EU-Vietnam economic and trade relations
The last decade has witnessed strong and consistent development in bilateral economic and trade relations between the European Union and Vietnam. This, in tandem with the robust growth of Vietnamese economy resulting from the successful implementation of the Doi Moi economic reform process has significantly improved the living standards for a majority of the Vietnamese population.
The EU has been a leading champion of Vietnam's integration into the global economy, and remains the country's foremost trade and investment partner. Vietnam's vibrant economy has benefited from a significant contribution in terms of capital and expertise from Europe and European investors. This, together with the fact that the EU represents a crucial destination for numerous key export items from Vietnam, has made the EU a key contributor to Vietnam's unprecedented economic growth and development.
The year 2011 witnessed a galloping growth of Vietnamese exports to the EU. Exports of Vietnam-made products to the EU increased by 45.4% compared to the previous year, reaching US$ 16.5 billion. The EU – neck-to neck with the USA – was the second largest overseas market for Vietnamese products in 2011, purchasing 17.2% of the country’s exports. EU exports to Vietnam grew by 18%, and totaled around US$7.5 billion. The year 2011 marked a historic surplus of US$9 billion for Vietnam in its bilateral trade with the EU. In fact, Vietnam´s trade surplus with the EU was of the same magnitude of Vietnam’s global trade deficit, which was estimated by Vietnam’s General Statistics Office (GSO) at US$9.5 billion.
Vietnamese exports to the EU benefit from the EU's Generalised System of Preferences (GSP), a factor which has contributed to Vietnam's impressive export performance. The GSP grants tariff reductions to developing countries such as Vietnam. Full information on EU import tariffs and other market access conditions can be found at the EU's Export Helpdesk.)
Vietnamese exports to the EU concentrated on labour intensive products including footwear, garments and textiles, coffee, seafood and furniture while the top five commodities of EU exports to Vietnam included high-tech products including boilers-machinery & mechanical products, electrical machinery & equipment, pharmaceutical products, and vehicles. (A summary of the EU’s and Vietnam’s trade profile as well as their mutual trade flows can be found here [231 KB] .)
Over the past two years, Vietnam's Government has introduced a number of protectionist measures, in order to deal with the persistent trade deficit of the country. The effects of certain remaining market access obstacles in Vietnam are a major cause for concern in the EU’s relations with Vietnam since they limit EU investment and two-way trade.
EU policy in this area aims at the liberalisation of trade and investment flows. Key objectives include the removal of tariff and non-tariff barriers to imports of specific goods, the removal of obstacles to investment (joint venture requirements, burdensome licensing procedures, outright closure of certain sectors to foreigners), and the improvement of the business environment (protection of intellectual property rights etc.). Some of these issues are featured in the “Commercial Counsellors Report on Vietnam” and Eurocham’s white paper on “Trade/Investment Issues & Recommendations”
The year 2011 witnessed a further decline of the inflow of Foreign Direct Investment (FDI) into Vietnam. According to Vietnam Foreign Investment Agency, the total FDI committed by foreign investors in 2011 was US$14.695 billion, a 26% reduction as compared to 2010. In fact, the FDI flows into Vietnam have continuously fallen since the global crisis in 2008.
Throughout the year, 1091 new FDI projects were licensed with a total committed FDI worth nearly US$11.56 billion. This together with around US$3.14 billion of additional capital pumped into existing 374 FDI projects has lifted the total committed FDI to US$14.695 billion. Contrary to the 2008 wave of FDI pouring into real estate mega-projects, up to 48.5% of this US$14.695 billion were the investments in manufacturing industries which were followed by electricity distribution sector and construction sector. FDI committed in real estate in 2011 was US$ 845.6 million, representing only 5.8% of the total committed FDI figure in the year.
The EU continued to be an important source of capital for Vietnam with committed FDI amount of US$ 1.767 billion, which represented more than 12% of Vietnam’s total committed FDI in 2011. In terms of ranking, the EU was the fourth biggest investment partner in the year. Other prominent FDI partners of Vietnam in 2011 were Hongkong (US$3.09 billion), ASEAN (US$ 2.93 billion), Japan (US$2.43 billion), and South Korea (US$ 1.46 billion).
