EU companies can't wait to enter Vietnam - here's why

By Dam Tuan   September 23, 2016 | 01:27 am PT
EU companies can't wait to enter Vietnam - here's why
A man loads steel at a port in Hai Duong Province, outside Hanoi, Vietnam June 14, 2016. Vietnam with its growing market and income is now attractive to many European investors. Photo by Reuters/Kham/File Photo
A free trade deal is opening up the Vietnamese market to EU investors.

The upcoming E.U.-Vietnam Free Trade Agreement will open up the Vietnamese market, with 90 million people, to more European companies. While it will take time to evaluate opportunities against challenges for both sides, many have responded positively to the prospects of fewer business barriers.

In an email exchange Dr. Pierre-Michael Gröning, Head of International Trade Policy at Brussels-based Foreign Trade Association, discusses the appeal of Vietnam, the future of economic ties, and Brexit. His association represents 1,900 plus retailers, importers and brands.

VnExpress International: You have said, in some media reports, that the E.U. free trade agreement with Vietnam (EVFTA) is even more important than the TTIP (with the U.S.), CETA (with Canda) and the agreement with Japan combined for retail enterprises. What makes Vietnam such a crucial market?

Dr. Pierre-Michael Gröning: Vietnam currently stands for 8 percent of all imports of fast-moving consumer goods to the E.U. (second only to China), or merchandise worth 22 billion euros ($24.58 million). The country will definitely get a boost from the elimination of tariffs under the EVFTA, which would lower costs for importers and European consumers.

In addition, the EVFTA is more important for my members because the U.S., Canadian and Japanese markets are already very open for investment and exports. Therefore, when compared to these economies, Vietnam is a very promising new market of 90 million people and a growing middle class, that European fashion brands and supermarket chains are eager to tap into for both investment and retail operations.

But do you think E.U. companies are fully aware of the potential?

Yes, I believe that there is a high level of awareness, and many companies have already positioned themselves as first movers to soon benefit from the agreement. From what I see, the EVFTA has been having a very strong PR effect even before entering into force, and generated a lot of interest in the topic.

Do you have any suggestion for the Vietnamese government to improve the business environment? What are the biggest concerns that European companies may have?

Since the mid-1980s Vietnam has planned and implemented a highly successful reform process. As a representative of a business association, we would however always like to see further simplifications and less administrative burdens.

In Vietnam we also have the specific case of the Economic Needs Test on outlets for retail services, which we are glad that it will be abolished under the EVFTA. This having said, we encourage the Vietnamese government to move even quicker and remove this main obstacle to investment with immediate effect.

I believe that the economic cooperation between the two partners will develop even further. If you take the example of the E.U.-Korea FTA, the total volume of trade between the two sides increased exponentially since the entry into force of the agreement (from 69 billion euros in 2011 to 90 billion in 2015).

What can we expect to happen in terms of economic cooperation between Europe and Vietnam after the trade pact comes into effect?

Looking at the EVFTA, we estimate the total bilateral trade volume to reach approximately 100 billion euros by 2025 placing Vietnam in the category of top trading partners of the EU.

Furthermore, the EVFTA will enhance institutional relations and regular exchange at both the decision-making and working levels between authorities, which will aim at ensuring a smooth trading environment. What is also important for the European retail and import sector is that EVFTA will not only cover economic aspects of the agreement, but also has an ambitious sustainability chapter.

Will there be any possible challenges or obstacles to the implementation of the agreement?

Firstly, we have to get the ratification of the agreement, which will take time but I am confident that it will enter into force in early 2018. The next important step is then implementation of the agreement. The deal has several hundred pages of legal text and one can expect that there will be different interpretations of one or the other provision. It is therefore essential that there is good will on both sides and a close and continuous coordination to respect the letter and spirit of agreement.

What is your personal plan as head of International Trade Policy to promote the economic and trade relations?

My association and I are very pro-active on creating a positive dynamic for the ratification of the EVFTA. In addition, it is highly important to keep our 2,000 members informed about the deal and its expected benefits; for example, we are developing an easy-to-read guide for businesses on understanding the agreement and we have held webinars on the EVFTA to bring closer to a wider audience the positive aspects of the deal.

Secondly, and in a more general way, I advocate for improved trade and business relations between the E.U. and Vietnam through various channels at both government and business levels.

What are the main impacts of Brexit on the trade and economic cooperation between the Europe and Vietnam in the future?

This is a very important question, and I am of the opinion that Brexit should not affect the coming into force of EVFTA which is supposed to be ratified in 2017. By this time, it is highly likely that Brexit will not yet happen.

Once Brexit is a reality, then we expect that the U.K. will not be able to profit anymore from deal. However, the agreement should still remain in place for the remaining 27 E.U. member states and Vietnam. In this instance, the U.K. will need to negotiate its own deal with Vietnam, but this will take time. Overall, what we can see is that there is a lot of uncertainty, which shows that Brexit is an extremely risky endeavor.

Related news:

> Free trade between Vietnam and Eurasian economies to open on October 5

> Vietnam tries to find its feet in world of free trade

> Vietnam's leather and footwear firms told to join forces ahead of free-trade deals

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