EVFTA

By Nam Nguyen

The European Union (EU) and Vietnam (VN) are believed to reach final steps to sign a free trade agreement which is called as EVFTA. This Agreement is expected tocause vital changes to VN exporters and bring opportunities for VN-EU trade to reach new heights. However, a commitment to EVFTA will create a major impact to VN’s agriculture and industrial sector, posing numerous challenges to the country’s key areas.

1

Competitive pressures in agriculture

According to experts working in “Mutrap” – a project established by the EU to assist in multilateral trade with VN, agriculture and fisheries sectors are sensitive for both VN and the EU throughout the negotiating process of EVFTA. Both parties have adopted the highest level of protection and used a wide range of tools to provide either direct support or indirect support (via income subsidies) for these industries.

Changes in agricultural policy will strongly influence employment rate, poverty alleviation, and rural areas development.Therefore, both VN and the EU tend to shield these industriesfrom higher competitive pressure once their market is opened.

VN has obvious strengths in exporting a number of agricultural commodities including roasted coffee, tomatoes, sugar, and rice.More importantly, these agricultural products are capable of competing directly with similar products in EU. However, regarding processed agriculturalproducts.VNstill requires a significant portion of total input to supply for the whole value chain. In 2013, about 70% of animal feeds has to be imported.

Although VN experienced high exporting levels of several other products including cashew, fisheries, the country hasn’t shown any hints on boosting exports in the dairy industry and dairy products.

In addition, non-tariff measures (NTM) has important implications in the agricultural sector. These include requirements of hygiene and quarantine, packing, packaging,the ability to access product’s sources, and stringent customs procedures. Standards imposed by the EU are often among the highest standards in the world and thus become more difficult to achieve for developing countries, and VN is not an exception.

Challenges for industrial sector

EVFTA is believed to have the utmost impact on VN’s six industrial sectors including textiles, footwear, automotive, high technology, crafts, and wood products. In overall, all aforementioned sectors recorded high growth rate and reasonable competitive ability. Nonetheless, besides the favorable sides, these industrial sectors still faces many challenges.

Thanks to the tax break and further incentives over other exporters to EU that EVFTA could bring about, Vietnam footwear producers are likelyto reap massive benefits.At this moment, Vietnam footwear industry is facing stiff competition from countries whose footwear industry has been developed. It can be listed India, Indonesia, Thailand, and even newly emerging country like Myanmar.

VN textile and garment industry has a relatively high dependence on imported raw materials. The value added generated by the industry, therefore, is much lower than expectation, which is estimated to be 40% on average. In particular, raw materials have been imported mainly from China, Korea, and Taiwan. So was the machinery from China and Japan. VNtextile and garment industry found itself extremely difficult to compete with other countries in terms of price, as well as design standards and technological applications.

Ms. Thao Nguyen – an expert at the Central Institute for Economic Management also comments on the heavy reliance of VN wood industry on imported wood materials and accessories: about 80% materials used in this industry is imported. Moreover, the more complex and high demands of EU consumers as well as strict regulation on registration, evaluation, and verification of chemical limitations are significant barriers to VN’s products.

Besides, handicraft industry, which has long been utilized on domestic resources such as bamboo, rattan, and ceramics, has recently started importing raw materials from China, Laos, and Cambodia. The limitations of raw materials supplies, low transportation capacity, and energy shortage as well as high quality standards imposed on wood products and handicrafts products are main barriers to entry for VN exporters to find a way to penetrate into EU market.

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