ENHANCING VIETNAM-EU TRADE RELATIONS THROUGH PARTICIPATION IN THE VIETNAM-EU FREE TRADE AGREEMENT

After World War II, Western European countries pursued comprehensive and close cooperation, which played a crucial role in addressing post-war challenges and fostering development. This collaboration and unity positioned Western Europe competitively on the global stage. This reality paved the way for the establishment of the European Union, marking a significant chapter in the history of Western Europe and the entire continent.

Today, the EU comprises 27 member countries, following the UK's departure on January 31, 2020. The Union has grown comprehensively across all fields, notably including several of the world's most developed economies. The EU spans over 4 million square kilometers and has a population of approximately 500 million, representing 7.3% of the global population.

The main institutions of the European Union are the European Council, the Council of Ministers, the European Parliament, the European Commission, and the European Court of Justice. The European Council, the EU's highest authority, includes the leaders of the 27 member countries, the President of the European Council, and the President of the European Commission.

Throughout its development, the EU has continuously evolved, achieving numerous milestones over more than 50 years since its inception:

• Treaty of Paris (1951): Established the European Coal and Steel Community (ECSC) with six founding members: France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg.
• Treaty of Rome (1957): Established the European Atomic Energy Community (Euratom) and the European Economic Community (EEC). Euratom unified the management of the atomic energy industry among the six member countries, while the EEC aimed to create a common market and customs union (completed in 1968) with free movement of capital and labor.
• Treaty of Brussels (1965): This treaty unified the three communities—ECSC, Euratom, and EEC—under the collective name European Communities (EC). Signed on April 8, 1965, it established a single institutional framework, promoting closer integration among European countries. The treaty created a unified market with the free movement of goods, labor, and capital, and eliminated tariff and non-tariff barriers. Additionally, it introduced a common tariff system and trade policy, along with other economic policies, to strengthen the economic and political alliance.
• Expansion in 1973: Denmark, Ireland, and the United Kingdom were admitted as new member states.
• Expansion in the 1980s: Greece joined in 1981, followed by Spain and Portugal in 1986.
• Single European Act (1987): This act amended the Treaty of Rome to complete the establishment of the European common market, facilitating further economic integration.
• Maastricht Treaty (1992): Also known as the Treaty on European Union, it was signed on February 7, 1992, in Maastricht, Netherlands, by the 12 EC member countries (France, Germany, Belgium, the Netherlands, Luxembourg, the United Kingdom, Denmark, Ireland, Greece, Italy, Portugal, and Spain). The treaty laid the foundation for the modern European Union, introducing new forms of cooperation between member states in areas such as defense, justice, and home affairs.
• Schengen Agreement (1995): This agreement, which came into effect in 1995, abolished internal border checks between participating countries, allowing for the free movement of people. In the same year, Austria, Finland, and Sweden joined the EU.
• Amsterdam Treaty (1997): Signed on October 2, 1997, by the 15 member countries, this treaty provided the legal basis for the introduction of the euro, the EU's common currency, which began circulating on January 1, 1999.
• Nice Treaty (2001): Signed from November 7 to December 2000, the Nice Treaty focused on institutional reforms to prepare the EU for further enlargement and to strengthen the role of the European Parliament.
• Euro Introduction (2002): The euro was officially introduced as the common currency in 12 EU member countries.
• Expansion in 2004: Ten new member states were admitted: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia.
• Expansion in 2007: Bulgaria and Romania joined the EU.
• Lisbon Treaty (2009): Taking effect on December 1, 2009, the Lisbon Treaty amended the Treaty on European Union and the Treaty Establishing the European Community, enhancing the efficiency and democratic legitimacy of the Union and improving the coherence of its external action.
• Croatia Joins (2013): Croatia became a member of the EU on July 1, 2013.
• Ongoing Negotiations (since 2018): Accession negotiations are underway with Serbia (since 2014), Montenegro (since 2012), and Turkey (since 2005), with expectations for Serbia and Montenegro to join by 2025 during the next European Commission mandate.
• UK Withdrawal (2020): The United Kingdom formally withdrew from the EU on January 31, 2020.

