Tuesday, 10 Oct 2023, 07:03 (GMT+7)
After 3 years of the effective implementation of the Vietnam-EU Free Trade Agreement (EVFTA), Vietnamese businesses still mainly export raw goods to Europe, giving way to FDI enterprises. This is one of the limitations highlighted by the government in its report on the implementation of the Vietnam-EU Free Trade Agreement (EVFTA) recently submitted to the National Assembly.
After the effective period of this agreement, the government stated that Vietnam's trade surplus with EU countries increased by over 35% compared to 2021, reaching $31.4 billion last year.
In the first half of this year, due to reduced demand in the EU market, the trade volume between the two markets decreased by 10% compared to the same period in 2022, reaching nearly $29 billion. Vietnam had a trade surplus of nearly $14.3 billion with the EU market in the first 6 months, but this figure decreased by nearly 11% compared to the same period last year.
European Union Imports from Vietnam
source: tradingeconomics.com
The government stated that exports to Europe have experienced positive growth since the EVFTA came into effect, but the utilization rate of the agreement's benefits remains low, at around 26%. FDI enterprises still account for the majority of exports with significant trade value to the EU, such as leather shoes, mobile phones and components, machinery, and equipment.
Meanwhile, Vietnamese businesses mainly export in raw form, following outsourcing orders from foreign buyers, or export raw materials and finished products to EU regional countries. "The ability of many businesses to participate in certain stages of the supply chain and meet the requirements of quality, technical standards, and safety and hygiene for export goods is still limited," the report stated. This poses a challenge for domestic enterprises as more importing markets impose higher technical standards and non-tariff barriers. To enjoy the benefits of the signed trade agreement, businesses are required to proactively meet these standards.
Additionally, there are very few Vietnamese enterprises that have built export brands to the EU. This reality shows that positioning the "made in Vietnam" brand in demanding markets like the EU has not received much attention from businesses as part of their development strategy.
The EVFTA is likened to a "highway" connecting Vietnam to the EU, a market with a GDP of $15 trillion USD. According to the government, the reasons why businesses have not fully utilized the opportunities and benefits provided by this agreement are primarily due to the impact of the Covid-19 pandemic and the ongoing Russia-Ukraine conflict. The prolonged political conflict has disrupted supply chains, reduced overall demand, and directly affected orders and the ability of Vietnamese businesses to access the EVFTA market.
Furthermore, Vietnamese businesses, which are predominantly small and medium-sized enterprises (SMEs), have weak competitiveness, high costs, and low quality compared to international standards. These businesses have not focused enough on improving their management capabilities and long-term business strategies.
Many enterprises also face difficulties in accessing capital to expand their production and business activities to take advantage of Vietnam's EVFTA opportunities. They primarily carry out processing based on import orders and import raw materials from countries that do not meet the rules of origin criteria specified in the EVFTA. Unfair competition and product dumping are still common occurrences.
To address these challenges and seize opportunities from the agreement, the government has stated that it will assign relevant ministries to study comprehensive policies and create conditions for businesses to access and use "domestic resources" and meet the rules of origin criteria stipulated in each trade agreement.
At the local level, efforts will be made to develop an ecosystem model, initially focusing on 1-2 key sectors, to capitalize on opportunities from trade agreements.
Moreover, businesses will be supported with capital through preferential interest rate credit loans if they wish to enhance their production capacity. Additionally, businesses need to actively seek, connect, and cooperate with international credit organizations such as the IFC, ADB, WB, or other legitimate sources of finance to undergo digital transformation and green transformation in order to meet increasingly high standards from the EU market.
The Vietnam-EU Free Trade Agreement (EVFTA) has been in effect since August 1, 2020. As committed, nearly 100% of tariffs will be eliminated over a 7-10 year period, and the remaining few tariffs will also enjoy quotas with a 0% tax rate. Both sides have committed to opening up service and investment markets such as finance, e-commerce, logistics, and even new areas like government procurement and trade will gradually be opened. Therefore, the opportunities for both sides are significant.
For Vietnam, the opportunities lie in diversifying agricultural, aquatic, textile, and footwear products into the markets of 27 European countries, attracting more foreign investment from this region in the future. As for the EU, the opportunity lies in reducing tariffs under the EVFTA, providing advantages for European investors to develop more strongly in the Vietnamese market.
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