Vietnam's National Assembly’s (NA) deputies officially ratified the Europe-Vietnam Free Trade Agreement (EVFTA) and the Europe-Vietnam Investment Protection Agreement (EVIPA) on Monday.

The agreements will take effect next month.

The EVFTA is expected to give Vietnamese companies better access to European markets, thus ensuring Vietnam’s economic security.

The trade pact will erase import tax for Vietnamese products. In exchange, Vietnam is expected to become more attractive to European investors.

As soon as the agreement takes effect, EU commits to removing 85.6 per cent of tariffs, equal to 70.3 per cent of the country’s total export turnover to the EU.

Seven years after the EVFTA takes effect, the EU will remove 99.2 per cent of import taxes, or 99.7 per cent of export turnover from Vietnam to the EU.

The remaining products will enjoy zero tax.

It means that nearly 100 per cent of Vietnamese goods exported to the EU will see import taxes abolished after a roadmap of seven years.

This creates big opportunities for local firms to expand their export markets to the EU and the same opportunities for European businesses.

Economists say the trade pact is expected to boost the country’s total gross domestic product (GDP) by 2.4 per cent and exports by 12 per cent by 2030. Its exports could rise 2.18 to 3.25 per cent in the 2019-2023 period and 4.75 to 5.3 in the 2024-2033 period.

The EVIPA will help Vietnam strengthen its important political and economic position in the Southeast Asia and Asia-Pacific regions, heightening the nation’s status in ASEAN and other international organisations.

The investment protection deal will encourage Vietnam to keep working to complete its legal system and improve the investment and business environment for all investors.

The EVIPA will replace 21 bilateral investment protection agreements that Vietnam has with European governments. The agreement contains four chapters, 92 articles and 13 appendices.

The ratification of the two deals will help tighten the bond between Vietnam and the EU in economic development, trade and investment.

On the same day, NA deputies also passed the resolution that allows Vietnam to join the International Labour Organisation’s Convention 105 on abolition of forced labour.

Challenges for SMEs

Minister of Industry and Trade Tran Tuan Anh on Friday said small and medium-sized enterprises (SMEs) should fully understand the provisions of the EVFTA.

He said this at a conference in Hanoi aimed at supporting SMEs in taking advantage of opportunities to effectively implement the EVFTA.

Anh said there were many issues that the SME community should consider during the implementation of free trade agreements (FTAs). For example, these include the ability to access and understand legal information, commitments in agreements as well as the implementation process.

He said the EVFTA is a new generation FTA with the strongest commitments for the EU and Vietnam on opening their markets, reforms of administrative procedures, institutions and policies.

However, the EVFTA will also bring challenges for SMEs, which account for 97 per cent of total businesses in the country.

With 27 countries and a population of more than 450 million people, as well as per capita income of about $36,000, the EU is also a demanding market, requiring high product quality. This is the biggest challenge for SMEs.

Vietnam Association of Small and Medium Enterprises chairman Nguyen Van Than said the opportunity provided by the EVFTA would be huge, but the challenge for Vietnamese businesses in joining this agreement would not be small.

Than said: “The biggest challenge for SMEs is technical barriers. Vietnamese companies would have to face requirements of food hygiene and safety, epidemiological hygiene, codes of conduct, regulations on environmental protection, and origin of goods imported into the EU.

“The regulations on localisation rate will also cause many difficulties for businesses.”

He said the competition with EU goods would also be a challenge for SMEs.

“When opening Vietnam’s market for EU goods, it means that Vietnamese enterprises will have to accept fair competition with EU businesses.

“These are capitalised businesses with high quality goods, beautiful designs, and high competitiveness thanks to the benefits of EVFTA tax exemption,” said Than. Therefore, Vietnamese businesses would be under great competitive pressure right at home.

“In addition, in terms of trade remedies, when tariff barriers are no longer an effective tool to protect businesses, import markets tend to apply anti-dumping and anti-subsidy or safeguarding measures to protect domestic production,” he added.

At the same time, when the economy is open under EVFTA commitments, production transition processes start to form. There will be a wave of investors from the EU flooding into the country, creating competition for labour resources in industries. Some industries therefore will lack workers.

Than said Vietnamese SMEs would also face difficulties of information shortage of the EU market as well as regulations on imported goods. Vietnamese enterprises had not yet been prepared with adequate knowledge and skills on exporting goods to the EU as well as lack of capital for production and business.

He proposed that the government accelerate administrative reforms while completing policies and institution to submit to the NA for approval some important laws such as the Enterprise Law, Environment Protection Law and Labour Law to suit the EVFTA’s regulations. This would be a legal foundation for firms to effectively implement the EVFTA.

The government should also organise training courses on the EVFTA to improve businesses’ awareness regarding the agreement, said Than.

VIET NAM NEWS/ASIA NEWS NETWORK