Current Economic Development Situation of the EU

The ongoing Russia-Ukraine conflict has led to significant disruptions in the EU economy, causing volatility in the gas market and an energy supply shortage. The commodity market has also been strongly affected, contributing to low economic growth and the inevitability of a recession, despite increasing public investment. While the growth rate has slowed sharply, a full-blown recession is considered unlikely.

In 2023, the GDP growth rate of the EU and the Eurozone is projected to reach a low of 0.5%. However, growth is expected to recover modestly in 2024, with forecasts of 1.6% for the EU and 1.5% for the Eurozone. Factors such as rapidly falling inflation and strong wage increases are expected to boost the real disposable income of households, leading to a recovery in personal consumption. The impact of tightening monetary policy is anticipated to be more pronounced in 2024. The Eurozone unemployment rate is projected to rise to 7.0% in 2023.

EU public debt is predicted to trend around 87% of GDP in 2024 and 85% of GDP in 2025. Although inflation remains high at 6.1% in the Eurozone in 2023, it is forecasted to decline to 2.6% in 2024.

The energy crisis persists, with the International Energy Agency (IEA) reporting that the gap between Europe's gas supply and demand will reach 27 billion m³ in 2023, accounting for about 6.8% of Europe's natural gas demand for the year. The IEA suggests that this shortfall could be mitigated if the EU enhances energy efficiency and promotes the use of renewable energy. Additionally, EU governments have implemented energy-saving measures and diversified energy import markets to address the energy shortage.

Overall, the EU economy continues to grow slowly, showing signs of an impending recession due to the severe consequences of the Russia-Ukraine conflict and global economic inflation.

Stages of Development of Economic and Trade Relations between Vietnam and the EU

In the current context of international economic integration, countries are increasingly cooperating in various fields, especially in economic and trade sectors, to explore import and export markets, seek investment capital, advance science and technology, and learn from the experiences of developed countries. The EU is one of Vietnam's leading investment and trade partners, with increasing two-way trade turnover. The economic and trade relations between Vietnam and the EU have evolved through several stages:

1. Early Diplomatic Relations and Initial Cooperation (1990-1996):
   • Trade relations between Vietnam and EU member countries have existed for a long time but developed rapidly after Vietnam and the EU officially established diplomatic relations in 1990.
   • From 1990 to 1996, cooperation mainly focused on aiding Vietnamese repatriation, with the EU providing assistance for this purpose.
   • By 1996, Vietnam and the EU agreed on a common economic development and cooperation strategy to support Vietnam's transition to a market economy while mitigating social costs during the transition.
2. Initial Trade Agreements:
   • The textile and garment trade agreement signed in 1992 between Vietnam and the EU was one of Vietnam's first trade agreements with the European Union.
   • The Vietnam-EC Cooperation Framework Agreement, signed in July 1995, marked a significant step in economic and trade cooperation. This agreement aimed to promote trade and investment, support sustainable economic development, assist in restructuring Vietnam's economy towards market mechanisms, and emphasize environmental protection and sustainable development.
3. 2002-2008: Strengthening Economic Ties:
   • In 2002, the EU supported Vietnam's poverty reduction efforts and human resource development, aligning with the sustainable development strategy and economic reforms towards market mechanisms.
   • In 2008, Vietnam and the EU began negotiating the Partnership and Cooperation Agreement (PCA). The evolving relationship necessitated a new cooperation framework to replace the 1995 Vietnam-EC Framework Agreement.
4. Vietnam-EU PCA and EVFTA:
   • In 2012, the Vietnam-EU PCA was signed, marking a new milestone in the cooperative relationship, and negotiations for the EU-Vietnam Free Trade Agreement (EVFTA) began.
   • In June 2018, Vietnam and the EU agreed to separate EVFTA into two agreements: the Vietnam-EU Free Trade Agreement (EVFTA) and the Investment Protection Agreement (IPA).
   • On June 30, 2019, Vietnam and the EU officially signed EVFTA and IPA, with EVFTA taking effect on August 1, 2020.
5. Impact of EVFTA:
   • The EVFTA has sustained the momentum of Vietnam's exports to the EU, making Vietnam the EU's largest trading partner in ASEAN.
   • EVFTA has significantly advanced the 30-year cooperation between Vietnam and the EU, opening a new phase for a comprehensive, in-depth, practical, and effective partnership.
   • As a new generation Free Trade Agreement, EVFTA connects Vietnam with the economies of 27 EU member countries, encompassing commitments in various areas with higher standards than most other FTAs Vietnam has signed.
   • In 2023, trade turnover between Vietnam and EU member countries reached USD 72.3 billion, a 5.3% decrease compared to 2022, with a trade surplus of USD 34.3 billion. Vietnam's export turnover to the EU in 2022 was USD 46.8 billion, a 16.7% increase from 2021, while imports from EVFTA countries reached USD 15.4 billion, an 8.6% decrease from 2021. Key exports included seafood, vegetables, fruits, footwear, textiles, and wooden products.
6. Future Prospects and Challenges:
   • The global economy in 2023 is recovering slowly, with high inflationary pressure, declining consumption, and reduced economic activities affecting key export markets, including the EU.
   • Over the past three years, most EVFTA commitments have been implemented, including those on tariffs, opening service markets, investment, public procurement, and other areas. According to a survey by the Vietnam Confederation of Commerce and Industry (VCCI), nearly 50% of businesses have benefited from EVFTA, with export turnover to the EU increasing by 16.7% in 2022 and nearly 20% in 2023.
   • Tax incentives for many goods will gradually reduce to 0% following EVFTA's implementation, giving domestic consumers access to diverse, high-quality imported goods from the EU at suitable prices. This includes agricultural products, machinery, and equipment, which will help reduce production costs and increase business profits.

