Trade

EU-Vietnam economic and trade relations

Trade

Over the last decades, the European Union has proven to be a committed partner and supported Vietnam's gradual integration into the global economy. Continuous assistance from the EU complemented the successful implementation of the market oriented reform policies known as Ðổi Mới in 1986 and has led to Vietnam's remarkable economic progress. The living standard for the majority of the population has significantly improved and Vietnam has left behind its status as one of the least developed countries in the world. With an average per capita income of US$ 2,052, Vietnam is now classified as a lower middle-income country.

The economic panorama today reflects the results of the right steps taken by Vietnam in its aspiration to become a fully integrated member of the international economic system. In order to achieve this, it is crucial for Vietnam to continue its cooperation with dedicated partners like the European Union. The EU has reaffirmed its commitment to support the transition of Vietnam in many ways and continues to be a pivotal source of foreign investment, knowledge and technical expertise. In this spirit, the EU will continue to contribute to the achievement of Vietnam’s Socio-Economic Development Strategy and seek to further deepen and widen the EU – Vietnam economic relations that were established in October 1990.

In 2015, the EU constituted one of the most important overseas markets for Vietnam (EU came second after the US). The EU purchased as much as 19% of the country's global exports in 2015. The two way trade expanded by 12.5% mainly owing to the impressive growth rate of Vietnam's exports to the EU which made year-on-year increase of 11.4% (US$31.1 billion). The EU was also the second largest trading partner of Vietnam after China (excluding intra-ASEAN trade). In particular, the continuous surplus of nearly US$21 billion that Vietnam enjoys in its bilateral commercial links with the EU significantly helped to balance Vietnam's huge trade deficits with China and South Korea and led to an estimated global trade surplus of about US$ 3.2 billion. Thus, 2015 marks another year in which Vietnam enjoys a record-high trade surplus with the EU.
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. The main commodities of EU exports to Vietnam are 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 .)

The expansion of Vietnamese exports to the EU market benefit considerably from the EU's Generalised Scheme of Preferences (GSP) which facilitates exports of goods from developing countries into the EU. Particularly, since the beginning of 2014, key Vietnamese export goods, such as footwear, can enjoy improved preferential tariffs under the EU's reformed GSP scheme. Comprehensive information on EU import tariffs and other market access conditions can be found at the EU's Export Helpdesk.) 

 

Investment

The European Union is one of the most important sources of foreign investments for Vietnam. According to the Foreign Investment Agency of the Vietnamese Ministry of Planning and Investment , investors from 24 out of 28 EU Member States injected a total committed FDI worth US$23.2 billion into 1730 projects over the course of the past 25 years (by the end of 2015).

In 2015 investors from the EU poured US$1.545 billion in Vietnam, shifting the EU's ranking to the third position among the biggest FDI partners of Vietnam. During this period, South Korea was the largest investment partner of Vietnam with committed FDI worth US$2.678 billion (accounting for 17.2% of the committed FDI licensed in 2015) followed by Malaysia (US$2.447 billion; 15.7%), Samoa (US$1.314 billion; 8.4%) and Japan (US$1.285 million; 8.2%).

 

The legal framework

Only two years after the beginning of bilateral relations, the European Community and Vietnam signed a textile trade agreement in 1992.  It was one of the first trade deals with a Western partner and was soon followed by a broader Framework Cooperation Agreement pdf - 698 KB [698 KB]  in 1995, which granted Vietnam most-favoured-nation treatment in its trade relations with the EU.

The EU voiced strong support for Vietnam's global trade integration and sent a powerful signal by being the first main trading partner to conclude bilateral WTO accession negotiations with Vietnam in 2004. In addition, a new Market Access Agreement pdf - 295 KB [295 KB] in December 2004 lifted all EU quantitative restrictions for Vietnamese textiles. In this spirit, the bilateral economic relations complemented Vietnam's accession to the WTO. After over 12 years of negotiations, Vietnam became a full member of the WTO on 11 January 2007 allowing for more openness and predictability of its market.

Vietnam's WTO accession marked a key intermediary step on the country's path towards trade liberalisation and sustainable economic development. The EU has shown commitment in supporting Vietnam in various ways, not least through a number of EU-Vietnam Cooperation Programmes.

