Pathway for local businesses to benefit from EU trade deals

With both the European Union-Vietnam Free Trade Agreement (EVFTA) and the European Union-Vietnam Investment Protection Agreement (EVIPA) being adopted by the Vietnam National Assembly, many local firms have pinned their hopes on capitalising on the opportunity to expand into a new export market and develop production
pathway for local businesses to benefit from eu trade deals

Many local firms have pinned their hopes on taking full advantage of the two trade deals with the EU to boost market expansion and develop production

Tran Thanh Trong, general director of Sang Ban Mai Joint Stock Company located in Ben Cat town of Binh Duong province, expressed his elation at the adoption of the two trade deals by the legislature.

“We expect that when the agreements come into effect, Vietnamese businesses will be able to have easier access to European technology and equipment at a lower cost than currently, while the import tax rate will be lower than the current one, making it easier for enterprises to boost their exports to the EU,” Trong said.

According to Tim Evans, CEO of HSBC Vietnam, the EU currently makes up the country’s second largest export market, with the start of the EVFTA meaning the beginning of a process to eliminate 99% of tariffs placed on goods. Once the trade deal comes into force, two-thirds of tariffs on EU exports will be immediately lifted, while about 71% of tariffs on Vietnamese goods exported to Europe will also be abolished right away, with the rest being eliminated in line with a seven to ten year roadmap.

As a result of these benefits, the EVFTA is anticipated to bring enormous growth to the national economy with an expectation that it will contribute an average of 0.1% to real GDP growth annually through the positive impact to trade. Most notably, sectors such as garments and textiles, along with footwear, are set to benefit the most as the tax imposed on these industries before the agreement comes into effect are at high levels.

The EVFTA will therefore offer a breakthrough opportunity to the country’s textile and apparel industry to enjoy a greater competitive advantage and compete equally in price with countries that also enjoy a tax rate of 0% in the EU market.

Furthermore, once the EVFTA comes into force, Vietnamese textiles and garments that take advantage of the Generalized System of Preferences scheme will continue to enjoy it for a full two years afterwards.

Truong Van Cam, Vice Chairman of Vietnam Textile and Apparel Association, said he hopes that the EVFTA will offer breakthrough opportunities for local sectors, including garments and textiles, especially following the impact of the novel coronavirus epidemic which has caused numerous challenges for the textile industry.

Elsewhere, as an enterprise specialising in exporting goods to the EU market, Tran Van Dung, general director of Seafood Import Export Processing Joint Stock Company in Ba Ria - Vung Tau province, shared that the approval of the EVFTA will help domestic enterprises enjoy plenty of benefits with import tax placed on items from the EU market being reduced. This will ultimately serve to facilitate the selling of potential items such as agricultural and seafood products locally.

Moreover, some wood product exporting firms based in Ho Chi Minh City said that they are set to bolster the export of goods with opportunities to increase their market share in Europe through things such as industrial boards, MDF boards, fine arts, and handicraft.

Nguyen Chanh Phuong, Vice Chairman of the Ho Chi Minh City Handicraft and Wood Processing Association, said that businesses will have the opportunity to buy good quality wood processing materials, both when importing and exporting from Europe. They will be able to enjoy cheaper prices due to reduced import duties, therefore helping to improve the quality of Vietnamese processed wood products. In addition, wood processing businesses also have the chance to replace their supply chain of raw materials, instead of relying on those imported ones from China.

"High-quality raw materials imported from Europe, which were previously imposed with high tax rates of 10% to 25%, are now lower so we have to take this opportunity to access sources of high-quality raw materials and auxiliary materials with decreased prices due to the reduction of taxes," Phuong shared.

There are great hopes that the approval of both the EVFTA and EVIPA will open up plenty of opportunities for Vietnamese enterprises to boost exports to Europe, however the trade deals also pose many challenges. In order to take advantage of these fresh benefits, local firms must carefully study specific regulations regarding each commodity, whilst improving the quality of products and services in an effort to ensure the supply of goods in addition to meeting the rigorous requirements of markets in developed countries.
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