The EU is one of Vietnam's largest trading partners and has become its largest export market. The high growth rate in two-way trade over the past decades demonstrates the compatibility between the two economies and their strong development since the implementation of the Vietnam-EU Free Trade Agreement. The trade relationship between Vietnam and the EU is highly complementary, with little competition. The structure of Vietnam's exports to the EU has shifted towards high-quality products and clean foods, reducing the proportion of medium-quality goods and unprocessed raw products.

Overall Impact of EVFTA on the Development of Vietnam-EU Trade Relations

The EVFTA has had several direct and indirect impacts on trade relations between Vietnam and the EU, driving significant changes and improvements:

• Trade Creation and Redirection: The EVFTA has facilitated trade creation by enabling the import of goods from the EU to replace higher-cost domestically produced goods. Additionally, it has redirected trade by making EU goods more competitive compared to those from other countries due to tax incentives and other provisions that enhance the comparative advantage of EU imports.
• Increased Export Turnover: The elimination of tariffs on over 90% of goods from the EU has boosted the value of Vietnam's export turnover. This tariff reduction has allowed Vietnam greater access to the EU market, reducing production costs for domestic products, expanding production scale, and significantly promoting exports to EU countries.
• Access to High-Quality Technologies and Raw Materials: By reducing import tax rates, Vietnam benefits from cheaper, high-quality technologies and raw materials from Europe. This trend also leads to an increase in the export of high-quality goods and services from the EU to Vietnam.
• Non-Tariff Barriers and Quality Improvement: EVFTA's commitments to reducing non-tariff barriers, such as technical barriers and rules of origin, promote the development of Vietnam's exports. These commitments ensure that Vietnamese goods meet international standards, thus improving the quality of exported goods.
• Improved Business Environment and Investment: The EVFTA has enhanced the business environment, attracting more direct investment from the EU and other countries into Vietnam. This increased investment has focused on high-tech manufacturing and high-quality service sectors such as finance, banking, insurance, energy, telecommunications, and transportation.
• Labor and Union Standards: The EVFTA includes stringent commitments regarding labor and union standards, promoting improvements in Vietnam's labor standards in line with international norms. This fosters the creation of high-quality job opportunities, increases income for workers, and enhances the overall quality of life.
• Economic Restructuring and Sustainable Development: The EVFTA encourages Vietnam to implement appropriate policies and restructure its economy according to new trends and the current context, fostering sustainable economic growth and development.

Dr. Tran Thi Thu Hien Information and Trade Promotion Department - VIOIT