Trade

EU-Vietnam economic and trade relations

Trade

Since the beginning of the bilateral economic relations with Vietnam 25 years ago, the European Union has proven to be a committed partner and supported Vietnam's gradual integration into the global economy. Assistance from the EU complemented the successful implementation of the market oriented reform policies known as Ðổi Mới in 1986, and have 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$ 1,755, 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 integration into global economy with dedicated partners like the European Union. Over the years, 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 for Vietnam. 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 2014, the EU constituted one of the most important overseas markets for Vietnam (EU came second after it was closely overtaken by the US by only US$ 500 million). The EU purchased as much as 18.6% of the country's global exports in 2014. The two way trade expanded by 8.8%, mainly owing to the impressive growth rate of Vietnam's exports to the EU which made year-on-year increase of 14.7% (US$ 27.9 billion). The EU was also the second largest trading partner of Vietnam after China (excluding intra-ASEAN trade). In particular, the continuous surplus of US$19 billion that Vietnam enjoys in its bilateral commercial links with the EU significantly helped to balance Vietnam's huge trade deficits with China and South Korea and led to an estimated global trade surplus of about US$ 2 billion. Thus, 2014 marks another year in which Vietnam enjoys a record-high trade surplus with the EU. Meanwhile, the EU's exports to Vietnam tumbled by 5.9% during 2014.

In order to ensure robust future growth of the two way trade further trade liberalisation and enhanced market access by virtue of the conclusion of the FTA is the way forward.

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 23 out of 28 Member States of the EU injected a total committed FDI worth US$19.1 billion into 1566 projects over the course of the past 25 years (by 15 December 2014).

In 2014 the EU ranked fifth among the big FDI partners of Vietnam. From January to mid-December 2014, the EU had a combined committed FDI of US$587.1 million. During this period, 59 additional investors from the EU were making investments in the country.

The total amount of committed FDI was US$20.23 billion, a year-on-year reduction of 6.5% against the same period in 2013. Other prominent FDI partners of Vietnam in 2014 included South Korea (US$6.13 billion), ASEAN (US$2.74 billion), Hong Kong (US$2.8 billion) and Japan (US$1.2 billion).

 

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 aid and trade agreements were updated 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 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, the work of this high-level forum is complemented by frequent direct contacts between the Vietnamese Government and the European Union, both at the level of its headquarters and the Delegation of the European Union to Vietnam.

Furthermore, the EU operates one of the longest running and best-known trade assistance programmes. The Multilateral Trade Assistance Project (MUTRAP) is a key support programme for economic management and for trade development by Vietnam, totalling over € 35.12 billion already. MUTRAP has been instrumental in supporting Vietnam's negotiating efforts during the WTO accession process and now continues to assist Vietnam in the implementation of trade commitments. 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.

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 ensure a vital exchange on issues of importance. In addition, the EU Delegation also regularly seeks the 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 the  “Commercial Counsellors Report on Vietnam” and EuroCham's 'White Book of Trade / Investment Issues & Recommendations'.

 

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. The negotiations have now reached the final phase.  The 11th round took place in Brussels in January 2015.

The EU-Vietnam FTA aims at creating a level playing field for both sides. It largely contributes to a stable and predictable entrepreneurial environment, which in turn promotes growth and employment. A modern FTA has the potential to increase two-way trade and investment through enhanced trade liberalisation and better market access. Key objectives which are pursued in the FTA negotiations therefore include the removal of tariff and non-tariff barriers to imports of specific goods, opening services sectors, 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.).

* Data source on bilateral trade and FDI: GSO, MPI