Compared to 2019 when the EVFTA had not yet been implemented, Vietnam's export turnover to the EU increased from 35.7 billion USD to 43.6 billion USD in 2023. Photo: Vietnamese lychees are displayed for sale at the Carrefour Tongres supermarket in Brussels, Belgium. (Source: VNA)

After 4 years of implementation, the Vietnam-EU Free Trade Agreement (EVFTA) has significantly boosted Vietnam's exports to the European Union (EU), soaring from 35 billion Euros in 2019 to more than 48 billion Euros in 2023. One of the highly appreciated highlights is the process of Vietnam proactively reforming its institutions to create a more transparent and favorable business environment, thereby increasing the attraction of foreign investment capital; including investment capital from EU countries.

Opportunities and challenges go hand in hand

As one of Vietnam's first new-generation Free Trade Agreements (FTAs) and also the first new-generation FTA that the EU signed with a developing country in the Asia-Pacific region, the EVFTA, which took effect on August 1, 2020, has raised issues that force Vietnam to make changes.

Mr. Luong Hoang Thai, Director of the Multilateral Trade Policy Department (Ministry of Industry and Trade), said that EVFTA is the first FTA between the EU and a developing country in the Asia-Pacific region. This is an opportunity for both sides to promote new growth spaces for bilateral relations, but on the other hand, it is also a challenge due to many issues that are beyond the framework of previous traditional FTAs.

According to Mr. Thai, the most important issue in new generation FTAs ​​is institutional innovation to both meet the high conditions of the agreement and create momentum to make good use of the incentives. In this aspect, the National Assembly as well as the Government have made careful preparations to be able to amend, supplement and issue a series of new documents such as the Law on Insurance Business, the Law on Intellectual Property, documents implementing the Law on Bidding, the Law on Commerce, the Law on Investment, etc.

The Government has created an increasingly favorable business environment for domestic enterprises as well as foreign investors. Not only stopping at documents related to trade and investment, Vietnam has also issued many documents implementing the Labor Code, the Fisheries Law... to better protect the rights of workers and protect the environment in the process of international economic integration.

Furthermore, the Director of the Multilateral Trade Policy Department affirmed that the EVFTA has brought positive results in trade, although the past 4 years of implementing the agreement were also the period when the international market was affected by the Covid-19 pandemic and conflicts in Europe, leading to disruptions in the supply chain and reduced aggregate demand.

Compared to 2019 when the EVFTA had not yet been implemented, Vietnam's export turnover to the EU increased from 35.7 billion USD to 43.6 billion USD in 2023. Vietnam's strengths in products such as electronics, footwear, agriculture and seafood all experienced strong growth. This helped Vietnam become the EU's most important trading partner in the ASEAN region.

However, Vietnam expects the EVFTA to bring more benefits than increasing exports of products in which Vietnam has advantages. In particular, the EVFTA is expected to contribute to attracting foreign investment, helping to establish a new, modern and sustainable supply chain, creating new momentum for economic growth.

A less noticed aspect is that the EVFTA helps access technology as well as quality products from the EU. Because the EU is a place with source technology, has strengths in mechanical products, machinery, equipment, pharmaceuticals, etc. The EVFTA is an opportunity to buy goods from the EU at a more reasonable cost, thereby bringing benefits to consumers and businesses. However, because Vietnam's tax reduction roadmap is longer than the EU's, this impact is also slower than the impact on exports.

Finally, the EVFTA is the basis for strengthening cooperation with EU member states as well as with the UK after the UK leaves the EU through bilateral, regional and multilateral mechanisms. For example, Italy, as host, invited Vietnam to participate and deliver a speech at the G7 Trade Ministers’ Meeting as a country that has closely cooperated with the EU to promote trade and investment development on a global scale.

Take advantage of the offer with confidence

The signing of the EVFTA also requires Vietnam to "upgrade" its export goods, especially when the certificate of origin (C/O) plays a role as a golden key to help businesses expand their markets, especially helping goods take advantage of tariff incentives under the Agreement. Regarding this issue, Director of the Department Luong Hoang Thai commented: "The EVFTA Agreement sets relatively high standards on rules of origin to avoid third parties from benefiting without investing in developing the Vietnam-EU supply chain. However, with the large size of the EU market and the careful preparation of Vietnamese enterprises, the ability to take advantage of incentives in the EVFTA Agreement is quite good compared to other FTAs ​​in the early stages of implementation".

Accordingly, in 2023, the rate of using Certificates of Origin (C/O) in the EU will be 35.2% of export turnover, with a value of 15.4 billion USD, an increase of 26.1% compared to 2022. With a developed market with high technical barriers and low tax rates, this is considered a fairly high level of preferential utilization.

According to a survey by the Vietnam Federation of Commerce and Industry (VCCI), the rate of enterprises understanding EVFTA is higher than other FTAs, nearly 50% of enterprises have enjoyed specific benefits from EVFTA, export turnover from Vietnam to the EU increased by 16.7% in 2022 and nearly 20% in 2023.

Efforts to overcome difficulties

Although it brings “sweet fruits” to Vietnam’s exports, the EVFTA also poses many significant challenges as it enters its fifth year. According to Mr. Luong Hoang Thai, Vietnamese enterprises face many difficulties in accessing the EU market because this is a market with many strict standards related to the quality of goods. Although these standards are applied to all countries, Vietnam faces greater challenges because its development level is among the lowest compared to partners that have FTAs ​​with the EU.

The Director of the Multilateral Trade Policy Department said that, apart from foreign-invested enterprises, Vietnamese enterprises have not yet built their own brands and do not have a suitable strategy to enhance their recognition in the EU market. Some enterprises are not yet fully and clearly aware of the opportunities and advantages that the EVFTA brings. These limitations affect the ability of Vietnamese enterprises to take advantage of the incentives of the EVFTA to develop and expand the market in Europe.

“On the other hand, the EU is developing many new regulations on labor and environment to meet the increasing demands of consumers. This process will inevitably have certain impacts on imported goods into the EU.

Ultimately, the EVFTA will only be successful if Vietnam and the EU can establish new supply chains and have closer ties between businesses on both sides. The EU-Vietnam Investment Protection Agreement (EVIPA) was negotiated as a component of the EVFTA, then was ratified separately, but to date, some EU countries are still in the process of completing domestic procedures and have not been able to put it into effect,” said Mr. Luong Hoang Thai.

To overcome these challenges, a number of solutions have been promoted by ministries and sectors in the General Plan approved by the Government. First, Vietnam is determined to continue improving the business environment through implementing amendments and supplements to domestic legal regulations and perfecting institutions to build a transparent and favorable business environment in line with international standards and practices.

In addition, maintain and expand propaganda and dissemination activities about EVFTA through forms such as organizing seminars, talks, propaganda through books, magazines, publications and electronic information pages to improve businesses' understanding and awareness of the Agreement.

In particular, Vietnam is also working with the EU to help businesses meet new regulations on labor, environment, and food safety issued by the EU. Finally, the key point is to support businesses, including small and medium-sized enterprises, to improve technology and enhance competitiveness.