The Impact of the EVFTA on Vietnam's Appeal to European Investors

The Vietnam-European Union Free Trade Agreement (EVFTA), which has been in effect for four years, has opened doors for European businesses to enter the Vietnamese market. However, several challenges remain that need to be addressed to fully unlock the potential of the EVFTA.

Increased Exports and Investments in Vietnam

Notably, 27% of companies have seen significant increases compared to 18% in 2023, and are now experiencing benefits ranging from moderate to substantial. Meanwhile, a quarter of companies (down from 31% in 2023) have yet to see any tangible benefits.

Despite these disparities, EuroCham members consistently highlight that reduced tariffs, increased market competitiveness, and expanded market access are major advantages. Other notable benefits include streamlined supply chains, improved business transparency, and a stricter legal framework.

The survey also indicates that the EVFTA has significantly boosted Vietnam's exports to Europe, soaring from €35 billion in 2019 to over €48 billion in 2023. This growth is evident in sectors such as electronics, textiles, footwear, agriculture, and seafood. In contrast, EU exports to Vietnam have seen a more modest increase, rising from €11 billion to €11.4 billion over the same period, contributing to a significant trade imbalance.

Nevertheless, the EVFTA has undoubtedly strengthened Vietnam's appeal to European investors. The European Union, a major investor in the country, has poured €28 billion into 2,450 projects, underscoring the EU's confidence in Vietnam's potential.

Importantly, EU investors added €800 million in foreign direct investment (FDI) from January to September 2023, reversing the global trend of declining FDI.

Challenges to Overcome

EuroCham's survey also reveals several obstacles that European businesses face in fully capitalizing on the EVFTA. These include complex legal requirements and local authorities' lack of recognition of international standards.

Additionally, misunderstandings about the agreement among stakeholders, coupled with issues related to customs valuation and non-transparent customs procedures, complicate trade activities. Technical barriers, particularly in product certification and testing, remain a significant hindrance.

Dominik Meichle, Chairman of EuroCham Vietnam, notes that while the EVFTA has indeed created new opportunities for European businesses in Vietnam, challenges persist. As the agreement enters its fifth year, it is crucial to continue efforts to simplify procedures, harmonize standards, and ensure comprehensive understanding of the EVFTA's workings.

EuroCham Vice President Jean-Jacques Bouflet also highlights that recent policy adjustments in Vietnam have posed challenges for European businesses operating under the EVFTA. These changes, including new consumption and domestic taxes and technical barriers to entry, have impeded the full potential of the agreement. However, EuroCham is actively engaged in constructive discussions to address these issues and find solutions beneficial for both Vietnam and Europe.

Emphasizing the need for continuous support and adaptation, Thue Quist Thomasen, CEO of Decision Lab, states: "Surveys have shown that while the EVFTA is a powerful tool for economic growth, its success depends on ongoing efforts to address regulatory difficulties, technical barriers, and perception gaps. A targeted approach to support businesses, especially small and medium-sized enterprises, in navigating these challenges is crucial."

Strategic Initiatives and Future Directions

To address challenges and maximize the benefits of the EVFTA, Jean-Jacques Bouflet outlines EuroCham’s strategic initiatives, including commitments to collaborate with stakeholders to streamline regulatory compliance, advocate for broader recognition of international standards, and develop comprehensive educational programs to raise awareness about the EVFTA.

“We will also continue to advocate for solutions to technical barriers to trade, particularly in certification and testing, and push for further tariff reductions and simplification of customs procedures,” Bouflet adds.

Moreover, EuroCham Vietnam is actively supporting the full ratification of the EU-Vietnam Investment Protection Agreement (EVIPA) as a crucial step to unlocking the full potential of the EVFTA for attracting foreign direct investment.

While EU institutions have approved the EVIPA, it still requires individual ratification from all 27 EU member states. With 18 member states having ratified the agreement, EuroCham Vietnam is working tirelessly with European stakeholders to encourage the remaining countries to follow suit.

“EuroCham is committed to helping our members fully leverage the opportunities provided by the EVFTA. We will continue to work closely with Vietnamese authorities to address existing challenges and ensure that both European and Vietnamese businesses can fully benefit from this landmark agreement,” Meichle concludes.