Over the last decades, the European Union has been a committed partner supporting Vietnam's 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. Vietnam with improved living standards has left behind its status as one of the least developed countries in the world. With an average per capita income of US$ 2566, Vietnam is now a lower middle-income country.
In 2019, the EU constituted the second most important overseas market for Vietnamese products. The EU purchased as much as 16% of the country's global exports in 2019. The two-way trade expanded to US$56.45 billion (according to the GSO). Vietnam's exports to the EU continued to account for two thirds of the total figure (US$41.55 billion). Vietnam profits much more from the bilateral economic relation than the EU. After 25 years of continual growth, in 2019 for the first time, Vietnam’s exports to the EU stagnated slightly below zero (only -0.7%).
In bilateral trade, the EU is the fourth largest trading partner of Vietnam after China, the United States of America, and South Korea. The continuous surplus of US$26.65 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. The ratification and full implementation of the FTA with the European Union in August 2020 will hopefully contribute to balancing the huge trade deficit that the EU has with Vietnam.
Vietnamese exports to the EU concentrated on products like assembly of electronic items/telephone sets, footwear, garments and textiles, coffee, seafood and furniture with high labour input. The main commodities of EU exports to Vietnam are products of slightly higher technological sophistication, including boilers, machinery & mechanical products, electrical machinery & equipment, pharmaceutical products, and a very limited number of motor vehicles. The FTA is likely to open many opportunities for producers and distributors on both sides of every size, including small and medium enterprises.
The expansion of Vietnamese exports to the EU market has benefitted considerably from the autonomously granted advantages for Vietnam of the EU's Generalised Scheme of Preferences (GSP) which facilitates exports of goods from specific developing countries into the EU under certain conditions. 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 the EU injected a total committed FDI worth more than US$24.6 billion into 2,235 projects over the course of the past 29 years (by the end of 2019).
The attraction and retention of EU FDI will allow Vietnam to better integrate into global value chains, thereby diminishing the dependence of Vietnam from its current main investors. In addition, EU investors are bound by the highest standards for workers rights and environmental protection, thereby contributing to the wellbeing and further development of the Vietnamese society and economy.
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 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. Totalling over € 35.37 million since 1998, it currently engages €16.5 million for the fourth programming period running between August 2012 and January 2018.
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. The European Union and Vietnam finished negotiating the FTA in Brussels in December 2015 after 14 rounds of negotiations. In July 2018, the EU and Vietnam concluded the Investment Protection Agreement (IPA).
The EU-Vietnam FTA and the Investment Protection Agreement (IPA) are modern and comprehensive deals. They will remove nearly all tariffs on goods traded between the two economies. They show the shared conviction of the EU and Vietnam that trade is essential to growth, the creation of jobs and sustainable development.
Once in force, the agreements will provide opportunities to increase trade and support jobs and growth on both sides, through:
- Eliminating 99% of all tariffs
- Reducing regulatory barriers and overlapping red tape
- Ensuring protection of geographical indications
- Opening up services and public procurement markets
- Making sure the agreed rules are enforceable
The Investment Protection Agreement, concluded in July 2018, includes modern rules on investment protection enforceable through the new Investment Court System and ensures that the right of the governments on both sides to regulate in the interest of their citizens is preserved. It will replace the bilateral investment agreements that 21 EU Members States currently have in place with Vietnam.
The European Commission has submitted the proposals for signature and conclusion of both agreements to the Council. Once authorised by the Council, the agreements will be signed and presented to the European Parliament for consent. After the Parliament's consent, the Council can conclude the trade agreement, and it can enter into force. The investment protection agreement will be ratified by Member States' according to their national procedures.
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 May 2019, the EU Delegation to Vietnam re-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.
More information can be found in the following links: