EVFTA: Four Years On—Progress, Benefits, and Challenges

As the EU-Vietnam Free Trade Agreement (EVFTA) marks its fourth anniversary in August 2024, it’s essential to pause and reflect on its implementation progress. This article explores key achievements, ongoing challenges, and actionable strategies for businesses looking to optimize their benefits from the agreement.

An Overview of the EVFTA

The EU-Vietnam Free Trade Agreement came into force on August 1, 2020. Its primary objective is to boost economic growth between the European Union (EU) and Vietnam. This agreement aims to enhance the investment climate while providing greater certainty for both EU and Vietnamese investors.

Key Goals of the Agreement

• Elimination of Customs Duties: The agreement is designed to dismantle over 99% of tariffs, easing cross-border trade activities.
• Streamlining Trade: Focus on critical sectors such as electronics, food, and pharmaceuticals to enhance economic interaction.
• Market Access: Japan’s market is opened for EU service exports and vice versa, enabling greater bilateral trade.

Direct Benefits for Vietnamese Traders

Vietnamese traders have experienced multiple advantages thanks to the EVFTA:

• Tariff elimination on 99% of all goods.
• Reduced regulatory barriers and bureaucracy.
• Stronger protection of intellectual property rights, particularly for regional specialties.
• Enhanced growth opportunities in public procurement and services.

Trade Dynamics Post-EVFTA

Four years into the EVFTA, Vietnam has emerged as the leading exporter to the EU within ASEAN, contributing to economic growth, job creation, and improved access to high-quality European products. According to the Ministry of Industry and Trade (MoIT), Vietnam’s export value to the EU has risen by nearly 50%, while imports have increased by over 40%.

Notable Achievements in Trade

• Increased Two-Way Trade: The two-way trade volume reached approximately $296.87 billion in 2023. By mid-2024, Vietnamese exports to the EU totaled over $24.69 billion, a 15.37% increase year-on-year.
• Diverse Key Exports: Vietnam’s major exports to the EU include aquatic products, fruits, footwear, apparel, and wooden furniture, particularly from countries such as the Netherlands, Germany, Italy, and Spain.

Foreign Direct Investment (FDI) Prospects

The EVFTA has played a pivotal role in positioning the EU as the sixth-largest source of FDI in Vietnam, even with the EU-Vietnam Investment Protection Agreement (EVIPA) still under consideration. As of now, EU members have invested around €28 billion ($30.6 billion) across 2,450 projects, focusing on high-tech manufacturing and services.

What Makes Vietnam Attractive?

The benefits of the EVFTA enhance Vietnam’s appeal to foreign investors:

• Smoother Trade Opportunities: EU service industries gain more access to Vietnamese markets, including banking and shipping.
• New Investment Momentum: Higher-quality investments are entering Vietnam, particularly in sustainable sectors like renewable energy.
• Transparency and Predictability: Comprehensive commitments under the EVFTA promote a more transparent business climate.

Key Highlights for Businesses

The EVFTA comprises 17 chapters and multiple protocols addressing various aspects of commerce:

• Trade in Goods: Key to lowering tariffs on imports and exports.
• Services and Investment: Paves the way for liberalization and e-commerce.
• Government Procurement & Intellectual Property: This strengthens rights and ensures fair competition.

Resources for Business Guidance

• For the full agreement text, refer to the WTO Center.
• The Access2Markets portal from the European Commission can guide businesses through specific trade requirements.
• Businesses seeking tailored advice may contact Dezan Shira & Associates directly for assistance in navigating the EVFTA.

Tariff Removal Roadmap

The phased tariff elimination roadmap under the EVFTA aims to substantially boost Vietnam’s exports, particularly in competitive sectors like agriculture and aquatics.

Tariff Commitments Include:

• EU’s Commitment: Approximately 85.6% of tariffs on Vietnamese goods will be eliminated upon the agreement’s inception, with a target of 99.2% eradication within the next seven years.

• Vietnam’s Commitment: Initially, Vietnam will eliminate 48.5% of tariff lines, escalating to 98.3% over ten years.

Tracking Tariff Reductions

Businesses should reference the designated tariff schedules and understand the phased reduction timeline, ensuring they maintain compliance and maximize benefits.

Rules of Origin

To qualify for tariff reductions, goods must meet certain origin criteria as outlined in Protocol 1. Eligible products must be wholly obtained or substantially transformed in either Vietnam or the EU.

Documentation Requirements Include:

• Certificates of Origin (CoO): Prepared according to Protocol 1 guidelines.
• Declarations of Origin (DoO): Required for EU imports based on value thresholds.

Mutual Recognition of Standards

The EVFTA safeguards health, safety, and environmental concerns through mutual recognition agreements, which include:

• Sanitary and Phytosanitary Measures: Protecting food safety and consumer health.
• Geographical Indications: Ensuring the protection of local products.
• Corporate Social Responsibility: Reinforcing ethical labor and environmental standards.

Business Perceptions and Challenges

Initial reactions to the EVFTA revealed mixed feelings among stakeholders. Some sectors felt threatened by market shifts toward imported goods, while others benefitted from improved competitive environments. Recently, a EuroCham survey pointed to increasing confidence among businesses:

• Benefits Realized: As of 2024, 27% of businesses reported moderate to significant advantages derived from the agreement, up from 18% in 2023.
• Challenges Identified: Common obstacles include complex regulatory requirements, a lack of awareness, and technical barriers impacting certification and testing.

Conclusion: Strategies for Maximizing EVFTA Benefits

While the EVFTA has created numerous opportunities for trade and investment, businesses must remain vigilant. Here are some strategies:

• Enhance Production: Focus on capacity building and efficient sourcing to align with EVFTA standards.
• Brand Development: Shift from price competition to building robust brands known for quality and consumer trust.
• Stay Informed on Tariff Timelines: Keep abreast of the tariff elimination schedule to hone export strategies.
• Comprehend Standards and Regulations: Firms should understand pertinent quality, safety, and operational standards under the EVFTA framework.

By actively engaging with the opportunities presented by the EVFTA, businesses can position themselves for significant growth in a competitive and dynamic market.