EU-Vietnam FTA: Catalyst for Vietnam’s Growing Clout

EU-Vietnam FTA: Catalyst for Vietnam’s Growing Clout

An Opportunity for More Diversified and Sustainable Growth

According to the European Trade Policy and Investment Support Project, over the EVFTA implementation period to 2025, Vietnam’s economic growth is projected to reach between 7% and 8%, higher than projections without the agreement. Considering that Vietnam and Singapore are currently the only Association of Southeast Asian Nations (ASEAN) members with free trade agreements (FTAs) with the EU, it is highly likely that Vietnam will have a significant additional competitive advantage over other ASEAN countries.

Further reinforcing the case, the EU is the second largest export market for Vietnam, accounting for 17% of the country’s export volume. While Vietnam’s net exports reached US$29 billion in 2018, equivalent to a compound annual growth rate of 10% between 2014 and 2018, the onset of the EVFTA will see Vietnam removing 65% of its duties on EU goods, with the rest (up to 99%) being gradually eliminated over a 10-year period. For the EU, 85.6% of duties on Vietnamese goods will be removed immediately when the agreement comes into effect with the remainder fading away over the following seven years (Appendix 1). Thus, it is expected that consumers in Vietnam and the EU will benefit from lower import prices and enhanced product competitiveness.

Sector-wise, the EU has long been the largest importer of Vietnamese telephone sets and components (representing 27% of Vietnam’s global exports) and the second largest importer of electronics and accessories (17%), textiles and garments (13%), footwear (29%), machinery and accessories (12%), and aquaculture (16%) — these sectors present themselves as the main beneficiaries of the EVFTA.

Fig.1. Bilateral Trade Between Vietnam and the EU
Fig. 2. Vietnam’s Exports to the EU in 2018