As the EU-Vietnam Free Trade Agreement (EVFTA) celebrates the fourth anniversary of its entry into force on 1 August 2024, a survey by the European Chamber of Commerce in Vietnam (EuroCham) paints a nuanced picture of the agreement’s impact. The EuroCham Business Confidence Index (BCI) survey, conducted by Decision Lab, reveals the EVFTA has undoubtedly opened doors for European businesses, but challenges remain.
EVFTA impact and primary benefits
While nearly two-thirds of respondents report some level of benefit, the extent of impact varies widely. Notably, 27% of companies—a marked increase from 18% in 2023—now enjoy moderate to significant advantages, while another quarter, down from 31% in 2023, has yet to see any tangible gains.
Despite these disparities, EuroCham members consistently cite tariff reductions, increased market competitiveness, and expanded market access as key benefits. Other advantages include streamlined supply chains, improved business transparency, and a stronger legal framework.
EVFTA trade and investment dynamics
The EVFTA has significantly boosted Vietnam’s exports to Europe, surging from 35 billion euros in 2019 to over 48 billion euros in 2023. This growth is particularly pronounced in sectors such as electronics, textiles, footwear, agriculture, and seafood. However, the increase in EU exports to Vietnam has been far more modest, rising from 11 billion euros to only 11.4 billion euros over the same period, adding to a substantial trade imbalance.
Nevertheless, the EVFTA has undoubtedly strengthened Vietnam’s attractiveness for European investors. The EU, already a major investor in the country, has poured 28 billion euros into 2,450 projects, underscoring its continued confidence in Vietnam’s potential. Notably, EU investors have added 800 million euros in foreign direct investment between January and September 2023, bucking the global trend of declining FDI.
Challenges to overcome
The BCI survey reveals a number of obstacles that European businesses face in fully leveraging the EVFTA. These include complex regulatory requirements and a lack of recognition for international standards by local authorities. Additionally, a lack of understanding of the agreement among stakeholders, combined with customs valuation issues and opaque clearance procedures, complicate trade. Technical barriers, particularly in the areas of certification and product testing, also remain a significant hurdle.
“The EVFTA has certainly created new opportunities for European businesses in Vietnam,” said Dominik Meichle, Chairman of EuroCham Vietnam. “However, our survey shows that while progress has been made, challenges remain. As we enter the fifth year of the agreement, it is crucial to continue working on simplifying procedures, aligning standards, and ensuring everyone understands how the EVFTA works.”
EuroCham Vice-Chairman Jean-Jacques Bouflet also noted that recent policy adjustments in Vietnam have created challenges for European businesses operating under the EVFTA. “These changes, which include new internal and consumption taxes, and technical barriers to entry, are holding back the full potential of the agreement,” he remarked. “However, we are actively engaged in constructive discussions to address these issues and find solutions that benefit both Vietnam and Europe.”
Thue Quist Thomasen, CEO of Decision Lab, emphasised the need for ongoing support and adaptation, stating, “The findings highlight that while the EVFTA is a powerful tool for economic growth, its success hinges on continued efforts to address regulatory complexities, technical barriers, and awareness gaps. A targeted approach to support businesses, particularly SMEs, in navigating these challenges is crucial.”
Unlocking the EVFTA’s full potential
Mr. Bouflet outlined EuroCham’s strategic initiatives to address the identified challenges and maximise the benefits of the EVFTA, stating, “EuroCham is committed to working with stakeholders to streamline regulatory compliance, advocate for greater recognition of international standards, and develop comprehensive education and awareness programs on the EVFTA. We will also continue to push for solutions to technical barriers to trade, particularly in certification and testing, and advocate for further tariff reductions and streamlined customs procedures.”
EuroCham Vietnam is actively championing the full ratification of the EU-Vietnam Investment Protection Agreement (EVIPA) as a critical step in unlocking the full potential of the EVFTA for attracting foreign direct investment. While EU institutions have already given their approval, the EVIPA still requires individual ratification from all 27 EU member states. With 18 member states having already ratified the agreement, EuroCham Vietnam is working tirelessly with European stakeholders to encourage the remaining states to follow suit.
“EuroCham is dedicated to helping our members fully leverage the opportunities presented by the EVFTA,” affirmed Mr. Meichle. “We will continue to collaborate closely with Vietnamese authorities to address remaining challenges and ensure that both European and Vietnamese businesses can reap the full benefits of this landmark agreement.”
Click here to access the full Q2 2024 BCI report in English and click here for Vietnamese.
About the EVFTA
The EVFTA, a landmark deal that came into effect four years ago, has become a major catalyst for trade and investment between the European Union and Vietnam. As the only Southeast Asian nation with such a comprehensive agreement with the EU, Vietnam enjoys a significant competitive edge over its neighbours who are still in the negotiation stages.
The EVFTA’s ambitious goals of eliminating nearly all tariffs, reducing regulatory hurdles, and cutting red tape have already translated into increased bilateral trade and investment. However, the agreement’s full potential is still unfolding as both businesses and authorities navigate the complexities of implementation and adaptation.
About the Business Confidence Index survey
The quarterly Business Confidence Index (BCI), which is conducted by Decision Lab, serves as a vital tool for understanding the perceptions of European and Europe-related companies and investors in the Vietnamese market. Conducted since 2011, the BCI collects feedback from EuroCham Vietnam’s extensive network of 1,400 members across a diverse range of sectors. This survey provides valuable insights into the current business landscape in Vietnam and offers a glimpse into future expectations. Decision-makers, media, and business professionals see the BCI as a key indicator of economic activity in the country.
