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The attraction of agreements

The EU-Vietnam Free Trade Agreement (EVFTA) and the Investment Protection Agreement (IPA) are the most ambitious agreements in terms of market access, rules and values ​​that the European Union (EU) has signed with a developing country like Vietnam.

Since August 2020, the EU has for the first time enjoyed preferential access to a vibrant economy of nearly 100 million people, the fastest growing middle class in ASEAN, a young and energetic workforce. Up to 48.5% of tariff lines or nearly 65% ​​of EU exports to Vietnam enjoy a 0% tax rate since the trade agreement took effect.

In fact, the EVFTA has placed EU exporters and investors at least on par with other countries and regions that have signed FTAs ​​with Vietnam such as ASEAN, Australia, New Zealand, and 11 member countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

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For Vietnamese traders, the benefits after 1 year of FTA implementation are even higher. In terms of markets, the EVFTA allows Vietnamese exporters to access more than 450 million European consumers with the world's top income.

Since the EVFTA took effect, about 85.6% of the total tariff lines have been completely eliminated for Vietnamese goods. This figure accounts for 70.3% of Vietnam's total export turnover to the EU. The gradual elimination of import tax explains the 20% year-on-year growth of Vietnam's exports to the EU.

For the services and investment sectors, the agreement now provides the best market access opportunity Vietnam has ever offered to a trading partner. The fact that Vietnam offers the level of liberalization of the service sector has actually exceeded its commitments in the WTO.

Important services to be opened under EVFTA include services in the field such as business administration, computer services, postal services, social services and higher education.

Friendly investment environment

EVFTA and IPA not only create new opportunities for growth but also strengthen sustainable development for both sides. The agreements include strong commitments to protect the rights of people in the workplace and in the environment. We have seen positive changes in this area when Vietnam enacted a new Labor Code in January 2021.

Vietnam has also joined a number of international labor organization conventions such as the 1957 ILO Convention on the Abolition of Forced Labor and the Right to Organize and Collective Bargaining. All these changes in labor standards not only create more jobs, but also help create a better working environment and improve income for Vietnamese people.

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The FTA and IPA were negotiated together as a package of commitments on investment and trade. They complement and link with each other. The FTA includes ambitious commitments to market opening and liberalization of foreign direct investment.

This will bring important advantages for EU investors in accessing the Vietnamese market and vice versa. It helps to level the playing field for their activities once established, under fair, predictable and non-discriminatory conditions.

The IPA will protect the assets of EU investors in Vietnam and of Vietnamese investors in the EU. These agreements create a friendly investment environment between the EU and Vietnam, conducive to growth.

The IPA sets standards for investment protection, which are fundamental guarantees that governments must respect some basic principles that foreign investors can rely on when making investment decisions.

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Vietnam needs more efforts

All proceedings under EVIPA will be completely transparent with hearings will be open to the public and interested third parties. This ensures that all aspects of human rights and sustainable development are adjudicated by the Investment Court.

The IPA pinpoints when governments are in breach of their fair and equal treatment obligations. Investment agreements are also tight enough to prevent “fake investments”. To be eligible to become an investor, companies must run actual business operations in the EU or in Vietnam.

Accurate understanding and implementation of EVFTA and IPA remains a challenge. Although the agreements were quite clear, there were differences in the interpretation of the commitments.

This requires Vietnam to make more efforts to improve internal coordination, to deal with forces that are resisting the country's international economic integration efforts.

At the highest political level, this strong spirit of cooperation with the EU in the implementation of the agreements is evident. However, at the implementation level, it seems that not all public agencies have the same level of understanding and commitment.

The opportunity of IPA is huge. The current EU total investment capital in Vietnam is estimated at US$22.2 billion, far below the potential. The IPA is supposed to usher in a new investment era for Vietnam, where EU and non-EU investors will come to Vietnam to reap the benefits of EVFTA and IPA.

The vision of Vietnam becoming a regional manufacturing hub for the whole of ASEAN is not out of reach. However, the exploitation of such opportunities depends a lot on the desire of the government agencies responsible for implementing the agreements, the initiative of domestic enterprises in finding and working with European investment partners.

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