THUONG MAI UNIVERSITY INTERNATIONAL COOPERATION INSTITUTE DISCUSSION Module International Economics Topic Discuss the benefit of EVFTA for Vietnams economy Working group Group 3 Tài liệu tham khảo bộ môn kinh tế quốc tế bằng tiếng anh đề tài tác động của EVFTA đến việt nam
THUONG MAI UNIVERSITY INTERNATIONAL COOPERATION INSTITUTE DISCUSSION Module: International Economics Topic: Discuss the benefit of EVFTA for Vietnam's economy Working group: Group Part class code: 23100FECO0217E Instructor: Hoang Xuan Huy Hanoi, December 16, 2022 TABLE OF CONTENTS CHAPTER 1: VIETNAM - EU FREE TRADE AGREEMENT 1.1 OVERVIEW 1.2 Developments 1.3 Partner 1.4 Summary of some main contents in EVFTA CHAPTER 2: IMPACT OF EVFTA ON Vietnam 2.1 Positive effects 2.2 Negative effects CHAPTER 3: OPPORTUNITIES AND CHALLENGES FOR VIETNAM 3.1 Vietnam's opportunity when signing an FTA with the EU 3.2 Challenges of Vietnam after signing the FTA CHAPTER 4: MEASURES TO COPE WITH CHALLENGES 4.1 On the state side 4.2 On the business side CHAPTER 1: VIETNAM - EU FREE TRADE AGREEMENT 1.1 OVERVIEW The EU-Vietnam Free Trade Agreement (EVFTA for short) is a new generation free trade agreement (FTA) between Vietnam and the European Union (EU) EVFTA was signed on June 30, 2019 and took effect from August 1, 2020 1.2 Developments - The period before October 2012: The two sides carry out technical activities (feasibility study ) to prepare for negotiation - June 2012: The two sides announced the start of negotiations - From October 2012 to August 2015: The two sides conducted 14 rounds of official negotiations and many midterm negotiations - August 4, 2015: The two sides announced the basic conclusion of EVFTA negotiations - Currently: The two sides are solving technical issues and finalizing the agreement text so that the agreement can be signed within the 2015 1.3 Partner - The EU is an alliance of 28 countries in the European region and is one of Vietnam's largest trading partners Up to now, Vietnam has not had any FTAs with countries in this region - The EU has started FTA negotiations with the ASEAN region since 2007, but in 2009 the negotiations were stopped Regarding bilateral relations with each ASEAN country, the EU has completed FTA negotiations with Singapore, basically finished FTA negotiations with Vietnam and is negotiating FTAs with Thailand and Malaysia - The EU is currently Vietnam's second largest trading partner The outstanding feature in the import-export structure between Vietnam and the EU is the great complementarity, less direct competition 1.4 Summary of some main contents in EVFTA EVFTA is a new generation FTA, with a wide scope of commitments and a high level of commitment The main areas of commitment in the EVFTA include: Trade in goods, including: + general provisions (referred to as verbal commitments) and + specific tariff commitments - called market opening commitments) -Rules of origin, including: + general rules of origin + separate rules of origin for certain goods -Customs and trade facilitation -Measures of food hygiene and safety and animal and plant quarantine (SPS) -Technical barriers to trade (TBT) Trade defense (TR) - Trade in services (text on general regulations and commitments to open markets) + General provisions (called written commitments) and + Schedules of specific service opening commitments - called market opening commitments) -Invest + General principles of treatment of investors + Mechanism to settle disputes between the State and foreign investors -Compete -State enterprises -Government Procurement -Intellectual Property -Sustainable development (including environment, labor), -Legal issues -Collaboration and capacity building CHAPTER 2: IMPACT OF EVFTA ON Vietnam 2.1 Positive effects The EVFTA Agreement has brought many advantages to the Vietnamese economy First, economic benefits When the agreement comes into effect, tariff and trade barriers between Vietnam and the EU are reduced, Vietnamese businesses have more opportunities to participate deeply and widely in the global production and supply chain, as well as international market expansion The commitments related to the scale and level of investment in the agreement will replace the bilateral investment agreement between Vietnam and EU member countries, helping Vietnam continue to reform its economic structure, improve economic mechanism and improve the business environment, creating favorable conditions for EU investors to conduct business activities in Vietnam When the Agreement comes into effect, barriers for EU goods to access the Vietnamese market will be reduced, forcing Vietnamese businesses to improve production quality and efficiency to increase competitiveness in the international market In addition, the EVFTA agreement gives Vietnam the opportunity to attract more investment capital from the EU, especially in areas such as high technology, modern management skills and experience The EVFTA helps Vietnam's gross domestic product (GDP) increase by 2% to 2.5%, Vietnam's exports to the EU by 75% and imports from 25% to 35% In the period 2020-2023, the EVFTA helps Vietnam's average annual GDP increase from 2.18% to 3.25%, the prospect of an increase of more than 4% in 2024 Second, strategic benefits The Agreement promotes Vietnam's role as an important country in the region, enhancing Vietnam's position in the region and at major political forums in the Asia-Pacific region In recent years, Vietnam has actively implemented a balanced foreign policy among major countries, thereby minimizing competitive costs and skillfully seeking strategic benefits In the context of the unresolved US-China