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Free trade agreements (FTAs) are when two or more countries agree on the terms of trade between them. They determine the value of tariffs and duties that countries impose on imports and exports. In 2007, with Vietnam’s ascension into the World Trade Organization (WTO) – it took a significant step integrating with world trade and subsequently entering into several free trade agreements.
Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world. Additionally, due to its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has become a party to several FTAs that the regional trade bloc has signed.
FTAs signed by Vietnam
Vietnam signed a fairly comprehensive bilateral trade agreement (BTA) with the United States in 2000. It came into force in 2001. The BTA was part of the post-war “trade normalisation” process between the two countries and should be seen as a strong precursor to a watertight US FTA. In June 2007, Hanoi and Washington signed a Trade and Investment Framework Agreement, yet another step towards a possible FTA. And in December 2008, the two governments began yet another negotiating to strengthen the bilateral investment treaty (BIT).
In January 2007, Hanoi and Tokyo began talks towards a Japan-Vietnam deal, which was finally signed in December 2008. Shortly after, Vietnam began talks with Chile, with the FTA signed in 2011. Hanoi already signed an FTA with Israel back in 2004. It is also intending to negotiate FTAs with EFTA, Russia and Mexico
As a member of ASEAN, Vietnam is caught up in the bloc’s regional FTA dealings with Korea, the EU, China, Japan and India. The Vietnamese government has also signed a number of bilateral intellectual property and science & technology agreements with industrialised countries, as well as more than 30 BITs. It is also under ratification of the much awaited CPTPP (formerly known as TPP). Few of the other FTAs are as below:
FTAs – The benefits
The benefits of the free trade agreements will enable Vietnam’s economic development continue to shift away to from exporting low-tech manufacturing products and primary goods to more complex high-tech goods like electronics, machinery, vehicles and medical devices.
This can be done in two ways – first, through more diversified sourcing partners through larger trade networks and cheaper imports of intermediate goods from partner countries, which should boost the competitiveness of Vietnam’s exports.
Second – through partnership with foreign firms that can transfer the knowledge and technology needed to make the jump into higher valued-added production. An example of this is the recently launched VSmart phone manufactured by Vietnamese conglomerate Vingroup.
Vietnam is touted as a low-cost manufacturer with several companies such as Samsung and Nokia setting up manufacturing plants and then export electronics, but the latest example shows how Vietnam can develop its own products from the transfer of know-how technology.
Such sophisticated business practices and technology will help boost Vietnamese labor productivity and expand the country’s export capacity.
With upcoming trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Vietnam – EU (EVFTA) – Vietnam seems to prioritize international trade integration trade partners outside ASEAN.
Once in effect, such trade agreements will allow Vietnam to take advantage of the reduced tariffs, both within the ASEAN Economic Community (AEC) and with the EU and US to attract exporting companies to produce in Vietnam and export to partners outside ASEAN.
The EVFTA Report 2018 by the European Chamber of Commerce (EuroCham) in Vietnam revealed that 72 percent of EuroCham members believed that the EVFTA will make Vietnam more competitive and turn it into a hub for European businesses.This Free Trade Agreement (FTA) is the second in the ASEAN region after Singapore. This agreement will allow EU exporters and investors to access a fast-growing market of 90 million people and to consolidate their presence in one of the most dynamic regions in the world.
We can see the present trading date for EU-Vietnam, as below:
EU-Vietnam: Trade in goods
EU-Vietnam: Trade in services
EU-Vietnam: Foreign direct investment
Vietnam’s entry into these trade deals will also ensure alignment with national standards ranging from employee rights to environmental protection. Both the CPTPP and EVFTA require Vietnam to conform to the International Labor Organization’s (ILO) standards. Chan Lee from the ILO noted that this is an opportunity of Vietnam to modernize its labor laws and industrial relations systems.
Challenges posed by FTAs
The FTAs may also come with some added downsides. Such agreements are likely to trigger aggressive competition from foreign rivals on local businesses – particularly in the agriculture sector including meat and dairy products from the EU, Australia and Canada.
If local firms do not adapt, make use of new market opportunities and potential partnerships with foreign firms – they could find competing in the market challenging.
The Vietnamese government would also need to continue on its path of reforms – strengthening the banking sector, refining legal and tax structures, and improving trade facilitation.
Future growth from FTAs
Vietnam’s Ministry of Planning and Investment forecast that the CPTPP could increase Vietnam’s GDP by 1.3 percentage points by 2035, while the EVFTA could boost GDP by 15 percent. These trade deals along with already signed and upcoming FTAs are likely to ensure that Vietnam remains competitive in the short-to-medium term.
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