The EU-Vietnam Free Trade Agreement and its Impact

By The Pro QC Quality Assurance Team

What is the EUVFTA?

Signed into effect by the European Parliament and Vietnam at the end of June 2020, the EU-Vietnam Free Trade Agreement (EUVFTA) is both a trade agreement and an investment protection agreement that offers opportunities for trade, jobs and growth for both signatories.

According to the official European Union documentation, the agreement effectively tackles the following points:

  • Eliminates 99% of all tariffs between the EU and Vietnam
  • Reduces regulatory barriers and overlapping red tape
  • Ensures protection of geographical indications
  • Opens up services and public procurement markets
  • Ensures the agreed rules are enforceable

EUVFTA

The EUVFTA will not only protect labor rights and environmental concerns, but also aims to protect certain traditional European foods and goods from imitation through increased standards, regulations – and indisputable legal enforcement of these.

Key products being exported from the EU for example, include dairy – the 20% tariffs will drop to 0% over a five-year period. Other examples of rates that will fall to 0% over seven years are vehicles with current 78% tariffs, wine with current 50% tariffs, pharmaceuticals with current 8% tariffs, and chocolate with current 30% tariffs.

The opportunity for Vietnam exporters, according to Global Risk Insights, is a gateway into a US$18 trillion market. For EU investors looking at Vietnam, the move signifies an opportunity capitalize further on projects beyond traditional investment into heavy manufacturing and oil and gas. Sectors such as agriculture, pharmaceuticals and automobiles stand to gain in the long run.

So, what’s the Context?

Although the deal offers greater perks for European buyers, the US-China trade war and ongoing tensions between the two countries, have also spurred a deeper interest in Vietnam from US companies as well. Another element that has come into play more recently is the fact that Vietnam was able to control the impact of Covid-19 quite well, and with ardent screening and testing, managed to keep the country’s supply chains up and running efficiently. As a result, Vietnam has been one of the great resources for medical supplies and medical PPE for the rest of the world through this time.

Pro QC has been active in Vietnam for a couple of decades, and we have seen an uptick in business heading that way, with companies increasingly looking for alternatives to China over the past 12-18 months.

But what are the Challenges?

The most obvious challenge is of course, that Vietnam is not China.

While Vietnam does have relatively low costs for manufacturing and increasingly liberalized trade and investment policies, as well as a stable political system, which stand in its favor, unlike China the country depends on foreign inputs for production. It also has a much lower population, and Vietnam’s labor force is only 7% the size of China’s, which limits its ability to attract a larger number of firms looking for competitiveness with Chinese manufacturing. Another key point is that Vietnam has been successful with textiles, footwear and electronics, but it has yet to tackle electronics in the same way that China has done so successfully.

On the plus side, many of Vietnam’s factories are Chinese, Japanese and Korean owned, which means the logistical infrastructures are in-place to meet demand in the same way as it would be in the native countries of the owners. This makes Vietnam an interesting growth story to follow, especially as the EUVFTA really kicks into action.

Pro QC is well established throughout Vietnam, and we are here to answer any questions you might have on manufacturing there.