Communist Review - The negotiation and ratification of the European Union - Vietnam Free Trade Agreement (EVFTA) is in line with Vietnam's policy on strengthening multi-faceted relationship, especially economic relationship with the European Union (EU). EVFTA brings great opportunities for Vietnam to increase trade exchanges and attract investment from EU member states. In fact, several statistics have shown some positive initial effects on Vietnam in terms of trade exchange, foreign direct investment (FDI), institutional reform.... However, some domestic sectors are also facing enormous challenges through implementation of the EVFTA.

Statistics show that, in 2019, the total import and export turnover between Vietnam and EU member countries (28 countries) reached over 56.4 billion USD, accounting for nearly 11% of the total import and export turnover of the EU. Vietnam. In which, Vietnam's goods exports to the EU reached 41.54 billion USD, accounting for 15.7% of the total export turnover of the whole country, and Vietnam's imports from the EU were 14.9 billion USD, accounting for 5.9 % turnover(7).

 Table 1. Some export goods from Vietnam to EU before and after EVFTA coming into force 

Source: MoIT, “Vietnam - EU trade Review”, 2020, pp 10-11. Graphics by Minh Dang

In the first months of 2020, the outbreak of the COVID-19 pandemic had a direct impact on Vietnam's import and export activities. However, trade exchanges between Vietnam and EU countries have shown many positive results thanks to the implementation of the EVFTA. This is reflected in several key aspects:

Within less than 3 months of the EVFTA coming into force from the beginning of August 2020 to November 2020, Vietnam's exports to the EU accounted for 12.4 billion USD, an increase of 1% compared to the same period in 2019.  As a result, the total value of Vietnam’s exports to the EU market after a dramatic decline in the first 7 months of 2020 due to impacts by the novel corona virus has gradually increased since August 2020 and for the whole year of 2020, Vietnam's export turnover to the EU decreased by just over 3.5%.

Some Vietnamese products exported to the EU recorded positive growth compared to before EVFTA’s entry into force. Exports of computers, electronic products and components within 4 months of the EVFTA coming into force increased by 47.4% compared to the same period in 2019, a stronger increase than 15.3% in the first 7 months of 2020; seafood exports raised by 8.7% compared to a decrease of 15.6%; exports of means of transport and spare parts increased by 24.7% compared to a decrease of 16.4%...(8).

However, some of Vietnam's exports to the EU with a sharp decline in 2020 are respectively phones and components (making up 10.06 billion USD, decreased by 18.6%), textiles and garments (reaching 3.68 billion USD, decreased by 15%) due to the overall market trend (decreased by 0.4% and 9.2% respectively compared to 2019)(9). The main reason is due to the sharp decline in demand in the EU market severely hit by COVID-19 epidemic. However, Vietnam's textile and garment exports to the EU tend to decrease slowly, only 7.2% in the 4 months after the EVFTA comes into effect, compared to a decrease of 15.3% in the first 7 months of 2020(10).

Regarding imports from the EU, in turn, in the 4 months after the EVFTA came into effect, Vietnam's import of goods from the EU reached 5.06 billion USD, increased by 6.3% compared to the same period in 2019 and higher than the increase of  3%  in the first 7 months of 2020 (before the EVFTA’s entry into force). Within 4 months after the EVFTA took effect, imports of some goods from the EU market increased sharply compared to the same period in 2019, such as animal feed and raw materials, iron and steel scrap, and other food products, pesticides and raw materials, conventional metal products. Meanwhile, the growth of several imported items decreased sharply compared to the same period in 2019. Specifically, imports of machinery, equipment, tools and spare parts from the EU market decreased. However, the decline has slowed, with the decrease of 8.3% in the period from August to November 2020, lower than the decrease of 19.4% in the first 7 months of 2020(11).

With a strong commitment to opening the market and eliminating taxes duties up to nearly 100% of the EU's tariff lines, the Agreement is anticipated to bring significant advantages for Vietnamese businesses to increase their exports to the EU by about 42% by 2025 and nearly 45% in 2030 compared to before the Agreement’s entry into force, as well as attract FDI to Vietnam.

Impact on attracting FDI from the EU

With commitments on liberalization of investment in the EVFTA, EU businesses will enjoy more incentives when investing and doing business in Vietnam. At the same time, the adjustments and amendments to Vietnam's legal documents to enhance the conformity with the EVFTA in a number of sectors such as intellectual property will also help businesses in general and EU businesses in particular benefit from higher protection for innovative investments. Therefore, the EVFTA is considered to create great opportunities for Vietnam to attract investors from the EU market, especially in fields such as processing and manufacturing industry, high technology, and clean energy, renewable energy, services...

