After nearly three years of 14 negotiation rounds and a number of inter-sessionals, the EU and Viet Nam early this month reached an agreement in principle on a free-trade agreement (FTA). Franz Jessen, Ambassador and Head of the EU Delegation to Viet Nam, spoke with Viet Nam News about the agreement's economic and trade impact.
What opportunities and challenges does the new FTA create for the EU and Viet Nam?
The EU – Viet Nam FTA will definitely bring great opportunities to European and Vietnamese business communities.
The most tangible benefits are the liberalisation of nearly all tariffs. Under this important trade deal, over 99 per cent of all tariff lines shall be liberalized. Viet Nam will liberalise tariffs over a 10-year period and the EU will liberalise tariffs over a seven-year period.
In particular, a high coverage of tariff liberalisation will be achieved at the entry into force of the agreement, in which 71 per cent of Vietnamese exports (in terms of value) will enter the EU duty-free from day one, while the figure would be 65 per cent for EU exports to Viet Nam.
Importantly, this FTA does not only cover trade in goods. It has ambitious commitments that will promote investments and open service sectors further on both sides.
I am confident that the enforcement of this agreement together with Viet Nam's seriousness in its reforms will further stimulate the country's economic development. With regards to the challenges, preparedness of the business community will play a key role in whether or not the people and companies from each side can optimize the opportunities created by this FTA.
I have good trust in the dynamics of Vietnamese businesspeople and the Vietnamese economy in adapting and taking full advantage of this trade deal.
How do you evaluate the competitiveness of Vietnamese businesses amid rapid international integration, especially small – and medium-sized enterprises (SMEs) ? Why has Viet Nam been given more time to adapt to the new FTA (10 years) than the EU (seven years) ?
The business community of Viet Nam has shown its ability to adapt to any challenge as well as to grasp the opportunities during the country's process of economic integration.
There are well-known Vietnamese companies in the region like Vinamilk in the dairy industry, Minh Phu and Hung Vuong in the fishery sector, and Viettel, Vina-phone and Mobiphone in telecommunications. They are doing quite well and have contributed positively to job creation and economic development of the country.
Viet Nam also has dynamic SMEs. I understand that these SMEs play a significant role in job creation and many people in Viet Nam seem to misperceive that they have not yet been able to compete. It is true that many of the SMEs in Viet Nam are households and their way of doing business remains scattered and unplanned.
But they have great adaptability, and the challenge to SMEs' improved competitiveness not only lies in limited capital and resources, but in their ability to adapt and team up with the right partners. Their dynamism has been shown by their survival and growth, even during the crisis and post-crisis period.
In my view, Vietnamese SMEs will be able to increase their cutting edge if they team up to create synergy. This approach has proven to be highly efficient for many SMEs in other parts of the world.
Another important point for SMEs is to develop the need for a stable, transparent, fair and healthy business climate. I trust that the EU – Viet Nam FTA will be able to improve all these aspects and accelerate important internal reforms for a better pro-business climate.
With respect to your question on the different phasing out of tariff liberalization, it is clear that Viet Nam has a longer period of time for dismantling its tariffs due to its status as a developing country. Such a longer time frame will enable Viet Nam to better prepare for the full opening of the market.
What pressure will the new FTA create on Vietnamese firms, as the EU market has very high requirements for product quality? What preparations should Viet Nam businesses make to be able to grasp opportunities and overcome challenges to boost exports to the EU, given the elimination of 99 per cent of tariff lines?
Perhaps "pressure" is a bit of an exaggeration when we refer to the ability of Vietnamese compliance. Indeed, this FTA is a comprehensive 21st century agreement. Commitments and requirements under this FTA are ambitious.
Under this trade deal, there are commitments to the implementation of core labour standards as well as commitments to the conservation and sustainable management of biodiversity, forestry and fisheries.
Don't be scared to hear about these commitments. I can give you examples of Viet Nam's ability to live up to these commitments. In terms of labour standards, Viet Nam is already a member of the ILO Conventions.
Regarding conservation and sustainable management, Viet Nam and the EU have for many years cooperated in these fields even before the negotiations of the FTA.
We have exchanged and supported Viet Nam in the compliance of our Illegal Unreported and Unregulated Fishing (IUU) regulations as well as in ensuring traceability of timber products.
The requirements applicable to Vietnamese products will also be applicable to EU products and similar products from third countries. Therefore, we do not need to worry too much about this.
Dissemination of all information related to this FTA will play a crucial role in helping Vietnamese companies fully tap the opportunities of the agreement.
The EU has the MUTRAP project to support Vietnamese ministries and agencies in tackling this issue. On the entrepreneurial side, as I already mentioned in my answer, if Vietnamese companies, especially SMEs, can pull their strengths in a team to create synergy, they will be able to achieve much bigger success in accessing our market.
Many Vietnamese key export products will enjoy tangible benefits from this FTA. For example, the tariffs for Vietnamese textiles and garments, footwear and fishery products will have zero duty within seven years, with very few exceptions. Honey will immediately get zero duty on day one of the entry into force, without any quota.
This FTA is a win-win agreement. Given the complementary features of the two economies, few sectors would confront difficulty. In addition, the Vietnamese economy has achieved a certain level of competitiveness, so that you may not need to worry about vulnerability.
Can you predict the FDI flow from the EU to Viet Nam after the agreement is up and running? How will the FDI flow from the EU contribute to accelerating economic growth of Viet Nam?
Indeed, this FTA is not only about trade in goods but also investment. The agreement, by providing a secure investment protection for investors from both sides, is hoped to trigger stronger FDI flows into Viet Nam.
Furthermore, it could convince many SMEs from the EU to come to Viet Nam and join partnerships with Vietnamese companies.
Notably, investment from the EU is of high quality, and is always accompanied by advanced technology, expertise in management, and marketing and sales skills.
This FTA has potential in turning Viet Nam into a regional manufacturing hub if all advantages are well exploited. — VNS