EXTRAORDINARY PROGRESS IN VIETNAM-EU RELATIONS

Giorgio Aliberti

Ambassador of the Delegation of the European Union to Vietnam

• Mr. Giorgio Aliberti has been the Head of the EU Delegation to Vietnam since September 2019, in the context that Vietnam and the EU have just signed the Free Trade Agreement (EVFTA), the Investment Protection Agreement (IPA) and the Framework Agreement on Participation in EU Crisis Management Activities (FPA). Ambassador Giorgio Aliberti was previously Deputy Director General for Asia and Oceania, Italian Ministry of Foreign Affairs and International Cooperation. He served as Italy's ambassador to Myanmar. The article is dedicated to Zing.

 

The vote of the National Assembly of Vietnam to approve the EU-Vietnam Free Trade Agreement (EVFTA) and the Investment Protection Agreement (EVIPA) on the morning of June 8 is a historic achievement.

This represents an extraordinary step forward in relations between the European Union and Vietnam, and is the most appropriate expression for the 30th anniversary of diplomatic relations. What better commemorative gift for both of us than laying deeper foundations for the future?

The EVFTA is expected to come into effect this summer. The agreement will bring immediate positive impacts to businesses in both Vietnam and Europe.

71% OF VIETNAMESE GOODS EXPORTED TO THE EU REDUCE TAXES

From the first effective date, the tariff cuts – which can sometimes be very significant, in the range of 25% – will apply to 65% of EU exports to Vietnam and 71% of EU imports from Vietnam. Almost all other tariffs will be phased out after 10 years.

This sounds technical to the average person. For our male or female entrepreneurs, that means a significant cut in costs and, as a result, more money in their pockets.

As we all know, any reduction in tariffs and tariffs, like a rescue in an effort to respond to the economic collapse during the COVID-19 pandemic, is a critical factor in restarting our economies.

Therefore, the Free Trade Agreement is an important factor in nurturing the resilience of our economies. Don't forget that Vietnamese consumers will have a richer choice and the opportunity to buy top-quality products at reasonable prices from the EU.

The elimination of bilateral tariffs and export tariffs, along with the reduction of non-tariff barriers (NTBs) that affect the cross-border exchange of goods and services, is expected to boost bilateral trade significantly.

(Free Trade Agreements are critical in nurturing the resilience of our economies.)

The value of exports is estimated to increase by about 8 billion euros by 2035 for EU companies, while Vietnam's exports to the EU are expected to increase by 15 billion euros.

Vietnam's exports to the EU are estimated to increase by about 18% according to a 2018 economic impact study. However, these numbers do not fully represent the many dynamic benefits that will bring to the economies and societies of both sides.

It is a widely known fact that foreign direct investment (FDI) often follows strong trade relations. On the other hand, more FDI is likely to increase the trade potential between partners.

On its incredible journey to becoming a middle-income country, Vietnam now realizes that without more FDI it has the potential to become a regional hub and part of a great value chainThe bridge may be restricted.

As has been clearly demonstrated during this pandemic, many Vietnamese companies are heavily dependent on a very limited number of countries. Footwear and textile manufacturers have recorded input shortages.

Manufacturers of auto parts, rubber and plastics in Vietnam have lost the market to supply the car industry in South Korea.

SUPPLY CHAIN DIVERSIFICATION OPPORTUNITIES

Together with the EU-Vietnam Free Trade Agreement and the EU-Vietnam Investment Protection Agreement, today's disruptions can also be an opportunity to reorganize Vietnam's trade and investment relations.

Vietnamese businesses will likely want to consider whether they have the ability to diversify their supply chains, production chains, and their integration into value chains. Vietnam can diversify much better and thus become less vulnerable to future global crises.

Both agreements give Vietnam the opportunity to become a regional manufacturing hub. Compared to peer economies in the region, Vietnam has the first advantage of having 7-10 years of gold with privileged access to the EU market.  Only Singapore, which signed and ratified the FTA before Vietnam, is in a similar advantageous position.

With the foundation of new economic agreements with the European Union, the choice of new European partners will be obvious and an open opportunity for Vietnamese manufacturers.

This provides additional opportunities and facilitates local start-ups and SMEs to grow into global companies.

(Vietnam can diversify much better and thus become less vulnerable to future global crises.)

It is possible and also desirable that both agreements with the European Union will trigger a new wave of foreign direct investment from the EU into Vietnam. Investment from the EU is of top quality. European companies bring their high skills, best organizational experience and world-leading technologies to Vietnam.

European foreign direct investment comes with high standards of corporate social responsibility in the protection and training of workers and employees, as well as respecting and protecting the environment.

It allows Vietnam to promote economic growth, create better jobs while ensuring sustainable development. These spillover effects are essential for economies like Vietnam to avoid the middle-income trap.

These positive effects will of course only be realized if the promises and obligations in the agreements are quickly put into practice. Customs officials, regulators, enforcement agencies will have to be aware of these new rules and comply with them in their daily contacts with importers and distributors match.

This could lead to changes to the current ways of working. The benefits of these agreements will directly depend on the level of transparency and predictability of the government's behavior in its dealings with businesses. Traders and investors are very shy and they may flee elsewhere if the overall business environment is not favorable and stable.

The COVID-19 crisis has exposed some weaknesses in the progress towards uncontrolled globalization. We all have to learn our lesson and find the most appropriate remedy.

But if we believe that the future is a shutdown behind national barriers, we risk missing out on the enormous opportunities that come with economic interdependence.

Reducing economic interdependence will make people poorer. If you take a closer look at the complementarity characteristics of our two economies, greater interdependence is actually a win-win situation.

In fact, Vietnam will reduce its vulnerability by engaging more with Europe.

This is the way forward and the spirit of the two trade and investment agreements that have just been ratified by the National Assembly, which will really lay very solid foundations for Europe and Vietnam to further strengthen relations.

According to Zing