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Vietnam - EU FTA: Opportunities and Challenges
The third round of Free Trade Agreement (FTA) talks between the European Union (EU) and Vietnam is set to take place on April 22, 2013.

The third round of Free Trade Agreement (FTA) talks between the European Union (EU) and Vietnam is set to take place on April 22, 2013. The pact is expected to bring many benefits to Vietnam, but it also generates plenty of difficulties and challenges by increasing competitive pressures. In an attempt to help Vietnamese businesses understand more about the impacts of this agreement on key sectors, as well as opportunities and challenges to businesses after the signing, the European Trade Policy and Investment Support Project (EU-MUTRAP) and the Ho Chi Minh City Branch of the Vietnam Chamber of Commerce and Industry (VCCI - HCM) co-organised the workshop: “Vietnam - EU FTA: Noteworthy contents for Vietnamese businesses.”

Mr Bui Huy Son, Director of the Asia - Pacific Markets Department under the Ministry of Industry and Trade, said, being important trade and investment partners of each other, both Vietnam and the EU have high expectations for Vietnam - EU FTA and hope for quick conclusion to negotiations for the official signing. The EU is one of the leading economic, trade and investment partners of Vietnam. According to the General Statistics Office (GSO), in 2012, it emerged as the largest importer of Vietnamese products with total value of US$20.3 billion, a year on-year increase of 22.5 per cent, accounting for 17.7 per cent of the country's total exports. Vietnam - EU cooperation has entered a new chapter with the signing of the Vietnam - EU Partnership and Cooperation Agreement (PCA) in June 2012 and the visit of the President of the European Council Herman Van Rompuy to Vietnam in October 2012.

The signing of Vietnam - EU FTA is expected to bring many benefits to Vietnam, like reducing at least 90 per cent of tariff lines on Vietnam's exports to the EU to zero, and increasing EU capital sources for Vietnam. The FTA signing will open up many new opportunities for Vietnamese businesses to penetrate deeper into the EU market and force them to move closer to international standards. In addition to the above benefits, Vietnam may face certain difficulties and challenges, with commitments to bringing tariffs to zero for most tariff lines, wider opening of service markets, and increased transparency of business and investment management regulations.

Also remarking on the FTA impacts on Vietnam, Mr Vo Tan Thanh, Director of VCCI - HCM, said the Vietnam - EU FTA will be an important boost for Vietnam's exports. With 501 million consumers and over US$17,000 billion of GDP, the EU is the dream market. At present, Vietnam's exports to the EU account for 0.75 per cent of the bloc’s total imports. Only 40 per cent of imports are tax free while the remaining 60 per cent are subjected to different tax rates. With the FTA, import duties with the EU will drop and Vietnam’s exports will thus have a great opportunity to penetrate and increase their market share in this market. Besides, with increased transparency and facilitation, Vietnam - EU FTA will certainly help improve the business environment in Vietnam in the direction of increased openness and easiness, thus bolstering business activities and direct investment from the EU and other countries to Vietnam. With the EU’s investment size and potential, Vietnam will have a chance to become a bridge connecting the EU’s trade and investment with the ASEAN region. This will actively support Vietnam’s economic restructuring growth model.

Besides, the FTA will help Vietnam diversify export markets and therefore diminish dependence on certain markets. Like the Trans-Pacific Strategic Economic Partnership Agreement, it will give a chance for Vietnam to balance its export market structure. But, as a general rule, benefits are always balanced with obligations and Vietnam must bring most of its own import tariffs to zero, open more service markets than WTO commitments, and not rule out the possibility of opening up the public procurement market. As a result, competitive pressures will be definitely be intensified and increased.

Mr Pham Ngoc Hung, Vice Chairman of the Ho Chi Minh City Business Association, said that the ending of tariffs on at least 90 per cent of exports to the EU market will be the key to promote Vietnam's exports. But, Vietnam's exports will still face many barriers. For instance, textiles and footwear will see more difficulties in EU requirements for origin of commodities; wooden products must satisfy Regulation 995/2010 of the European Parliament or the Forest Law Enforcement, Governance and Trade Action Plan of the European Union (FLEGT) for legal logging; and agricultural products will confront competitive pressures from new EU member countries. He proposed that the EU apply specific, flexible nontariff barriers on Vietnam’s goods, while the bloc necessarily recognises Vietnam as a market economy in applying anti-dumping policies. Besides, FTA provisions need to have a roadmap for Vietnam on a number of areas like small and medium enterprises, agriculture and labour.

Source: VCCI

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