The EVFTA and the EVIPA (The Agreements)

Two new major trade agreements sets EU and Vietnam up as significant trading partners and puts the EU on course for the expanding ASEAN market in the years to come. The EU-Vietnam Free Trade Agreement (EVFTA) entered into force on 01 August 2020, while the EU-Vietnam Investment Protection Agreement (EVIPA) will enter into force once it has been ratified by all EU members. The EVIPA will by then replace 21 bilateral investment treaties in force between Vietnam and the EU members.

The Agreements are the most ambitious the EU has ever concluded with a developing country. It was made possible due to its strategic importance to both parties, which its implications go beyond economics.

For the EU, it paves the way for future EU-ASEAN trade and investment agreements. ASEAN is the EU’s third largest trading partner after the US and China. Ensuring better access for the EU’s enterprises to the ASEAN market is a priority for the EU, especially in the context of existing and potential trade tensions worldwide. In addition to its geopolitical role, Vietnam has become the EU’s 15th most important trading partner worldwide, and the EU’s largest trading partner in Southeast Asia in 2020.

For Vietnam, it is a crucial step to consolidate its long process of international integration. The Agreements are one of currently 16 global and regional FTAs in which Vietnam actively participates. Such FTAs help Vietnam reduce its trade dependence on China and the US and seek to balance its long-term trade and political interests in a sensitive geopolitical context. The EU is Vietnam’s second biggest export market after the US and one of its main suppliers. The EU ranks fifth out of Vietnam’s FDI partners.

The EVIPA that accompanies the EVFTA will help promote high-quality investment between Vietnam and the EU. Both parties have agreed on a modern and reformed investment dispute resolution mechanism which guarantees the respect of the substantive investment protection rules applicable to investors of both parties. Investors will be protected against discrimination, expropriation and nationalization by the host state without adequate compensation, or denial of justice in the national administrative and legal systems.

New Opportunities for Danish Enterprises

The Agreements will open new opportunities for Danish enterprises to explore the Vietnamese market and building on trade relations that have evolved over 50 years into a modern and mature partnership.

Today, Vietnam is politically stable and a vibrant economy of almost 100 million inhabitants, with one of the fastest growing middle classes in the ASEAN area, and a young and dynamic workforce. Vietnamese key exports are in food, textiles and electronics with agricultural exports ranked second in the ASEAN and 15th in the world. In addition, Vietnam has shown considerable economic resilience to the impact of COVID-19 pandemic, as exemplified by the 2.9% GDP growth in 2020, and the maintenance of production of its primary exports.

The Agreements will level the competition for EU enterprises with those countries with whom Vietnam has already concluded FTAs, e.g. ASEAN countries, Australia, New Zealand, Chile, China, India, Japan, and South Korea. The Agreements reduce the costs for Danish enterprises to do business in Vietnam due to the elimination of nearly all tariffs and the reduction of non-tariff barriers. Moreover, the Agreements contain many cost-reducing provisions that make doing business easier and more transparent. IPR holders will be granted strengthened legal protection and can take more effective action against IPR infringements. Vietnam further liberalizes its services markets by offering access beyond their WTO commitments.

The Agreements promote EU-Vietnam value chains integration via increased FDI activity and expanded bilateral trade in intermediate goods and services between two parties. Both Danish and Vietnamese enterprises can take advantage of this opportunity with the support of the Agreements.

The COVID-19 crisis has made it clear that diverse markets and supply chains will be key to managing risks of trade and supply chain disruptions due to changing trade relationships, climate change, natural disasters and epidemics. The combined impact of COVID-19 and trade tensions could lead to a profound restructuring of global value chains (GVCs) by reducing dependence on a few global production hubs, e.g. China, India and Thailand, thus paving the way for Vietnam to step in to fill GVCs gaps. The reality shows that trade tension between the US and China has made Vietnam the 6th trading partner of the US for the trade in goods in 2020 by import value. Vietnam has also become an important production center for both textile and electronics.

Vietnam is now ready as a country of production with a great need for high technologies. Key strategies and plans to stimulate green growth and sustainable use of natural resources have been adopted, but are awaiting full implementation. Danish enterprises possess world-leading expertise and technologies in renewable energy, energy efficiency, water and waste handling, food production, health, education, construction, and sea transport, among others, which are all important areas for a sustainable development in Vietnam. Danish enterprises are expected to provide green transition and digitalization solutions for Vietnam’s development with the support of the Agreements.

The Agreements facilitate Danish enterprises to export their key goods and services, e.g. petroleum and petroleum products, fish, raw hides, skin and furs, medicinal and pharmaceutical products, power-generating machinery and equipment, dairy products, frozen meat, organic food, sea transport, ICT, and construction. It also invites enterprises to open new commercial activities e.g. by facilitating their import of key goods and services from Vietnam, including rice, coffee, prawn, cashew, pepper, rubber, textile and apparel, footwear, furniture, electronics and processed agricultural products, with competitive import prices compared to that from countries having no FTAs with the EU.

In the coming years, Vietnam continues to demonstrate its ambition of improving investment facilitation for development, e-commerce, and domestic regulation on services. Vietnam will reduce further red tape, adopt more predictable tax policies, increase transparency in administrative procedures, and simplify appraisal procedures for investment projects. The development of e-government initiatives, the modernization of customs administration through the national single-window, and the e-customs clearance will be continued in Vietnam.

On the occasion of the 50th anniversary of diplomatic relation between Vietnam and Denmark, the co-authors will publish a book entitled “The EU-Vietnam Trade and Investment Agreements – New Opportunities for Danish Enterprises” in 2021. The book will support Danish enterprises in strengthening their insights into Vietnam’s business environment, major sectors of international business cooperation and key agricultural products. The book will update Danish enterprises on new opportunities and market changes arising from the Agreements, as well as the post-COVID-19 economy and geopolitics. (Nguyễn Thanh Tâm, Nguyễn Thị Hoàng Thúy)