EU-Vietnam economic and trade relations
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.)
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 [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 [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. After the 14th round in Hanoi in mid-July 2015, Vietnamese Minister of Industry and Trade Vu Huy Hoang and the EU Trade Commissioner MalmstrÖm announced the Agreement-in-Principle of the EU – Vietnam FTA negotiations in 4th August 2015.
This agreement, the first of its kind that the EU has concluded with a developing country, will remove nearly all tariffs on goods traded between the two economies. The ambitious and symmetrical liberalisation agreed upon – with a transition period to allow Vietnam to adapt – breaks new ground compared to other EU agreements with developing countries. 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 also 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.
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 as such in the EU, 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 devoted to areas such as Corporate Social Responsibility and fair and ethical trading schemes.
The FTA will set up dedicated structures 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.
The agreement includes a dedicated chapter on cooperation in implementing the Agreement and to assist Vietnam in reaping the full benefits. Boosting sustainable development is a key objective for such cooperation. Areas of particular importance include labour and environmental matters, trade facilitation, and small and medium-sized enterprises (SMEs).
* Data source on bilateral trade and FDI: GSO, MPI