Tools to raise investment via EVFTA
Tools to raise investment via EVFTA
It is expected that the EU-Vietnam Free Trade Agreement will be signed early next year. Ambassador Bruno Angelet, head of the European Union Delegation to Vietnam, provides a shortcut for the country to attract high-quality investment from the EU following this hallmark deal.
Vietnam has been very successful in attracting foreign direct investment (FDI), which has annually increased by almost 1,000 per cent over the last 10 years.
FDI has been a major driver of Vietnam’s economic development and has contributed to the impressive growth rates averaging at 6.5-7 per cent over the past decade. It has created resources for the government and jobs for the people. With its population of almost 100 million, the Vietnamese market is extremely attractive for investors.
In addition, a network of free trade agreements (FTAs) concluded by Vietnam offers competitive access to other markets. These are the factors that can make the country an important destination for investment in the region.
However, after 30 years of this rapid economic development, Vietnam needs better investment that will leave more value in the country, create higher skilled jobs, and that would support the government’s policy of sustainable development respecting the environment and society.
The next generation of FDI is needed for Vietnam to continue its impressive economic development path and upgrade the profile of its economy.
STRENGTH OF EUROPEAN INVESTMENT
This is exactly what European investment can bring to Vietnam: it can offer funds in hi-tech, environmentally friendly, and less energy-consuming sectors. European business does not only bring technology and quality jobs but also responsible business practices. This quality European investment can create useful links with local companies and integrate them into the global value chain.
Currently, European investment in Vietnam does not yet meet its full potential. Over the past decade, investment from the EU accounted for $23.9 billion in capital and 2,133 in the number of projects. The EU’s ranking in comparison with other important FDI partners of Vietnam during the past 10 years varied from third to sixth position.
Up to now, EU investment in Vietnam has concentrated mainly in industrial processing and manufacturing, accounting for 35 per cent of the $23.9 billion. Electricity generation is also an important sector attracting up to 18 per cent of its capital. The EU’s presence in other economic sectors remains modest compared to South Korea or Japan, and extremely small compared to its potential.
Although the EU has been the biggest non-Asian FDI partner of Vietnam, its ranking in the list of Vietnam’s FDI partners, on a cumulative basis since 1988, is at fifth position after South Korea, Japan, Singapore, and even Taiwan (China). In 2017 alone, the EU ranked fourth with $915 million in committed FDI.
NEW DRIVER
The EU and Vietnam have just concluded an ambitious 21st century trade deal: the EU-Vietnam Free Trade Agreement (EVFTA) and Investment Protection Agreement (IPA) and look forward to signing both agreements shortly.
The FTA covers trade in goods and services, government procurement, and allows a high level of protection of intellectual property rights (IPR). The FTA will undoubtedly create new opportunities for our investors. EU investors will benefit not only from increased market access, but also from the new investment protection provisions that are now an integral part of the EU’s trade policy. Vietnam and the EU have agreed to high-level protection standards and to a reformed dispute resolution mechanism.
The existing Bilateral Investment Treaties (BITs) in force between Vietnam and EU member states will be replaced by the IPA once it enters into force.
The agreement includes key protection standards, including:
-Non-discrimination;
-Protection against expropriation without prompt and adequate compensation;
-Possibility to transfer and repatriate funds relating to an investment;
-Fair and equitable treatment and physical security.
While ensuring a high level of investment protection for funders, it preserves the EU’s and Vietnam’s right to regulate their policies to pursue legitimate public policy objectives. The agreement sets up a permanent dispute resolution system under which disagreements about the respect of one of the investment protection provisions in the IPA can be submitted to a standing and fully independent investment tribunal system.
RECOMMENDATIONS
Until now Vietnam’s FDI attraction policy relied heavily on tax breaks, concessional rates, and import duty exemptions. Many investors have come to Vietnam because of the incentives and low labour costs. Attracting innovative, technologically-advanced FDI requires a more sophisticated policy and tools.
Therefore, Vietnam should continue working towards removing existing trade and investment barriers and improving the business climate. In this context, transparency is key for investors to know the regulations and procedures to follow. A fair, transparent, stable, and predictable business climate tops EU businesses’ priorities when they mull on investment plans.
It is also vital that Vietnam guarantees a stable legal framework for investors to operate and a functioning enforcement system. We urge Vietnam to improve the recognition and enforcement of foreign arbitral awards and to set up a grievance system for financiers to avoid disputes. Vietnam is also strongly encouraged to accede to the ICSID (International Centre for Settlement of Investment Disputes) Convention.
Importantly, EU investment also requires highly-skilled workers. This offers Vietnam an excellent chance of job creation with secure income, international-standard working environment, acquiring management skills and technical knowledge, and transfer of technologies.
Nevertheless, accompanying this opportunity is a challenge that the educational system of Vietnam must cope with to satisfy its needs. Vietnam can be proud of its hardworking labour force and the high literacy rate, however, working with European companies require better preparation, more practical and technical knowledge, and experience.
Last but not least, the protection of IPRs plays a crucial role in the decision-making process of an investment project from the European perspective. About 39 per cent of total economic activity in the EU worth some €4.7 trillion ($5.35 trillion) is generated annually by IPR-intensive industries, and 26 per cent of all employment in the EU (56 million jobs) is provided directly by these industries while a further 9 per cent of jobs in the EU stems indirectly from IPR-intensive industries.
Furthermore, IPR-intensive industries account for about 90 per cent of EU exports. These facts should not be underestimated. The existence and proper enforcement of IPR protection laws is indispensable for attracting FDI from Europe.
The EVFTA will address some of the above issues. It will strengthen transparency about regulations in Vietnam.
It will also increase IPR protection beyond the standards of the World Trade Organization (WTO): EU innovations, artworks, and brands will be better protected against being unlawfully copied, including through stronger enforcement provisions. But most importantly, the EVFTA will create a stable legal framework for trade and investment relations between the EU and Vietnam that will enable us to co-operate and achieve a win-win solution.