Within the first nine months of 2020, the EU's total investment capital into Vietnam reached 752 million USD, an increase of more than 100 million USD and 180 projects compared to before the EVFTA took effect(12). After the EVFTA came into effect, the European Chamber of Commerce in Vietnam (EuroCham) has promptly conducted a survey to study the impact of the Agreement on the business and investment plans of enterprises of the EVFTA member states. As a result, one third of  respondents said that this Agreement is an important part of their investment decision in Vietnam with the top two factors expected to boost growth: tariff reductions (33%) and better market access granted for EU investors (13%)(13). According to a representative of EuroCham, when the EVIPA comes into effect, together with the EVFTA, it will improve the trust of EU investors when considering Vietnam as their next investment destination, and simultaneously help Vietnam attract more investment from EU countries in the future.

Table 2. Some import goods from EU to Vietnam before and after EVFTA coming into force

Source: MoIT, “Vietnam - EU trade Review”, 2020, pp 10-11. Graphics by Minh Dang

However, Vietnam is also facing a number of challenges in the process of implementing the EVFTA in order to effectively attract FDI from the EU, such as reforming institutions, policies, and management mechanisms; upgrading the infrastructure system, improving the technology level and human resources, enhancing the competitiveness and cooperation ability with EU partners of Vietnamese enterprises in order to participate more deeply in the global supply chain...

Impact on Vietnam's institutional reform

The EVFTA includes strict regulations and rules on investment procedures, customs, trade facilitation, technical standards, sanitary and phytosanitary (SPS) measures, intellectual property rights, government procurement, sustainable development, among others. The implementation of the EVFTA requires Vietnam to continue to review the current domestic legal system and develop and amend relevant legal documents to create favorable conditions for the full and effective implementation of commitments stipulated in the Agreement. EVFTA is also an opportunity for Vietnam to continue its legal and institutional reforms to reach international standards, build a more open, transparent and predictable business environment, thereby contributing to gain benefits expected from the Agreement.

In fact, the Government of Vietnam has actively implemented measures in this area. Right before the ratification of the EVFTA, the Government has directed ministries and sectors to coordinate with the Ministry of Justice to urgently review current regulations in legal documents they are in charge of in order to propose amendments, supplements or appropriate forms of application in order to meet EVFTA’s requirements(14).

Immediately on the EVFTA coming into effect, on August 6, 2020, the Prime Minister issued Decision No. 1201/QD-TTg approving the Plan for the Implementation of EVFTA. This action plan clearly defines objectives, key tasks and relevant ministries and sectors and a specific roadmap. One of the main tasks is enhancing the performance of laws and institutions by amending and supplementing legal documents and submitting them to competent authorities for approval and promulgation in accordance with the prescribed roadmap of the EVFTA, promulgating new legal documents and submitting them to competent authorities for approval and promulgation in conformity with the prescribed roadmap of EVFTA(15).

Implementing the above Plan, Vietnam's ministries, sectors and localities have also issued decisions related to their fields of management to implement EVFTA. As of October 2020, there have been 18 ministries, branches and 57 localities of Vietnam promulgating and implementing documents related to their assigned fields(16).

EVFTA, a new generation agreement, comprehensive as it is, covers many fields and industries with more complicated regulations on legal institutions. This also poses a challenge for the Government, ministries, sectors and the Vietnamese business community to work together to fully understand and comply with the standards and requirements set out in the Agreement.

Impact on economic growth

EVFTA is expected to increase Vietnam's GDP by an average of 3.2% in the first 5 years, and 5.3% for the next 5 years and up to 7.72% for the next 5 years. According to the World Bank (WB), if both EVFTA and CPTPP are implemented simultaneously, Vietnam's GDP could increase by up to 3.2% in the next decade 2021 - 2030.

The EVFTA has brought preliminary positive results to Vietnam. The implementation of the EVFTA is of great significance to compensate the decline of national economy during the pandemic time. From the business point of view, the EVFTA is also anticipated to bring more diversified market opportunities, helping businesses regain their former momentum as the coronavirus pandemic ends.

In addition to the positive effects that open up enormous opportunities to the Vietnamese economy and businesses, Vietnam commitments to open the market for EU goods and services also create certain competitive pressure and long-term challenges for Vietnam's economy, businesses, goods and services. However, this is a healthy and selective competitive pressure based on an appropriate roadmap. The EVFTA's transparency requirements aim to ensure an efficient and predictable legal environment for economic actors, especially for small and medium-sized enterprises. The interest of EU investors in Vietnam's policy adjustments to conform with EU regulations(18) requires Vietnam to continue promoting administrative reform and ensuring transparent, fair investment environment, business, institutions, policies, laws... to conform with international practices.

In fact, so far, the first impacts of EVFTA implementation to Vietnam's economy have not been as positive as expected. In addition, the benefits of the EVFTA are not really clear, partly due to the impacts of the COVID-19 epidemic. Besides, the impacts of the Agreement on Vietnam are different in each industry or sector. Moreover, these benefits are not shown immediately after the EVFTA comes into effect because Vietnam will have a long roadmap to eliminate tariff lines within 7 to 10 years. This requires the Government, ministries, sectors, localities, businesses and people of Vietnam to continue to be proactive, active and make more efforts to effectively implement the commitments set out in the EVFTA, as well as action plans set forth.

