A new chapter between the EU and Vietnam
Alexa Tutecky // 14 February 2020
In 2019, the European Commission agreed a landmark Free Trade Agreement (FTA) with Vietnam, which was ratified by the European Parliament earlier this week. While it is a positive move, concerns remain about restrictive and interventionist quotas in the agreement as well as human rights issues on the Vietnamese side.
The new agreement is important for the EU as it creates another pivotal alliance in the Association of Southeast Asian Nations (ASEAN). The EU’s first ASEAN FTA was with Singapore, which was put into effect in November 2019. Both agreements are significant trade policy successes for the EU. These countries are the EU’s two principal trading partners within the ASEAN nations, representing 45% of the EU’s total ASEAN trade. The EU-Vietnam FTA is particularly important as it provides opportunities for increased trade and job growth as well as significantly reducing tariffs.
The Commission stated that the Vietnam agreement shows their commitment to fair and rules-based trade agreements. According to the EU’s former Trade Commissioner, the Vietnam FTA is “the most ambitious free trade deal ever concluded with a developing country”. This is mainly because the FTA removes almost all tariffs on both imports and exports and is dedicated to also eliminating non-tariff obstacles for trade in the tech, auto, and medicine sectors.
The potential benefits for both the EU and Vietnam resulting from this FTA are tremendous. For large European companies, the FTA opens up significantly more access to crucial information regarding the technology, financial, and telecom markets in Asia. It will also increase accessibility to banking and postage.
Another group that will benefit from this FTA is EU farmers. Duties of over 50%, that were once placed on essential goods such as meat and grain will be eliminated completely. While the FTA opens up some of these food markets, there are also embedded safeguards in place which aim to ensure that the EU producers are not exposed to competition from Vietnamese products. To justify the quotas applied on rice, corn, and spices, the EU claimed that these goods “need more protection”. This element of the deal is blatant protectionism, resulting from effective lobbying of the agricultural sector. For future FTAs, the Commission should aim to minimise this sort of protectionism or allow for quotas to be phased out over time.
According to the Head of Baker McKenzie’s international trade practice, “European companies will have better access than organisations from any other country to the Vietnamese public procurement markets and to a broad range of services sectors, including postal and courier services, environmental services, banking and insurance and maritime transport.” In addition to these industry benefits, the FTA creates further positive impacts by increasing intellectual property safety for EU inventors, company brands, and new art creations.
As for Vietnam, this agreement is immensely beneficial since 99% of tariffs on goods will be eliminated. According to the Vietnamese government, their exports will increase by over 20% to the EU, which will raise the country’s GDP by approximately 3% in the next three years. In addition, according to the Vietnamese government, the FTA will increase EU exports to Vietnam by approximately 15% by the end of this year.
However, the Vietnamese government is currently under the spotlight for violating certain human rights benchmarks. Certain NGOs are urging the EU to postpone the FTA until the deal includes comprehensive penalties for these Vietnamese infractions. Currently, Vietnam is not taking active steps to review its penal code, and this should concern the EU. According to various NGOs, “the rights to free expression, opinion, association and assembly remain strictly curtailed and the judiciary is under tight state control, as are the press, civil society, and religious groups”. Vietnam should address these issues and put their citizens’ human rights at the forefront of their priorities.
Overall, this FTA presents noteworthy benefits for both Vietnam and the EU. Therefore, the approval of the deal by the European Parliament earlier this week was a positive step forward.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).