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Driving force

Released at: 10:49, 14/01/2016 EU - Vietnam Free Trade Agreement

Driving force

The EVFTA will make Vietnam an even more attractive investment environment for EU investors than it already is.

by Quynh Nguyen

When asked by VET how the EU - Vietnam Free Trade Agreement (EVFTA) will impact on trade and investment between Vietnam and the Netherlands, Mr. Aldrik Gierveld, Director European Agriculture and Fisheries Policies and Food Security and Deputy Director General Agriculture and Nature at the Ministry of Economic Affairs of the Netherlands, said that after it officially takes effect developments in the agricultural sector are expected to proceed very quickly in Vietnam and a modern and professional sector will be seen within a couple years.

As the quality of production increases the next step is to invest in post-harvest processing. “The Netherlands is well prepared to facilitate this process in Vietnam and is always looking for investment opportunities in the country,” Mr. Gierveld said, adding that Europe is interested in buying high value and exotic products that meet the highest standards. “Our ambition is to intensify our investment relationship with Vietnam in the time to come,” he said.

The confidence of Mr. Gierveld about the development in trade and investment between Vietnam and the EU is shared by H.E. Bruno Angelet, EU Ambassador and Head of the EU Delegation. The EU, he said, was the third-largest foreign investor in Vietnam in 2015, rising from sixth in 2014. EU investors have been pleased to hear that the Vietnamese Government is preparing to attract investment from the bloc over the next two years, he said.

Ms. Cecilia Malmstrom, the European Commissioner for Trade, believes the signing of the EVFTA is good news for both Vietnam and the EU. The EU will have access to Vietnam’s market of 90 million consumers, large emerging middle class, and young and dynamic workforce, while the agreement will further promote Vietnam’s economic growth. It’s clear that most analysts and authorities believe the EVFTA will be a positive for investment in Vietnam. 

Investment leader

In 2015, although the EU and its members continued to grapple with the consequences of the global economic downturn as well as growing political uncertainties, trade and investment between Vietnam and the EU maintained its growth momentum. And after the EVFTA officially takes effect investment flows from the EU into Vietnam will only increase.

According to figures from the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, at the end of 2015 there were 1,710 projects from 23 countries in the EU in force in Vietnam with total registered capital investment of $21.48 billion, accounting for 8.7 per cent of project numbers and 7.9 per cent of registered capital.

EU investors have invested in most sectors, with processing and manufacturing leading the way with 590 projects and total investment capital of $6.62 billion, accounting for 34.5 per cent and 30.8 per cent, respectively. Electricity production and distribution ranked second, with 19 projects and capital of $3.54 billion, accounting for 1.1 per cent and 16.5 per cent, respectively, followed by real estate with 37 projects and capital of $3.4 billion, accounting for 2.1 per cent and 15.9 per cent, respectively. The Netherlands, the UK, France, Luxembourg, and Germany accounted for 82 per cent of all EU capital invested in Vietnam. 

Ambassador Angelet said that EU investors will be very much interested in corporate social responsibility, employment conditions, and bringing added value to the market. “With this orientation, it is important to consider how Vietnam will prepare to attract EU investors,” he said, adding that the country needs to improve its market economy in order to seize the opportunities the EVFTA will bring. With 99 per cent of tariff lines to be cut to zero under a roadmap of ten years for Vietnam and seven years for the EU, this will be a good opportunity for Vietnam’s exporters to prepare and penetrate deeper into the EU. He also believes that Vietnam will enhance its competitiveness within ASEAN under the agreement, especially in the field of agriculture. 

Investment wave 

The EVFTA will create favorable conditions for high quality EU investment flows into Vietnam, according to Deputy Minister of Industry and Trade Tran Quoc Khanh, establishing an open and transparent investment environment. Vietnam will open up to EU investment in areas such as professional services, environmental services, telecommunications, banking, insurance, shipping, food processing, and beverages. “With their size and potential, EU investors can also use Vietnam as a transit point, connecting their commercial activities with ASEAN as well as in with any other country with which Vietnam has signed an FTA,” he said. “All of this will result in a positive change in Vietnam’s investment environment.”

Agreeing, Mr. Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), said that when the EVFTA comes into being it will have a positive impact on the country’s institutions. Vietnam’s laws will be closer to international practice and the investment environment will therefore be improved. “The EVFTA will certainly promote investment from the EU into Vietnam,” Mr. Mai said. “The important thing is that Vietnam pays due regard to the business strategies of international investors to understand what they need, while at the same time being aware of the country’s own strengths and weaknesses during the process of cooperation.” 

The EVFTA will also unquestionably attract foreign enterprises to Vietnam to invest in footwear production, according to Ms. Phan Thi Thanh Xuan, General Director of the Vietnam Leather, Footwear and Handbag Association (LEFASO). The footwear market in Vietnam, she said, and the market in the EU are mutually supportive. While Vietnam produces many high-quality sport shoes and mid-range leather shoes, EU countries mostly produce high-quality leather shoes, which will allow both sides to develop their strengths. 

The agreement is great significance because within ASEAN, Vietnam joins only Singapore in having an FTA with the EU. This creates an incentive for investors in the bloc to come to Vietnam and benefit from the region and the FTAs Vietnam has signed with other countries. “We are looking at Vietnam to invest in partly because we want to benefit from exports to the EU being subject to lower tariffs,” a business representative from Thailand said when visiting Vietnam to study the investment possibilities. 

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