|EVFTA could transform Vietnam into a new investment destination for manufacturers, according to Nikkei Asian Review
The article reports that by ratifying the EVFTA Vietnam is the second country in Southeast Asia to enjoy a trade deal with the European bloc, alongside Singapore.
Once the agreement comes into force scheduled for August 2020, a total of 71% of exports from the country to the EU will become duty-free, so will 65% of EU shipments to Vietnam. Furthermore, up to 99% of tariffs will be phased out by Hanoi over the course of the subsequent 10 years, and by Brussels over the next seven years.
With a population of approximately 96 million, Vietnam boasts the third-largest population among the 10-member Association of Southeast Asian Nations. Moreover, its per capita GDP is estimated to be roughly US$3,500 for 2019, topping the $3,000 benchmark that usually sees car and appliance ownerships take off.
The article points out that Hanoi already enjoys plenty of benefits from the EU's preferential tariff scheme, adding that the trade deal will surely make the bloc a bigger buyer of Vietnamese goods, therefore increasing its current share of some 15%.
According to the article, strong growth is anticipated for the apparel and footwear sector, which accounts for roughly 20% of all Vietnamese exports with the country emerging as the world's third-largest apparel exporter following China and Bangladesh.
In addition, local textile companies are gearing up to enter the EU market. Once the deal comes into full effect, the bloc will eliminate tariffs on 77.3% of all textile and apparel exports from Vietnam over the course of the subsequent five years, while removing the remaining 22.7% in the following seven-year period.
Most notably, many local companies operating in the sector claim that their contracts with partners in the EU and the United States have been canceled, delayed, or scaled down in recent months. Indeed, the country’s garment industry reported that all enterprises have been affected by the pandemic, noting that 70% of the members were urged to cut labour force in March, with greater reductions in April and May.
Hopes are therefore growing that the trade deal will provide a much-needed boost to the national economy, which is certain to suffer a slowdown from the 7% growth experienced before the novel coronavirus pandemic. Due to the current global COVID-19 crisis, this year’s target in terms of garment export turnover is US$34 billion, down from US$39 billion last year.
The article emphasises that the EVFTA represents positive news for multinational manufacturers outside of the EU as well. Among Japanese enterprises, apparel companies such as Uniqlo operator Fast Retailing and automakers are seeking to increase shipments from Vietnam to Europe.
The Japanese news publication quotes data from the Vietnamese Government, as saying Hanoi's exports to the EU market reached US$42 billion in 2019, while the bloc's shipments to the country totaled US$15 billion. It says there are high hopes from the Vietnamese side on what benefits the agreement can bring.
The Ministry of Planning and Investment therefore expects national export revenue to the EU to enjoy a rise of 42.7% by 2025, in addition to a boost of 44.37% by 2030 in comparison with the no-deal scenario.
The World Bank projects that the agreement will help to boost Vietnam's GDP by 2.4% and increase exports by 12% by 2030. Tran Tuan Anh, Vietnam’s Minister of Industry and Trade, has said the agreement will speed up the reduction of poverty nationwide.
Most notably, the UK, which is completing the Brexit process, will remain part of the EU trade pact with Vietnam until the end of 2020. UK ambassador to Vietnam Gareth Ward told British companies in a recent online conference that both the UK and Vietnam are working on a bilateral trade deal, with an agreement expected to be reached by the end of the year.
In addition, the country is also part of a free trade partnership known as the Regional Comprehensive Economic Partnership (RCEP), which includes all of Southeast Asia, as well as Australia, China, India, Japan, New Zealand, and the Republic of Korea. Elsewhere, the nation is also seeking a trade deal with Israel, whilst local companies are urging it to begin negotiating an FTA with the US as soon as possible.