trade conflict and increasing geopolitical risks in the East Sea, Vietnam's strengthening of economic and trade ties with the EU not only helps Vietnam protect its security and safety economic security and strengthen the position of foreign policy independence, self-reliance, diversification and multilateralisation, but also can promote politics as well as lay a solid foundation for strengthening political cooperation and militarily with the EU EVFTA is the first agreement signed by the EU with a developing country in Asia, so under the influence of factors such as hindered globalization, the Covid-19 pandemic, the Russia-Ukraine conflict Together with the EVFTA, Vietnam strives to protect free trade, promote its leading role in the region, and actively open up and integrate into the world economy Third, the EVFTA helps protect economic security and opportunities for the development of the logistics sector Vietnam considers the EVFTA an important step in protecting economic and political security, helping Vietnam reduce its dependence on other countries' economies, protect economic security and better respond to the situation instability in the region and the world Signing the EVFTA agreement helps Vietnam reduce its dependence on a foreign market, while improving its autonomy and ability to protect economic security Through the EVFTA agreement, Vietnamese businesses have the opportunity to join a new supply chain to replace the traditional supply chain that has been interrupted due to the Covid-19 pandemic Vietnam - EU trade increases investment opportunities in Logistics (with the goal of 2025 Vietnam becomes the logistics center of the region) From the open door policy, international economic integration, Vietnam attracts investment from many port operators and leading shipping lines in the world such as: APMT Group - Denmark at CMIT Port; Singapore's PSA at SP-PSA, CICT; DP World Group (UAE) at SPCT port (HCMC) creates new demand opportunities in rail and sea transport Besides, due to the impact of the Covid-19 pandemic causing congestion and lack of freight containers by rail, this hinders the development of sea transport 2.2 Negative effects However, besides the advantages that have been well utilized, Vietnam also faces a number of difficulties in the implementation of the Agreement, such as regulations related to origin, law enforcement, intellectual property and environmental standards , these issues will bring certain challenges to the economic and social development of Vietnam And besides the advantages of increasing import and export trade into the EU market, promoting Vietnam's economic development, in the process of implementing the EVFTA Agreement, Vietnam also encounters the following problems: Firstly, the EVFTA Agreement increases competitive pressure on domestic enterprises Vietnam is exempted from more than 90% of tariffs for EU goods, so many products with strong European competitiveness flood the Vietnamese market Most Vietnamese enterprises are small and medium-sized enterprises, while foreigninvested enterprises from the EU have advantages in capital, human and technology, and management experience reputation in the world EU enterprises have strong competitiveness, rich market experience, good product quality and the ability to optimize free trade agreements, which reduces the market share for domestic enterprises According to a survey by the Vietnam Confederation of Trade and Industry (VCCI), about 70% of domestic enterprises still not fully understand the EVFTA, businesses are not aware of the opportunities that the agreement brings Businesses are no longer prioritized in resource allocation as before State-owned enterprises are the basic unit of the economy, the advantages of enterprises are harmed, the economic interests of the state are also harmed Second, Vietnamese enterprises must comply with stricter regulations The EVFTA Agreement sets out strict regulations for goods on issues such as origin, environmental protection, technical standards, dumping Currently, the source of raw materials is used for production Vietnam's exports are mainly imported from China, Korea and some ASEAN countries, the regulation of origin will be a big challenge for Vietnamese enterprises Vietnamese goods exported to the EU market need a certificate of origin in Vietnam from the stage of raw material production This is the basic condition for goods to enjoy preferential tax If Vietnamese goods not comply with regulations on origin, Vietnamese goods will not enjoy preferential tax, even though they can still be exported to the EU market Environmental protection, EVFTA regulations in commitments and obligations towards the environment are strict Vietnam has issued many legal regulations on environment, hygiene and technical standards, but some still not meet EU standards Compulsory EU environmental requirements for Vietnam's important textile and garment exports Although Vietnamese producers have met the provisions of the Agreement on Technical Barriers to Trade (TBT Agreement) and the Agreement on Food Safety, Sanitation and Phytosanitary (SPS Agreement) of World Trade Organization (WTO), but many Vietnamese goods are still rejected when exporting to the EU Currently, the level of readiness of Vietnamese enterprises is still relatively limited Expanding the EU market, businesses have to overcome many challenges Third, the EVFTA affects political security EU countries have different opinions on the signing of EVFTA, there have been controversies over political and human rights issues As bilateral economic-trade relations continue to deepen in