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.
In the year 2013, Vietnam's bilateral trade with the EU continued to grow against previous years. Exports of Vietnam-made products to the EU reached US$24.4 billion, representing a 24.4% year-on-year increase. The EU28, as Vietnam's largest overseas market, purchased as much as 19% of the country's global exports in the year. The EU was also the second largest trading partner of Vietnam after China only. In particular, the surplus that Vietnam had in its bilateral commercial links with the EU positively and significantly contributed to the country's success in achieving the global trade surplus after two decades of persistent trade deficit. Overall, in 2013, Vietnam enjoyed a record-high trade surplus of US$15.2 billion with the EU. This represents nearly 17 times of its global trade surplus, estimated at US$0.9 billion, according to the Vietnam's General Statistics Office (GSO). Meanwhile, EU goods entering Vietnam grew by 4.2%, at US$9.2 billion. The robust growth of the two way trade during the past decades imply the strong complimentary features of the two economies which have great potentials should there be further trade liberalisation.
Vietnamese strong expansion of exports to the EU market benefit considerably from the EU's Generalised System of Preferences (GSP) which aims to facilitate exports of goods from developing countries into the region. Particularly, in October 2012, the EU launched the reformed GSP scheme which is expected to allow some key Vietnamese export goods, such as footwear, to enjoy more preferential tariffs when this enters into force on 1st January 2014. 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 assembly of electronic items/ telephone sets, footwear, garments and textiles, coffee, seafood and furniture while the top five commodities of EU exports to Vietnam are mainly 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 .)
In recent years, Vietnam's Government has introduced a number of protectionist measures in an effort to trim down the country's persistent trade deficit up until 2011. 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”
In the past 2 years, the inflow of Foreign Direct Investment (FDI) into Vietnam began to bounce back and is set to increase further in 2014. According to Vietnam's Foreign Investment Agency, total FDI committed by foreign investors in 2013 spiked to US$21.6 billion, a 54.5% rise from that of 2012. At the same time, it is estimated that implemented FDI also went up by 9.9% y-o-y, reaching US$11.5 billion.
Throughout the year, 1275 new FDI projects were licensed with a total committed FDI worth nearly US$14.3 billion, a rise of 70.5% in value. Also, around US$7.3 billion of additional capital was disbursed into existing 472 FDI projects. Following the trend since 2011, the majority of foreign capital was poured into manufacturing industries (76.9% of total registered capital), then power generation and supply, gas, water industries (9.4%) and others (13.7%).
The EU continues to be an important source of capital for Vietnam. Although official statistics show that total committed FDI in 2013 was US$656 million, it is believed that actual FDI inflow from the EU is much higher since most investments are made via multinational companies. In 2013, the EU was Vietnam's 6th largest investment partner, registering for 71 new projects according to the data of the Foreign Investment Agency. Other prominent FDI sources include South Korea (US$3752 million), ASEAN (US$3473 million), China (US$2276 million) and Japan (US$1295 million).
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. In November 2013, with the support from MUTRAP, Vietnam shared its first Trade Policy Review since WTO accession, marking a key milestone in its trade reform efforts.
In an effort to bring their bilateral relations to a new height, Vietnam and the EU officially signed the EU-Vietnam Partnership and Cooperation Agreement (PCA) in June 2012 after nearly 5 years of active 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
The year 2013 witnessed a much longed for advancement in the WTO's Doha Round where both the EU and ASEAN countries are key players. The Bali Package, though much less ambitious than the original Doha plan, is a clear indication that countries and regions across the world, the EU included, are still in pursuit of a stronger and more open multilateral trading system.
In the bilateral trade relationship between the EU and Vietnam, there are prospects for further trade liberalisation. The two sides officially launched negotiations for an EU-Vietnam Free Trade Agreement (FTA) in June 2012 which has now reached a substantial phase with the 6th round taking place in January 2014. The pact is expected to be signed in late 2014, marking a key milestone in EU-Vietnam relationship in terms of 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.
* Data source on bilateral trade and FDI: GSO, MPI