Free Trade agreement between European Union and Vietnam: one year later

Free Trade agreement between European Union and Vietnam

A Free Trade Agreement (FTA) has been signed between European Union and Vietnam has signed  on December 2nd, 2015. In addition to economic details, this agreement outlines important issues for Human rights, sustainability, and democracy. More than a year later, what have literally changed between European countries and Vietnam?

Free Trade Agreement: European countries are massively investing in Vietnam

European Union and Vietnam has signed a Free Trade Agreement. This collaboration aims at boosting economic relationships between countries on both side, favoring Europeans’ access to Vietnamese market. Indeed, Vietnam is a 90 million consumer country. Then, its young and dynamic labor force attracts more and more companies that want to settle manufacturing subsidiaries in Asia.

In a few words, this agreement plans:

  • A lowering and gradual abolishment until 99% of customs’ taxes for a wide range of European goods. This will be applied for a 7-year period, even 10 years, depending on goods category. For sure, food and industrial products are the most concerned.
  • An existence of transparent trade rules between European countries and Vietnam
  • A facilitated market access for investments and commercial presence

This free trade agreement represents a major issue for European countries as Vietnam is part of the Association of South East Asian Nations (ASEAN). Bilateral exchange with Vietnam will lead to closer strategic deals with other countries part of ASEAN.

Free Trade agreement between European Union and Vietnam

FTA: timeline of Vietnam-EU negotiations

Since the signature of the agreement, some companies have intensified their investments in Vietnam and orders have strongly increased :

  • Airbus: in 2007, Vietnam Airlines, the Vietnamese national company, ordered ten Airbus A350-900. In 2016, three new commercial deals were signed: Vietnam Airlines ordered ten more Airbus A350-900 and ten Airbus A320 for Jetstar Pacific, its low-cost company. Another private low-cost company, VietJet Air, bought twenty Airbus A321. In total, Airbus could sell for a total amount of 6.3 billion euros. In addition to this successful deal, Airbus has been involved in the creation of a new Master whose goal is to train students to air safety management.
  • Heineken: since its presence in 1991, the leading beer producer company, has built six manufacturing facilities. In a recent press release, Heineken has announced it will keep investing in Vietnam as it represents an interesting market and an undoubted starting point for commercialization to ASEAN market.
  • Bel Group: the French company specialized in cheese industry has succeeded in controlling the cheese market in Vietnam (85% of the market share). Indeed, its famous product, “the Laughing Cow” (con bò cười) has invaded the Vietnamese market. Whatever the shops or the supermarket, be sure to find your “Laughing Cow”. But, the success relies mainly to an important salesforce including street vendors everywhere. After successful commercial results, the company has decided to invest more in Vietnam by building a 10 000 m2 manufacturing facility. Located at Binh Duong, the Bel Group assures that the facility will deliver 3 million units per week.
  • Eurofins: while agri-food and seafood products are more and more exported to Europe, it is becoming important to assess food safety. Regarding the increasing demand for these services, Eurofins has decided to develop its business in Vietnam by acquiring 65% of a local company (Sắc Ký Hải Đăng) based in Hô Chi Minh City.

The “start-up” phenomenon has reached Vietnam

Bilateral agreement between Vietnam and European Union has not concerned only big companies. Indeed it has allowed to develop an ecosystem for innovation and to foster start-up creation.

Dr Pham Hong Quat, general director of the National Agency for Technology, Entrepreneurship and Commercialization development (NATEC) has also said:

Forming a dynamic startup ecosystem on a national level might be challenging and unprecedented in Vietnam. However, with a proven potential of the startups, it would be an ideal destination for investors worldwide who aim for a high and sustainable returns on investment

Pham Hong Quat from NATEC (left) and Gerard O'Donovan from Cork Institute of Technology (right)

Pham Hong Quat from NATEC (left) and Gerard O’Donovan from Cork Institute of Technology (right)

Each year, Vietnam is attracting more and more foreign entrepreneurs who want to setup their startups there. For example, some French entrepreneurs, are thrilled to create start-ups in Vietnam, mainly for its attractive market in ICT sector. Indeed, with 41 million internet users, ICT (Information and Communication Technology) sector in Vietnam is growing at a very fast pace. To support the creation of start-ups in Vietnam, France has labeled Vietnam as French Tech Hub. This label means a lot for French entrepreneurs in Vietnam and means also a big opportunity for Vietnamese entrepreneurs who can have access to French market.

Moreover, numerous partnerships have been created favoring a structured and propice ecosystem for innovation. In 2015, the Vietnamese Ministry of Sciences and Technology (MOST) and the Finland Ministry of Foreign Affairs have joined their forces to create a major program to support and foster innovative projects in Vietnam: Innovation Partnership Programme (IPP). With a 11 million-euro budget, the program aims at training entrepreneurs, finance their projects and to create an expert community to mentor them.

Key supports for innovation and scientific research for sustainable development of Vietnam

Despite advantages for European Union, the FTA is also important for Vietnam. Indeed, EU is a 500 million consumer market. Based on the bilateral agreement, Vietnam will be able to export raw materials and food products like rice and coffee by benefiting an exemption of 90% of the custom tariffs. Some textile products could be also part of this interesting decision if exporting companies could prove that apparels are “made in Vietnam”.

In addition to economic advantages, this agreement is an opportunity to benefit from the latest technological innovation and from the European scientific excellence.

Besides this type of projects, Vietnam is eager to create scientific collaborations with European labs, especially those in favor of a sustainable development for Vietnam: environment, energy, climate, agriculture. For example, these major issues concern lots of projects between Vietnam and France for which research teams on both side are solicited. In that way, the international research program RICE (Rice Interactions & Coffee in Environment) supported by the VAAS (Vietam Academy of Agriculture Sciences), Montpellier university and USTH (French-Vietnamese university based in Hanoï) aims at creating new rice and coffee varieties that could adapt more easily to changing environment (biotic stress – plant diseases, and abiotic stress – drought, high levels of soil salinity).

What’s next?

Thus, cooperation between Vietnam and European countries are going well. The Free Trade Agreement has been fostering many investments and companies’ creation in Vietnam.

Despite an unprecedented popularity for investment in Vietnam, there still remains key questions about the local recipients of this agreement:

  • What would be the social and societal impacts for Vietnamese?
  • Will the Vietnamese government adopt the right laws to sustain these collaborations in favor of its population?

 

This article is available in French

Sources:

Guide to EU-Vietnam Free Trade Agreement, Delegation of the European Union to Vietnam, 2016

Dix Airbus A350 pour Vietnam Airlines, 30 A320 pour Jetstar et VietJet, Air Journal, 6 septembre 2016

Eurofins: acquisition d’un laboratoire au Vietnam, Le Figaro, 13 mai 2015

Des camelots pour la Vache qui rit, Usine Nouvelle, 22 octobre 2015

Les fromageries Bel au Vietnam, Le Figaro, AFP, 16 Mars 2017

FRENCH TECH VIET – La technologie française au Vietnam enfin labellisée, Le Petit Journal, 5 décembre 2016

2015 Overview, Fostering high-growth and innovative companies in Vietnam that have the potential to scale globally, IPP

Heineken says deals an option as it eyes growth in Vietnam, Reuters, 25 janvier 2017

 

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