One year on, Vietnam's landmark FTA with the EU has produced the goods

Hanoi

AS much of the world grappled with the full force of the Covid-19 pandemic and the ensuing lockdowns last year, the European Union (EU) and Vietnam pushed ahead with their landmark free trade deal and saw it enter into force in August 2020.

Fourteen months on, the EU-Vietnam free trade agreement (EVFTA) has helped to boost two-way trade and buffer the impact of the economic downturn.

Trade between Vietnam and the EU amounted to US$27 billion from January to June this year, an increase of 18 per cent over the same period in 2020 and "a remarkable achievement in the midst of a global pandemic", said the European Chamber of Commerce in Vietnam.

Last month, the Asian Development Bank (ADB) wrote in a report that it expects Vietnam's economy to expand 3.8 per cent in 2021.

Notably, this was a sizable downgrade from April's estimate of a 6.7 per cent growth. This, however, still places Vietnam above the regional average of 3.1 per cent.

The EVFTA - only the second one that the EU has concluded with an Asean country, after Singapore - is not the only major free trade deal that is driving Vietnam's growth.

In the last few years, a string of FTAs have come into force in the South-east Asian nation, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the China-led Regional Comprehensive Economic Partnership (RCEP).

Officials in Vietnam said this is part of the country's long-term drive to build a modern and market-oriented economy, and signs show that this strategy is bearing fruit.

"In the case of Vietnam, the benefits have been clear in terms of high and consistent economic growth and a large reduction in poverty levels," the World Bank said in a report titled Vietnam: Deepening International Integration And Implementing The EVFTA.

Such multilateral FTAs, however, have not been as popular among Vietnam's Asean neighbours.

Singapore, Malaysia and Brunei are the only other Asean member states who signed the CPTPP. These three nations cover a total of 39 million people, or just 6 per cent of Asean's population.

Vietnam, with almost 100 million people, represents 15 per cent. As a result, Vietnam's low-cost labour has little competition.

Cambodia's Everything But Arms (EBA) agreement with the EU was revoked in 2020 over human rights concerns, less than two weeks after the EVFTA came into force, opening the door for scores of European manufacturers to relocate to Vietnam instead.

In 2020, Cambodia's exports to the EU totalled just over US$3 billion, 98 per cent of which were eligible for preferential duties under the EBA initiative.

But although the stars may seem to have aligned for Vietnam's international trade ambitions, observers noted that Vietnam must do more to embrace reform in order to realise the full benefits of the EVFTA.

"If Vietnam can act in a decisive manner to close legal and implementation capacity gaps, it can capitalise on a trade deal whose direct benefits are estimated to be the largest in the country's history," said Ousmane Dione, the World Bank's country director for Vietnam.

"With Covid-19 acting as a reset button and the EVFTA as an accelerator, now is the perfect time to embrace deeper domestic reforms," he added.

However, not only is Vietnam dragging its feet on this, but moves to avoid parts of the agreement it does not find palatable have not gone unnoticed.

In June, the EU voiced "deep regret and concern" over the cancellation by Vietnamese authorities of a scheduled summit between members of European and Vietnamese civil society.

"Civil society engagement and scrutiny of the EVFTA is not an optional element of the agreement, but should be ensured and applied as a matter of urgency," the European Economic and Social Committee said.

These concerns did not fall on deaf ears as in August, Minister of Industry and Trade Nguyen Hong Dien officially established the Vietnam Domestic Advisory Group in accordance with the agreement.

As the coronavirus pandemic subsides and international borders gradually reopen, Vietnam is eyeing an even greater wave of trade with the 27-member EU bloc. The ADB's outlook for Vietnam's economy in 2022 sees it returning close to its pre-Covid growth levels at 6.5 per cent.