the coming time, the EU will use economic influence to increase pressure on Vietnam, posing a threat to security Vietnamese politics CHAPTER 3: OPPORTUNITIES AND CHALLENGES FOR VIETNAM 3.1 Vietnam's opportunity when signing an FTA with the EU First, ensure the economic security of Vietnam Overall, the EVFTA will contribute to diversifying markets so as not to be too dependent on one market, thereby helping to ensure Vietnam's economic security As a new generation FTA agreement, EVFTA is likened to a "Western highway", connecting Vietnam to a large market space with leading potential in the world in terms of both finance and technology Technology and market The benefits come from the numbers that can be seen that as soon as the Agreement comes into effect, Europe will remove 85.6% of tariff lines, helping to increase competitiveness for 70.3% Vietnam's export turnover to this market, Vietnam removed 48.5%, equivalent to 64.5% of import turnover into our country, helping to reduce input costs for manufacturing industries, reducing the price of goods goods and services, opening a new flow of trade Calculations of the Ministry of Planning and Investment show that, if commitments on tariff reduction and non-tariff are thoroughly implemented, Vietnam's economic growth will be improved in both the short and medium term and long term EVFTA is expected to contribute to GDP growth at an average of 2.18% to 3.25% (for the first years of implementation), 4.57%-5.30% (for the year period) subsequent) and 7.07%-7.72% (for the five-year period thereafter) Regarding exports, the EVFTA is expected to increase Vietnam's export turnover to the EU by 42.7% in 2025 and 44.37% in 2030 compared to no agreement Second, restore Vietnam's economy From the end of 2019 until now, the Covid-19 pandemic has strongly impacted and affected the world socio-economic situation, including Vietnam Many economic experts also believe that economic growth in 2020 will not reach the set target In that context, the EVFTA's implementation is of great significance, helping to offset the decline of the economy during the epidemic period From the business side, the EVFTA offers an opportunity for businesses to expand and diversify markets, regaining post-pandemic growth momentum Research by the Ministry of Planning and Investment shows that the EVFTA helps Vietnam's export turnover to the EU increase by about 20% by 2020; 42.7% in 2025 and 44.37% in 2030 compared to no Agreement At the same time, import turnover from the EU also increased but at a lower rate than exports, namely about 15.28% in 2020; 33.06% in 2025 and 36.7% in 2030 On the macro side, the EVFTA contributes to an increase in Vietnam's GDP by an average of 2.18% - 3.25% (in 2019 - 2023); 4.57% - 5.30% (2024 - 2028) and 7.07% 7.72% (2029 - 2033) Besides, in terms of imports, Vietnamese enterprises will also benefit from the source of imported goods and materials with good and stable quality at a more reasonable price from the EU Third, the impact on employment, social security According to the Ministry of Planning and Investment, the EVFTA is expected to add about 146,000 jobs per year, focusing on labor-intensive industries with high export rates to the EU market The increase in employment in some industries is expected as follows: the Textile and Garment industry will increase by 71,300 (in 2025) and 72,600 (in 2030), the corresponding increase compared to 2018 is 1.2%, 2.3% and 2.0%, respectively 4%; Footwear industry has a growth rate of 4.3% and 3.8% respectively in 2025 and 2030 Some other industries also have a high number of jobs such as air transport (1.5% in 2016 2025), water transport (0.9% in 2025) However, some industries are affected by job reduction such as forestry, mining, and rice production with a decrease of 0.26 to 0.36% per year The EVFTA will not only bring benefits in terms of the number of jobs, but also have the ability to increase workers' wages through efficient market operations, and spillover effects on wages from FDI enterprises Fourth, strengthen the position of Vietnamese enterprises in the world market For Vietnam's exports, as soon as the EVFTA comes into effect, the EU will eliminate import taxes on about 85.6% of tariff lines, equivalent to 70.3% of Vietnam's export turnover to the EU After years from the date of entry into force of the Agreement, the EU will eliminate import tax on 99.2% of tariff lines, equivalent to 99.7% of Vietnam's export turnover For the remaining 0.3% of export turnover, the EU committed to give Vietnam a tariff quota with an import tax within the quota of 0% For the agriculture and fishery industry, the EVFTA will bring great market potential for the export of agricultural and aquatic products in Vietnam, namely rice (increasing by 65% by 2025), sugar (8%), pork 4%), forest products (3%), livestock and poultry meat (4%), beverages and tobacco (5%) and seafood (2% in the period 2020-2030) For the textile and garment industry, it is forecasted that the export turnover of textiles and garments to the EU market will increase rapidly by about 67% by 2025 compared to the scenario without the Agreement Thus, nearly 100% of Vietnam's exports to the EU will be eliminated after a short roadmap This benefit is especially meaningful when the EU is continuously one of the two largest export markets of Vietnam This also helps many Vietnamese products and goods gradually gain their position and affirm their position, increasing 3.2 Challenges of Vietnam after signing the FTA 10 Besides opportunities, the EVFTA gives many challenges for Vietnamese businesses One of the major challenges