The EU-Vietnam Free Trade Agreement: A New Era of Economic Partnership

The European Union (EU) has recently made a significant leap in international trade relations by signing a comprehensive free trade agreement (FTA) with Vietnam. This pact marks the EU’s second agreement with a member of the 10-nation Association of Southeast Asian Nations (ASEAN), following a similar deal with Singapore earlier in the year.

A Decade in the Making

The journey to this landmark agreement has not been straightforward. FTA discussions between the EU and Vietnam initially broke down a decade ago, prompting the EU to pursue bilateral negotiations with individual states instead. After years of discussions and negotiations, the EU-Vietnam Free Trade Agreement (EVFTA) was officially signed in a ceremonious event in Hanoi.

Tariff Reductions and Trade Benefits

One of the most striking features of the EVFTA is its ambitious tariff reduction plan. The agreement aims to eliminate 99% of tariffs between Vietnam and the EU. Upon ratification, around 65% of the tariffs on EU exports to Vietnam will disappear immediately, while the remaining tariffs will be phased out over a period of up to 10 years. On the flip side, Vietnam will see 71% of its tariffs on exports to the EU abolished right away, with the remainder gradually eliminated over seven years.

According to Ajay Sharma, regional head of global trade and receivables finance for Asia Pacific at HSBC, this agreement positions Vietnam as the EU’s second-largest trading partner in ASEAN and opens new doors for trade between the two regions. The expected impact is already being compared to the successes seen with previous trade deals like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Japan Economic Partnership Agreement (EPA).

Key Exports and Sectoral Gains

Currently, the EU’s main exports to Vietnam include high-tech products such as electrical machinery, aircraft, and pharmaceuticals. On the other hand, Vietnamese exports to the EU feature a diverse range of goods including electronics, textiles, seafood, and coffee. The impact of the EVFTA will be particularly notable for EU farmers, as tariffs on products like wine and beef could be reduced from as high as 50% to zero, boosting competitiveness and market access.

Access to Services and Protection of Innovations

The deal also provides enhanced access for European companies to Vietnamese public procurement markets and various service sectors, including postal services, banking, insurance, and environmental services. Anahita Thoms, head of the international trade practice at law firm Baker McKenzie, highlights that the agreement strengthens intellectual property protections for EU innovations and geographical indications for 169 traditional European food and drink products, shielding them against imitation in the Vietnamese market.

Legal and Human Rights Considerations

Negotiations for the EVFTA officially began in June 2012 and were concluded by December 2015. However, the formal adoption of the agreement faced delays due to legal complexities surrounding the division of competencies between the EU and its member states concerning trade agreements.

The ratification of the EVFTA is not assured. Last September, a coalition of European lawmakers expressed concerns over Vietnam’s human rights record, insisting on improvements before any parliamentary vote on the agreement could take place. Their statement emphasized the necessity for Vietnam to demonstrate a commitment to addressing pressing human rights issues.

Despite these hurdles, the EU maintains that the agreement includes a legally binding commitment to sustainable development, encompassing human rights, labor rights, environmental protections, and a focus on climate change. The anticipation is for ratification to occur by the end of the year.

Future Prospects in Southeast Asia

The successful negotiation of the EVFTA sets a promising precedent for the EU’s engagement with other ASEAN nations. The next likely candidate for a deal is Indonesia, while talks with Thailand, Malaysia, and the Philippines are currently on hold. With the EU’s growing focus on forging trade partnerships in Southeast Asia, the potential for strengthening economic ties in the region is vast.

In summary, the EU-Vietnam Free Trade Agreement encapsulates a new chapter in trade relations between Europe and Southeast Asia, heralding both economic opportunities and challenges as both regions navigate this evolving landscape.