In an effort to bring their bilateral relations to a new height, Vietnam and the EU officially signed the EU-Vietnam Framework Agreement on Comprehensive Partnership and Cooperation (PCA)  in June 2012 after nearly 5 years of active negotiations. The PCA constitutes the guiding framework for deepened bilateral activities. Under the PCA, previous relations were strengthened and extended to 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 European Commission represents the EU as a whole on trade policy issues, in close consultation with EU Member States. Regular meetings between the Economic and Commercial Counsellors of all EU missions and the EU Delegation to Vietnam ensure a vital exchange on issues of importance. In addition, the EU Delegation also regularly seeks views of European business, 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.

Both the Trade Counsellors and EuroCham follow thoroughly developments of the business climate in Vietnam and possible protectionist measures introduced by Vietnamese authorities that could affect trade. Some of these issues are featured in EuroCham's 'White Book of Trade / Investment Issues & Recommendations'.

The European Trade Policy and Investment Support Programme (EU-MUTRAP) is a key ongoing project promoting economic development, inclusive growth and poverty reduction in Vietnam. Totaling over € 35.37 million since 1998, it currently engages €16.5 million for the fourth programming period running between 27 August 2012 and 30 June 2017.

EU-MUTRAP has been instrumental in supporting Vietnam's negotiating efforts during the WTO accession process and during the EU-Vietnam FTA negotiations. It also continues to assist the country to further its integration into the global, ASEAN and sub-regional trade systems. The specific purpose of the programme is to support the Vietnamese Ministry of Industry and Trade (MOIT) and other relevant ministries or agencies in facilitating sustainable international trade and investment through improved capacity for policymaking, policy consultation and the implementation of related commitments, particularly vis-à-vis the EU-Vietnam FTA.

 

Free Trade Agreement

Trade plays a key role in Vietnam’s economic development strategy and a range of multilateral and bilateral trade agreements under negotiation reflect this importance.

The EU and Vietnam officially launched negotiations for the Free Trade Agreement (FTA) in June 2012. After 14 rounds of negotiations, the FTA negotiations were formally concluded in Brussels in December 2015.

This EU-Vietnam FTA is a modern and comprehensive deal. It will remove nearly all tariffs on goods traded between the two economies. It shows the shared conviction of the EU and Vietnam that trade is essential to growth, the creation of jobs and sustainable development.

Besides eliminating tariffs, Vietnam will also remove almost all of its export duties. The agreement will equally create new market access opportunities in services and investment. Vietnam has agreed to liberalise trade in financial services, telecommunications, transport, and postal and courier services. On investment, Vietnam will open its market to the EU by removing or easing limitations on certain sectors e.g. manufacturing of food and beverages, of ceramics or plastic products).

On government procurement, the EU and Vietnam have agreed on disciplines largely in line with Government Procurement Agreement (GPA) rules of the WTO, achieving a degree of transparency comparable to other EU Free Trade Agreements with developed countries and more advanced developing countries.

The agreement will also improve the protection in Vietnam of Geographical Indications (GIs) representing EU flagship agricultural products, such as Champagne, Parmigiano Reggiano cheese, Rioja wine, Roquefort cheese and Scotch Whisky. Vietnamese GIs too will be recognised and protected in the EU through the virtue of the FTA Agreement, providing the adequate framework for further promoting imports of quality products such as Mộc Châu tea or Buôn Ma Thuột coffee.

The FTA includes a robust and comprehensive chapter on Trade and Sustainable Development, covering labour and environmental matters of relevance in trade relations between the EU and Vietnam. Commitments to the core labour standards and Conventions of the International Labour Organisation (ILO) ensure the respect of fundamental workers' rights by both parties. In addition, the chapter includes commitments which will support the conservation and sustainable management of natural resources (including wildlife, forestry, and fisheries). Special attention is given to areas such as Corporate Social Responsibility and fair and ethical trading schemes.

The FTA will set up a dedicated structure to ensure the full implementation of the chapter, including mechanisms to ensure the involvement of independent economic, social, and environmental stakeholders both in the EU and in Vietnam.
The Agreement will also contain a legally binding link to the Partnership and Cooperation Agreement (PCA) that governs the overall relationship between the EU and Vietnam, thereby ensuring that human rights, democracy, and the rule of law are essential elements of our bilateral trade relations.

In June 2016, the EU Delegation to Vietnam published the Guide to the EU-Vietnam Free Trade Agreement . It provides first-hand information about the FTA as well as about the economic relations between EU and Vietnam.

 

* Data source on bilateral trade and FDI: MPI, GSO preliminary data updated on 1st Feb 2016