New Roads Ahead for the EU and Vietnam’s Trading Friendship

Amid escalating trade disputes on the global economic arena and a worsening of commercial relations between the West and the East, as the US-China trade war seems to be steadily progressing towards no good, here is some news that would lighten up the mood of European and Vietnamese businesses that are keen on closer collaboration. The EU-Vietnam Trade Agreement and the Investment Protection Agreement which were signed in June 2019, enter into force following domestic ratification and bring with them a range of befits to both parties.

Trade of Goods and Services

Vietnam being EU’s second-largest ASEAN (Association of Southeast Asian Nations) trading partner following Singapore with which a trade agreement was signed and entered into force in November 2019, the total trade in goods and services amounts to €45.5 billion in 2019 and €4 billion respectively. A shift of the types of goods traded was noted, with more high-value products being exported from Vietnam to the EU in the latest years, as opposed to earlier exports which were dominated by lower value agri-foods, the commerce in wooden furniture and telephones being at the forefront of growth.

The trade agreement represents the parties ‘commitment to collaborate in view of reducing 99% of currently imposed tariffs on consumer goods. However, the agreement introduces a phased liberalisation of tariffs. This presupposes that some products will be duty-free immediately, for instance, all EU textile exports, at the entry in force, while for others, such as car parts or chicken, will see the liberalisation of tariffs up to ten years from the entry in force.

Crucially, by entering this agreement Vietnam accepts the marking of origin for non-agricultural goods, thus marking the recognition of greater integration of the manufacturing sector in the EU. Similarly, the treaty allows for better protection against imitation of food and drink products as cover 169 traditional produce originating from areas of protected geographical indication. Distinct Vietnamese products will be equally protected under this regime.

In terms of liberalisation of services, the agreement ensures market access to diverse sectors of the market such as research and development, computer services, telecommunications, financial services, and shipping and distribution. In this regard, European companies will be allowed to freely participate in Vietnamese public procurement schemes and bid for contracts under the same rules as domestic corporate entities. In turn, EU procurement access will be made accessible to Vietnamese bidders.

Bilateral Investment

With respect to foreign direct investment, European investment in Vietnam is concerned in the industrial processing and manufacturing industries and amounted to €7.4 billion as of 2018. Among EU member-states, the Netherlands is the largest cumulative investor in Vietnam by capital, followed by France.

The EU investment protection agreements are intended to protect the assets of European companies established abroad against the malpractices of host States. As per the provisions of the Lisbon Treaty, foreign direct investment is now an EU exclusive competence. Therefore, once the EU-Vietnam Investment Protection Agreement (IPA) entered into force it replaces all the existing bilateral investment treaties with EU member-states. Under the new agreement, investors will enjoy a higher level of protection. In particular, Vietnam as host State is committed, among others, to protect fundamental principles of treatment of foreign investors and guarantees respect of non-discrimination requirements, an award of adequate and prompt compensation in circumstances of loss of property by way of unlawful expropriation or expropriation in times civil unrest and/or armed conflict, as well as guaranteeing fair and equitable treatment.

The agreement also provides for a mechanism of investment dispute settlement. Henceforth, an aggrieved party whose rights granted under IPA were breached can submit a dispute to a to an international and independent investment Tribunal System formed by three members appointed in advance by Vietnam and the EU. The awards issued by the Tribunal shall be binding and non-appealable in domestic courts. In turn, an Appeal Tribunal shall be instituted in order to review appeals on grounds of legal correctness and correct interpretation of treaty rights and obligations. However, the effect of these changes will be noted in practice at a later stage as Vietnam is granted a five-year transition period to bring about necessary legislative reform in the area.

Conclusion

The real economic effects of this trade agreement will most like not to be felt for several years to come. Nevertheless, it still marks a positive development given the current rather stagnant economic outlook. Vietnam has been added to a list of 77 countries that already benefit from conducting business with EU companies and investors under the bilateral and preferential agreement. Yet not only businesses are hoped to enjoy the fruits of the agreement. Additional to the liberalisation of trade, the parties committed to collaborating in view of ameliorating the social rights and environmental protection. Conventions of International Labour Organization (ILO) shall be further ratified to ensure respect of workers’ rights, and various environmental agreements, among which the Paris Agreement, will see continuous implementation. Thus, European officials, in their efforts to speed up the economic recovery of the bloc, welcomes the new trade agreement, and hope for a future sustainable commercial relationship that can equally benefit the people of Vietnam.