, especially in the context of the current global COVID-19 pandemic.
Huang Xingqiu said that first of all, the agreement was hard-won and is a new achievement of Vietnam’s “diplomacy serves economic development” strategy. He said that in 2017, Vietnam used methods that were inconsistent with international practices to arrest absconding official Zheng Xuanqing in Germany, which caused Vietnam-Germany relations to hit a low point. In view of Germany’s important influence in the EU, Vietnam’s Prime Minister and Deputy Prime Minister did a lot of work towards Germany, and ultimately the agreement was not affected by diplomatic incidents.
He said that in recent years, Vietnam’s trade volume with EU countries has increased year by year. In the first quarter of 2020, despite the impact of the epidemic, Vietnam’s trade volume with the EU declined. But it still maintains a certain scale. Taking aquatic products as an example, the export volume still reached 190 million US dollars. After the agreement comes into effect, it will strengthen Vietnam’s export advantages and further promote the positive development of Vietnam’s economy.
Competitive pressure on Chinese companies has increased
After the agreement comes into effect, Both Chinese products and Chinese-funded enterprises in Vietnam will face major challenges. For example, in the EU market, Chinese products, especially labor-intensive products such as textiles and clothing, will face competition from Vietnamese products. In the Vietnamese market, Chinese mechanical and electrical products may face competition from EU products.
However, not all goods manufactured in Vietnam can enjoy zero tariffs. According to the EU principle of origin, the raw materials of exported products must originate in Vietnam, the EU or have been approved by the EU. other countries that have signed free trade agreements.
According to the person in charge of a Vietnamese garment enterprise, the fabrics currently used by enterprises are mainly imported from China and other countries. To enjoy zero tariffs from the EU, enterprises cannot use imported fabrics. Fabrics, but there are only a handful of weaving, printing and dyeing companies in Vietnam.
Except for origin productsIn addition to the �� principles, Vietnamese goods exported to the EU may also face challenges such as sustainable development, social responsibility, environmental friendliness and other non-tariff trade barriers. However, Nguyen Van Sin, chairman of the Vietnam Small and Medium Enterprises Association, said that these difficulties and challenges are also opportunities for Vietnamese enterprises to innovate and improve their management capabilities.
In an interview with reporters, Huang Xingqiu said that there are at least 2,000 Chinese-funded companies in Vietnam. These companies need to carefully study the terms of the agreement and benchmark the quality and technical requirements of EU products. , take advantage of this opportunity to continue to expand exports to the EU.
At the same time, he also said that improving product quality will also help compete with EU products that enter Vietnam duty-free. He reminded Chinese enterprises, “We must be clearly aware of the possibility that Chinese enterprises will be defeated by EU products in the Vietnamese market. Only by taking precautions and making more proactive moves can we remain invincible.”
However, he also told reporters that Chinese-funded enterprises should not act too hastily. Especially under the current epidemic, they need to comply with a series of measures taken by the Vietnamese government to fight the epidemic and promote the resumption of work and production in a cautious and steady manner.
Huang Xingqiu told reporters that Vietnam’s economy is highly dependent on exports, and the Vietnamese government is an active supporter of trade liberalization and globalization, which is highly consistent with China’s proposition of.
He said that China and Vietnam can use this opportunity to strengthen cooperation. He gave an example that Vietnam’s land trade with the EU can use China’s China-Europe freight trains, and Vietnam also hopes to play a greater role in this aspect.
The train can depart from Hanoi, the capital of Vietnam, enter China via Pingxiang, then pass through Chongqing and Xi’an, and finally reach Europe. In this way, Vietnamese products can enter the Chinese mainland market and the EU market in a more convenient way. “This is beneficial to both China and Vietnam.” He said.
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