facing Vietnam in the EVFTA environment is the compliance, implementation of commitments and participation in the dispute settlement system between the Government and investors, which is increasingly improving according to the requirements of the Government and investors provisions of the Agreements However, there are still many challenges coming from the dispute settlement mechanism of the Agreement These are concerns about the capacity and qualifications of the arbitral candidates nominated by the Government, as well as the independence and objectivity of the non-Vietnamese applicants The EVFTA Agreement also state strict requirements, making it difficult for Vietnam's exports to benefit from the 0% preferential tax rate moving forward without proper planning In order to re this priority level, goods exported to the EU need to satisfy the rules of origin It is the raw material that must meet a certain percentage of internal content This can be a drag on Vietnamese exports, because the source of raw materials for Vietnam's export products is currently mainly imported from China and ASEAN Vietnamese businesses will face pressures from the competition for domestic products as the market for high-quality products from Europe grows Due to the lack of import taxes, the price of EU goods will drop significantly, creating price competition in the domestic market In addition to regulations on origin, labor and environment, entering the EU market is still difficult due to non-tariff barriers on technical and food hygiene and safety of the EU market Although the EVFTA Agreement offers incentives and flexible SPS regulations, the majority of our country's agricultural products, including tea, vegetables, and others, still face restrictions because of residual pesticides, a lack of uniformity in each shipment, and subpar harvesting and preservation In contrast to the EU's top requirement, the majority of Vietnamese businesses are still unconcerned with matters of intellectual property Vietnam must therefore pay close attention to the EVFTA Agreement's intellectual property rules 11 Vietnam lacks experience implementing environmental obligations within the confines of trade restrictions and regulations Vietnam faces significant obstacles as a result of this situation CHAPTER 4: MEASURES TO COPE WITH CHALLENGES To make the most of the benefits that EVFTA can bring, Vietnam in general and Vietnamese enterprises in particular need to focus on the following issues: 4.1 On the State side Continue to improve institutions and legal corridors, improve the business environment, accelerate economic restructuring, renew growth models, perfect the market economy institutions to meet commitments and demonstrated our country's determination to accept international "rules of the game", especially in developed countries like the EU Identifying key export industries and planning the development of industries, agriculture and supporting industries With limited resources, Vietnam needs to focus on developing the key agriculture and supporting industries that it is capable of, such as tropical agricultural products, seafood; textile, footwear and assembly Having a strategy to proactively approach and catch up with the development trend of the times Especially grasping typical products such as: artificial intelligence, intelligent robots, 5G technology Among them, the garment industry - Vietnam's strength, faces the need to personalize products and risk of being replaced by intelligent robots Accordingly, it is necessary to develop overall solutions to develop national human resources to soon access the EVFTA Agreement market with greater depth as soon as the Agreement comes into effect To have investment policies, encourage stronger investment to develop supporting industries to ensure satisfaction of origin requirements: The State needs to identify key export industries and plan the development of key export industries supporting industry With limited resources, Vietnam cannot disperse its forces, but must focus on developing key supporting industries such as: Textile, garment, 12 footwear, etc and assembly (such as automobiles, motorbikes, electrical equipment and machinery) electronic) Reviewing, amending and supplementing a number of important laws such as: Investment Law, Enterprise Law, Land Law, Construction Law, Environmental Protection Law, Labor Code and a number of Tax Laws in order to further simplify and create favorable conditions for market entry and investment and business activities of people and businesses 4.2 On the business side: Enterprises need to restructure products and production costs because now there will be more competitors due to the openness of free trade Continue to research the market, survey changes after the agreement to adapt to changes Care should be taken in doing business and commerce because the state can change taxes, laws, and institutions to match the new agreement Creating great opportunities for businesses, however, because the market is Europe, businesses, if they want to seize this opportunity, need to meet the quality requirements and have full origin papers Enterprises also need to change and improve their awareness with the market, improve their corporate governance after signing the agreement because now the playing field is no longer domestic but also international If you cannot keep up with the new trends of the times, your business will be at risk of being eliminated by the market, not by competitors There should be investment policies for people and technology to improve productivity and cut unnecessary costs Danh mục tham khảo 13