Vietnam's rise as Asia's new manufacturing powerhouse continues with its ratification Monday of the landmark "European Union-Vietnam Free Trade Agreement" (EVFTA) that will dramatically boost its manufacturing muscle over the next 10 years.
EVFTA was signed in Hanoi on June 30 after being ratified by the European Parliament on February 12. It's expected to take effect in July.
Also ratified by Vietnam's National Assembly was the "EU-Vietnam Investment Protection Agreement" (EVIPA) that protects investors. Eight years in the making, EVIPA gives EU companies equal treatment with domestic bidders in competing for public contracts.
EVFTA will eliminate almost 99% of customs duties between the EU and Vietnam. Analysts say EVFTA will also help Vietnam speed-up its recovery from the economic damage caused by the COVID-19 pandemic.
Vietnam's Ministry of Planning and Investment (MPI) estimates EVFTA will increase Vietnam's GDP by 4.6% and its exports to the EU by 42.7% by 2025. On the other hand, the European Commission forecast the EU's GDP to increase by $29.5 billion by 2035.
Among the key provisions of EVFTA:
* It will eliminate 65% of duties on EU exports to Vietnam
* The remaining duties will be gradually phased out over 10 years.
* It will eliminate 71% of duties on Vietnam exports to the EU.
* The remaining duties will be eliminated over a period of seven years.
The implementation of the EVFTA comes at a good time for Vietnam when it's on the path of economic recovery after several months of closure due to COVID-19, said economist Pham Chi Lan, who was also a former adviser to several Vietnamese prime ministers.
Called a new generation bilateral agreement, EVFTA contains important provisions affecting intellectual property (IP) rights, investment liberalization, and sustainable development. Also included in the deal is a commitment to implement International Labor Organization (ILO) standards and the UN Convention on Climate Change.
EVFTA will also boost Vietnam's expanding trade with the EU. In 2018, EU investors poured more than $23.9 billion into 2,133 projects in Vietnam. In 2018, European investors added $1.1 billion to Vietnam economy. Twenty-four of 27 EU member states have invested in Vietnam. The Netherlands is the heaviest investor in Vietnam, followed by France. The United Kingdom, which is no longer a member of the EU, is the third top investor.
Vietnam said EU investors are active in 18 economic sectors and in 52 out of the 63 provinces in Vietnam. EU investments are going into manufacturing, electricity and real estate.
Vietnamese data also shows the bulk of the EU investments are concentrated in areas with good infrastructure. These priority investment areas include Hanoi, Quang Ninh, Ho Chi Minh City, Ba Ria-Vung Tau and Dong Nai.
Foreign direct investments (FDIs) in Vietnam hit a 10-year high of $38 billion in 2019. Some two-thirds of this amount went into manufacturing. EVFTA is expected to help sustain that trend. Singapore is the only other country in Southeast Asia that has an FTA with the EU.
