VN-EU Free Trade Agreement
[Interview] Country Director of FNF Vietnam: To make EVFTA a success story
EU-Vietnam Free Trade Agreement (EVFTA) is a new generation FTA between Vietnam and 28 European Union member states. EVFTA and Trans-Pacific Partnership (TPP) are two of the largest new generation free trade agreements that Vietnam's largest ever negotiated.
EVFTA will go into effect from August 1st, on this occasion, Investment Forum Magazine held the interview with Andreas Stoffers, Country Director of FNF Vietnam on the challenges and benefits EVFTA brings to Vietnam and the Vietnam’s necessary preparation for the EVFTA.
BizLive: The time of EVFTA coming into effect is approaching, in your opinion, Vietnam has fully prepared for this?
Prof.Dr. Andreas Stoffers: Personally, I believe that the date of entry into force of EVFTA is not a magic point that will completely change the position of Vietnam and the EU in all aspects of the economy. However, I do consider it to be an essential door-opener for the rapprochement between the EU and Vietnam. After both sides have passed through this door, both sides continue to adapt, move forward and renew themselves for quantitatively and qualitatively better trade. So there is never enough preparation for an effective EVFTA.
So far, both the governments and the companies from Vietnam have done a good job: Governments have done their homework over the last decade in the areas of negotiation, legislative changes, procurement and, recently, information, training for EVFTA implementations and even the opening of a website for all questions regarding EVFTA. Additionally, EuroCham Vietnam has addressed EVFTA in its recently presented Whitebook and in many conferences. All parties seem to be trying best to work on EVFTA. But now action by companies is needed after 1 August.
The most important factors for the success of an FTA are the companies and their competitiveness. Vietnamese companies need to come closer to international rules on the international playground. They need to cooperate on a larger and to become more transparent in order to attract investment and trade partners. These measures must continue for a long time, even after the EVFTA's day of ratification. Cheap labour and a simple investment environment with tax breaks have been cited as Vietnamese strengths for over 10 years, but that is no longer sufficient. Vietnamese companies need to play on eye level with their European partners.
I have been involved in the EVFTA promotion tour of the Vietnamese Ministry of Foreign Affairs in recent weeks. I consider these “road shows” as very good and as an excellent preparation at a high level / macro level. But now it is time to put everything into practice. In order to prepare Vietnam optimally for the implementation of EVFTA, I propose a three-pronged approach:
1. Continuation of the information events of the Vietnamese ministries and authorities (MOFA, VCCI) as well as the EU players (e.g. EuroCham) on the macro level;
2. Organisation of workshops for companies at provincial level or grouped together in industry sectors.
3. Creating beacons of successful joint enterprise projects between EU companies and Vietnamese. For this purpose, a few companies on the Vietnamese side are to be identified, which will receive very individual training and preparation. Subsequently,theses Vietnamese firms be matched with carefully selected and prepared EU corporates, e.g. from Germany, Poland and Italy. These best practice joint projects then serve as a role model and light houses for others and encourage all sides to continue.
BizLive: There are many predictions that EVFTA will help to increase the investment from Europe to Vietnam. What do you think about those predictions? If there is really the trend of investment capital, is Vietnam an attractive destination?
Prof.Dr. Andreas Stoffers: I am convinced that EVFTA can help Vietnam to attract more European investment, especially as some EU companies are now taking a more critical view on China. Through EVFTA, Vietnam can benefit from the fact that EU companies intend to reduce their dependence on China on the one hand and are looking for an attractive entry market in the ASEAN and Asia-Pacific region on the other. In addition to the now concluded EVFTA, Vietnam has a very open free trade policy and demonstrates this through other agreements (e.g. CPTPP). With all appreciation for the EVFTA, the very positive effect of the EVIPA must not be forgotten. Standing in the shadow of the EVFTA, this agreement is in fact a major magnet for EU investment in Vietnam, ... if it is promoted in EU business circles.
In terms of sectors, the effects will be different. While there should not be much more change in the banking and telecommunications sectors, other parts of the Vietnamese economy likemachinery assembly, machinery production, textiles, footwear will benefit more.
However, Vietnam must do much more to promote itself as investment location. As a matter of fact, after the Covid19 disaster, EU companies will not have sufficient financial resources to invest abroad and EU consumers will spend less. On the other hand, competition for important direct investments will increase in the world in general and in ASEAN in particular. Vietnam needs to act here timely and forcefully to stand out from the masses. EVFTA is a good starting point, but not running itself without action of the stakeholder.
BizLive: Over one decade before joining WTO, Vietnam used to have many expectations of achievements after WTO. At this moment, what are the differences between expectations and realities, in your opinion?
