Local firms urged to prepare for EVFTA
Local firms urged to prepare for EVFTA
As the European Union and Vietnam are set to sign a free trade agreement in Hanoi this Sunday, domestic enterprises should get prepared to make the most of opportunities which the trade pact would bring.
On June 25, the European Council decided on the signing of two agreements between the EU and Vietnam: a free trade agreement and an investment protection agreement. The Council said in a statement that the two deals would be signed in Hanoi on June 30, 2019.
The EU-Vietnam Free Trade Agreement (EVFTA), said the statement, is the most ambitious FTA ever concluded with a developing country since it provides for the almost complete (99%) elimination of customs duties between the two sides.
Up to 65% of duties on EU exports to Vietnam will be abolished as soon as the EVFTA takes effect while the remainder will be phased out over a period of up to 10 years. For Vietnamese exports to the EU, 71% of duties will be eliminated when the deal comes into force, the remainder being phased out over a period of up to 7 years.
Nguyen Quang Thai, general secretary of the Vietnam Economic Association, said that this is Vietnam’s first ever new-generation FTA with a huge economic community like the EU. The EVFTA will help boost Vietnam’s exports to the EU by removing customs barriers and improve the local investment environment.
The EU is now one of Vietnam’s largest trading partners, accounting for an average of 19% of the country’s total exports. Last year, Vietnam shipped US$42.5 billion worth of products to the EU, up 11% over 2017, according to the General Statistics Office.
Instead of exporting raw products, Vietnam has gradually exported more goods of higher added value.
According to the EU Delegation to Vietnam, the EU imported US$13.12 billion worth of mobile phones from Vietnam, accounting for one-third of the country’s total export turnover from the product.
In addition, Vietnam has been the EU's major supplier of textiles and garments, footwear, coffee, cashew nuts, seafood and wooden products for the market. However, Vietnamese goods make up only 2% of the EU’s annual imports.
Nguyen Ton Quyen, general secretary of the Vietnam Timber and Forest Product Association (Vifores), pointed out that Vietnam’s wooden products have been able to gain access to the markets of only five EU members with total export revenue of US$785 million per year. However, the EVFTA together with the EU-Vietnam Investment Protection Agreement (EVIPA) will pave the way for local products to enter 28 EU member states.
Further, the EU is a large supplier of raw materials as it accounts for one-sixth of the world’s planted forests and manufactures modern wood-processing machinery.
Tran Viet Tien, director of a local wood processing firm and a member of the executive board of the Handicraft and Wood Industry Association of HCMC (HAWA), said that the EVFTA will help enterprises in the sector diversify their markets. The United States is now the largest buyer of Vietnam’s wooden furniture, but heavy reliance on this single market may pose high risks to the sector.
Moreover, U.S. importers have gradually moved their wood import orders from China to Vietnam due to China-U.S. trade tensions and the ratification of the EVFTA.
However, Vietnam has yet to make use of FTAs. Last year, only 39% of the country’s export revenue was generated from the markets with which Vietnam had signed FTAs. More than half of the tariff incentives in these markets have yet to be utilized, according to the Vietnam Chamber of Commerce and Industry.
According to Nicolas Audier, chairman of the European Chamber of Commerce in Vietnam, one of the greatest difficulties for Vietnamese businesses is meeting the high standards of the EU market.
However, local firms seem to have little or no knowledge of the trade pact, Audier added, suggesting local firms should adjust their production, improve their product quality and seek ways to connect with European companies to better grasp opportunities ushered in by the EVFTA.
Meanwhile, Tien of HAWA suggested holding seminars to provide local companies with necessary information on the EVFTA and its impact on these firms.
Vifores has also proposed the Ministries of Agriculture-Rural Development and Industry-Trade quickly issue guidelines on the execution of EVFTA.