Despite the much lower committed FDI, the rate of FDI disbursement in 2011 was maintained at US$11 billion, i.e. the same amount as in 2010. It represented 74.85% of the total committed FDI, a much better ratio than in 2008 when Vietnam attracted a historic level of US$64 billion in committed FDI but disbursed only US$11.5 billion or 17.9% of the total committed FDI.
The legal framework
Vietnam's 1992 textile trade agreement with the European Community constituted one of its first trade deals with a Western partner. This was followed by a broader cooperation agreement in 1995, which granted Vietnam most favoured nation treatment in its trade relations with the EU.
The EU was a staunch supporter of Vietnam's endeavour to join the World Trade Organisation, which after over 12 years of arduous negotiations came to a successful conclusion on 11 January 2007. In October 2004, the Union became the first main trading partner to conclude bilateral WTO accession negotiations with Vietnam, a step which gave significant impetus to the overall accession process.
In addition, a new Market Access Agreement [295 KB] in December 2004 lifted all EU quantitative restrictions for Vietnamese textiles as of 1 January 2005, a very important step to put Vietnam on a par with WTO members such as China, well ahead of its WTO entry. In return, Vietnam agreed to open its market further in a number of areas of interest to the European Union, marked by the Framework and Cooperation Agreement [698 KB] in 1995.
Vietnam's WTO accession is not an end in itself, but only an intermediary step on the country's sustainable economic development path. The EU has supported Vietnam on this difficult journey, not least through a number of EU-Vietnam Cooperation Programmes. EU support started in the 1990s and continues with various practical activities carried out in the framework of a number of EC-funded projects, including the well-known Multilateral Trade-related Assistance Programme (MUTRAP), which has been instrumental in supporting Vietnam's negotiating efforts during the WTO accession process and continues to help Vietnam in the implementation period.
VN and the EU have sought to bring bilateral relations to a new height by conclusion a new Partnership and Cooperation Agreement on which, by July 2009, EU and Vietnam had already completed 4 rounds of negotiations. This framework, aiming for deeper bilateral activities, will extend the previous aid and trade agreements to cover new areas such as economics, trade and investment, science and technology, natural resource, climate change and environment, security, health, education, research and many others.
Managing the relationship
The main high-level forum for monitoring economic and trade relations, exchanging views on trade policy and regulatory issues, and reviewing the implementation of bilateral engagements is the EC-Vietnam Joint Commission, and in particular its Trade and Investment Working Group. In addition, there are frequent direct contacts between the Vietnamese Government and the European Commission, both at the level of its headquarters and the Delegation of the European Union to Vietnam.
The Multilateral Trade Assistance Project (MUTRAP) is a key support programme for economic management and for trade development by Vietnam, totalling over € 60 billion already. The partners also maintain a high-level forum for monitoring economic and trade relations, exchanging views on trade policy and regulatory issues, and reviewing the implementation of bilateral engagements.
The European Commission represents the EU as a whole on trade policy issues, in close and regular consultation with EU Member States. In Hanoi, there are regular meetings between the Economic and Commercial Counsellors of all EU missions and the EU Delegation. In addition, the EU Delegation also regularly seeks the views of European industry; represented i.a. by the European Chamber of Commerce.
Moreover, as part of the European Market Access partnership, the European Market Access Team for Vietnam was established in 2008. This serves as a forum for discussions between the business community, Member States Trade Counsellors and the EU Delegation in Vietnam aiming at addressing market access barriers in a more systematic and effective manner.
Perspectives for the future
Both the EU and ASEAN countries are key players in the ongoing negotiations in the context of the WTO’s Doha Round. An ambitious result of the Doha Round and a further strengthening of the multilateral trading system remains the EU’s overarching political priority.
In the bilateral trade relationship between EU and Vietnam, there are prospects for further trade liberalisation. The two sides officially launched negotiations for an EU-Vietnam Free Trade Agreement (FTA) on 26 June 2012 in Brussels. Such an FTA would represent a milestone in the relationship between the EU and Vietnam in terms market access opportunities for both sides. It would also constitute a stepping stone to increased trade between EU and the region and ultimately contribute to deeper liberalisation of international trade.