Prof.Dr. Andreas Stoffers: Since these days, the macroeconomic environment has changed. Vietnam is now an open market with a trade turnover/GDP ratio of 200%. Import value reached $253.07 billion in 2019, 5.74 times higher than the 2006 value of $44.89 billion. Export value reached $264.19 billion in 2019, 6.7 times higher than the 2006 value of $39.92 billion. In brief, Vietnam’s WTO accession was successful and the initial expectations were met.
Vietnam's situation in 2020 is very different from the situation in the year of accession to WTO. Nowadays, Vietnam is much more integrated into the world market and global supply chains. Moreover, it is on the way to becoming an industrialised country. EVFTA and EVIPA regulations are much more far-reaching than those of the WTO. Moreover, they come at a time when Vietnam and the EU need to reposition themselves after the global Covid-19 crisis. In my view, this path is now more difficult than the previous one with WTO. At that time in January 2007, it was about Vietnam's integration into the world economy. Now it is about overcoming the biggest global economic crisis of modern times.Therefore, the pressure is very high to make EVFTA and EVIPA a success story.
BizLive: There have been thousands of newspaper articles about the expectations and challenges of EVFTA. There is even an article mentioning EVFTA as an “Avenue of Integration”. Do you think this avenue is even and full of opportunities? What is your assessment of the means of vehicles – Vietnam companies moving on this avenue?
Prof.Dr. Andreas Stoffers: Definitely, the EVFTA is not of interest to all Vietnamese companies. This is self-evident, as not everyone is directly or indirectly involved with the EU or interested in EU markets. Nevertheless, the agreement opens up new opportunities, partners and markets for many Vietnamese companies, from SMEs to large companies.
Nevertheless, there are also various challenges for Vietnamese companies, such as the need to improve the competitiveness or adapt to international rules. In my view, currently there is still too much focus on the macro level at present. There are a lot of discussions and publicationsabout the advantages of EVFTA. The press is full of articles. Information meetings are taking place everywhere. I myself have been to some of these events in various Vietnamese provinces with high-ranking MOFA representatives, which were by the way very fruitful. What must now follow is the concretization, i.e. the transfer to individual sectors and companies. This EVFTA message must now be conveyed to companies.
In addition to decentralised events for companies in the provinces and matchmaking fairs divided according to industrial sectors, there should be selected some Vietnamese companies. A handful will suffice here. These companies should then receive a very unique and individual special treatment in the form of business coaching, intercultural training and legal advice. As a second step, suitable partners in the EU shall be identified and also prepared for Vietnam with the help of European partners, including EuroCham, the European National Chambers of Commerce, Embassies and – of cause – Friedrich Naumann Foundation. We need these best practice examples to demonstrate with beacons: Yes, we can. EVFTA is a success story.
BizLive: EVFTA comes into effects when the pandemic Covid-19 is devastating the world economy. Do you think that this timing of EVFTA make it effects become less?
Prof.Dr. Andreas Stoffers: Indeed, Covid 19 and the measures against it have led to a massive economic downturn on both sides, the EU as well as Vietnam. In the last 6 months, Vietnam's GDP has only increased by 1.81%, while the EU even saw a 2.7% drop in the first quarter. World Bank recently forecasted the economic contraction of Europe in 2020 at 9.1%, while Vietnam is still expected to grow. The purchasing power fell significantly. All sides experienced a shock on both, the demand and the supply side. It is reducing total trade revenues this year due to risks of recession and social distancing, which are upsetting the production and supply chain.
The EU side is much more painfully affected by Covid 19 than Vietnam, as the reactions of the Vietnamese government have proved to be more considered and appropriate. As a result, the Southeast Asian country continues to enjoy positive growth. On the other side, unemployment, economic instability and an unprecedented increase in public debt are putting the EU economy and EU companies in further difficulties. These circumstances obviously affect the possibility of buying products or investing in Vietnam.
In this situation, EVFTA is a ray of light on the horizon of the global recession. The agreement can help to revitalise economic relations on the basis of free trade and investment protection (EVIPA). This will, of course, reduce the impact of measures against the pandemic. The EU is looking for alternatives to crisis-ridden and politically unpredictable China. For Vietnam, turning to Europe means diversifying its trading and investment partners.
This increases the resilience of Vietnam's economy. At the same time, both Vietnam and the EU want to send a signal to their respective populations right now that they are making a determined effort to get out of the crisis. EVFTA and EVIPA are welcome hooks here.The two agreements will definitely help to overcome the consequences of the pandemic, if they are implemented well and if they are accepted by businesses. Therefore, it will be necessary to support from all sides: This includes a major public awareness campaign in Vietnam as well as the creation of best practice examples. In this aspect, Friedrich-Naumann-Foundation (FNF Vietnam) is working closely with relevant stakeholders, including EuroCham and MOFA.