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(1) Le Thi Diem Quynh: “The National Assembly ratifies the two agreements EVFTA and EVIPA”, https://dangkytinhdoanh.gov.vn/vn/tin-tuc/599/5117/quoc-hoi-phe-chuan-hai -hiep-dinh-evfta-va-evipa.aspx
(2) Thu Huong: “Exports in 2020: Expectations from Trade Agreements”, http://consosukien.vn/xuat-khau-nam-2020-ky-vong-tu-cac-hiep-dinh- thuong-mai.htm
(3) Ministry of Industry and Trade: “Vietnam and EU commitments in some key areas of the EVFTA and IPA Agreement”, http://evfta.moit.gov.vn/?page=overview&category_id=2809fd0e-b509 -41c4-aa5f-fc2257d628c2
(4) European Commission: “Commission presents EU-Vietnam trade and investment agreements for signature and conclusion”, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1921
(5) Ministry of Industry and Trade: “General introduction to EVFTA and IPA agreements”, http://evfta.moit.gov.vn/?page=overview&category_id=fb203c7b-54d6-4af7-85ca-c51f227881dd
(6) Ha Chinh: “EVFTA takes effect from August 1: A milestone”, http://baochinhphu.vn/Tin-noi-bat/EVFTA-co-hieu-luc-tu-18-Cot- moc-trong-dai/402718.vgp
(7) Ministry of Industry and Trade: “Vietnam - EU Bilateral Relations”, http://evfta.moit.gov.vn/default.aspx?page=news&do=detail&category_id=13caec66-a1f8-4b9c-9066-b25657f4d36d&id= fe64a293-2b69-4c37-b1e0-cdd062451769
(8) Ministry of Industry and Trade: “Vietnam - EU Trade Review”, http://evfta.moit.gov.vn/data/7d80034a-9a2a-4c93-8046-df701661850/userfiles/files/Chuyen%20san% 20EU-1.pdf
(9) General Department of Customs: “Vietnam's imports and exports in December and 12 months of 2020”, https://www.customs.gov.vn/Lists/ThongKeHaiQuan/ViewDetails.aspxID=1901&Category=
Ph%C3%A2n%20t%C3%ADch%20%C4%91%E1%BB%8Bnh%20k%E1%BB%B3&Group=
Ph%C3%A2n%20t%C3%ADch
(10), (11) Ministry of Industry and Trade: “Vietnam - EU Trade Review”, http://evfta.moit.gov.vn/data/7d80034a-9a2a-4c93-8046-9df701661850/userfiles/files/ Transfer%20san%20EU-1.pdf
(12) Mai Lam: “Many “sweet fruits” after 4 months of implementing EVFTA”, http://thoibaotaichinhvietnam.vn/pages/Kinh-doanh/2020-12-16/nhieu-trai-ngot-sau-4- ladder-trien-declaration-evfta-96952.aspx
(13) Le Anh: “European businesses are optimistic when business activities are recovered”, http://baochinhphu.vn/Doanh-nghiep/Doanh-nghiep-chau-Au-lac-quan-khi-hoat-dong-business-business-phuc-hoi/415227.vgp
(14) Ministry of Industry and Trade: “Impact EVFTA on Vietnam”, http://evfta.moit.gov.vn/default.aspx? page=news&do=detail&category_id=13caec66-a1f8-4b9c-9066-b25657f4d36d&id=74e3c98e-0290-4673-9e76-6d824f186832
(15) Government Office: “Circular No. 6548/VPCP-QHQT dated August 10, 2020 on the Appendix attached to Decision No. 1201/QD-TTg approving the Government's EVFTA Implementation Plan”, http://evfta.moit.gov.vn/data/7d80034a-9a2a-4c93-8046-df701661850/userfiles/files/1597074730107594.pdf
(16) Ministry of Industry and Trade: “The Government's plan to implement the EVFTA”, http://evfta.moit.gov.vn/default.aspx?page=overview&category_id=8c1a3874-621f-4691-a27c-b26a8cc0995a
(17) Nguyen Quang Vu: “Prime Minister Nguyen Xuan Phuc: EVFTA is like a “big highway” connecting the EU with Vietnam”, https://news.vnanet.vn/?created=365%20day&keyword=EVFTA&servicecateid= 1& scode=1&qcode=17
(18) Le Quan: “EU Ambassador: Policy transparency is a good way to join the global value chain”, https://baodautu.vn/dai-su-eu-minh-bach-hoa-chinh-sach-la-cach-tot-de-tham-nhap-chuoi-gia-tri-toan-cau-d128545.html

This article was published in the Communist Review No. 962 (March 2021)