Vietnam News

Vietnam targets China manufacturers after EU trade green light

High hopes for textile and apparel exports as Hanoi gives pact unanimous backing

Vietnam’s National Assembly approved a free trade agreement with the EU on June 8, a move expected to help make the country a new investment destination for manufacturers looking to leave China. The EU-Vietnam Free Trade Agreement (EVFTA) was unanimously approved and, following formal ratification, will take effect as early as August. The trade deal has already been ratified by the EU, making Vietnam the second south-east Asian nation to have such a trade treaty with the European bloc after Singapore. A display in the assembly hall showed that all 457 legislators voted in favour of the trade pact.

“One of the issues that attracted the attention of the National Assembly deputies was that Vietnam had to change its mode of economic activity, and secure customers in the European market after the Covid-19 pandemic,” the National Assembly News said on its website before the voting took place. “Along with the benefits, the EVFTA also poses some challenges. The EVFTA creates competitive pressures on goods and services from the EU for Vietnamese businesses, goods and services,” the website also said.

Once the agreement takes effect, 71 per cent of exports from Vietnam to the EU will become duty-free, as will 65 per cent of EU shipments to Vietnam. Of the remaining tariffs, up to 99 per cent will be phased out by Hanoi over 10 years and by Brussels over seven years. With about 96m people, Vietnam has the third-largest population among the 10-member Association of Southeast Asian Nations. Per capita gross domestic product is estimated at nearly $3,500 for 2019, topping the $3,000 benchmark at which car and appliance ownership tends to take off. Hanoi already benefits from the EU’s preferential tariff scheme.

But the trade deal is sure to make the bloc a bigger buyer of Vietnamese goods, rising from its current share of about 15 per cent. Particularly strong growth is expected for apparel and footwear, which account for roughly 20 per cent of Vietnam’s exports. Vietnam ranks as the world’s third-largest apparel exporter after China and Bangladesh. Vietnamese textile companies have prepared to enter the EU market. Once the deal takes effect, the bloc is to eliminate tariffs on 77.3 per cent of Vietnam’s textile and apparel exports after five years and the remaining 22.7 per cent after seven years. Many companies in the local industry claim their contracts with partners in the EU and the US have been cancelled, delayed or scaled down recently.

Vietnam’s garment industry reported that all enterprises were affected by the pandemic, saying that 70 per cent of members were urged to cut workers in March and more will have to reduce their labour force in April and May.

Hopes are growing that the trade deal will give a much-needed boost to Vietnam’s economy, which is certain to suffer a slowdown from the 7 per cent growth it enjoyed before the pandemic. Vietnam is aiming for garment export turnover of $34bn this year, down from $39bn last year. The trade agreement is good news for multinational manufacturers outside the EU as well.

Among Japanese enterprises, apparel companies such as Uniqlo operator Fast Retailing source clothing in Vietnam, while makers of car and machinery parts look to increase shipments from Vietnam to Europe. Hanoi’s exports to the EU market reached $42bn in 2019, while the bloc’s shipments to Vietnam totalled $15bn, Vietnamese government data show. The Ministry of Planning and Investment expects Vietnam’s export revenue to the EU to rise 42.7 per cent by 2025 and 44.4 per cent by 2030 compared with a no-deal scenario. The World Bank forecasts that the free trade agreement will help raise Vietnam’s GDP by 2.4 per cent and lift exports 12 per cent by 2030. Tran Tuan Anh, the minister of industry and trade, has said the agreement will speed the reduction of poverty in Vietnam.

“The EVFTA is now more important than ever, as trade wars and a global pandemic disrupt normal business operations on an unprecedented scale,” said the European Chamber of Commerce in Vietnam. “This agreement represents a true ‘win-win’ not just for European and Vietnamese enterprises; but also for citizens on both sides.

Now, the next step is to ensure a smooth and effective implementation.” Nguyen Thi Thu Trang of the Vietnam Chamber of Commerce and Industry said the deal will drive businesses to reignite their export activities after market demand declined owing to the pandemic. The trade deal gives the EU, whose Vietnam-bound exports include aircraft and cars, greater access to an attractive consumer market.

Post-Brexit Britain will be part of the EU trade pact with Vietnam until the end of 2020. The UK ambassador to Vietnam, Gareth Ward, told British companies in an online conference that the two countries are working on a bilateral trade deal and expect to reach an agreement by year’s end. Vietnam is also part of the free trade effort known as the Regional Comprehensive Economic Partnership, which includes all of south-east Asia as well as Australia, China, India, Japan, New Zealand and South Korea. The country is also seeking a trade deal with Israel. Local companies are urging Vietnam to negotiate a free trade agreement with the US as soon as possible.

By Tomoya Onishi – Nikkei Asian Review – June 8, 2020

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