Vietnam Ratifies Free Trade Deal With European Union Amid Covid-19 Pandemic

The parliament of Vietnam unanimously ratified a new free trade agreement with the European Union on Monday that will give the southeast Asian nation a significant economic boost amid the ongoing covid-19 pandemic.

In an unusually transparent measure, the vote taken in Vietnam's National Assembly was broadcast live on television.

Vietnam now joins Singapore as the only other Southeast Asian country to sign a free trade pact with the EU.

The EU-Vietnam Free Trade Agreement, or EVFTA, has been in the pipeline since 2012 but was postponed and delayed for years due to legal obstacles. The European Parliament ratified the deal in February of this year.

EVFTA, which will initially remove tariffs on 85% of Vietnamese goods, will become effective in July or August this year. Tariffs on the remaining 15% of goods will be phased out over seven years. In turn, Vietnam will lift 49% of its import duties on EU exports – then phase out the rest over the next 10 years.

"One of the issues that attracted the attention of the National Assembly deputies was that Vietnam had to change its mode of economic activity, and secure customers in the European market after the COVID-19 pandemic," the National Assembly said on its website prior to the vote. "Along with the benefits, the EVFTA also poses some challenges. The EVFTA creates competitive pressures on goods and services from the EU for Vietnamese businesses, goods and services.”

The trade deal "can't come at a better time for Vietnam when it's on the path of economic recovery after several months of closure due to COVID-19,'' said economist Pham Chi Lan, a former adviser to various Vietnamese prime ministers. The agreement is also expected to reduce Vietnam’s heavy trade dependence on China.

As part of the deal, Vietnam pledged to enact sustainable development standards, safeguard labor rights and address climate change under terms of the Paris Accord.

Vietnam also agreed to eliminate all kinds of forced labor, abolish child labor, and permit workers the right to collective bargaining.

In May, the World Bank estimated the trade deal would lift up to 800,000 Vietnamese out of poverty and increase the country's gross domestic product by 2.4% by 2030.

Tran Tuan Anh, the Vietnamese minister of industry and trade, agreed the pact will greatly reduce poverty in Vietnam.

“If Vietnam can act in a decisive manner to close legal and implementation capacity gaps, it can capitalize a trade deal whose direct benefits are estimated to be largest in the country’s history,” said Ousmane Dione, World Bank Country Director for Vietnam. “With COVID-19 acting as a reset button and EVFTA as an accelerator, now is the perfect time to embrace deeper domestic reforms.”

Vietnam is already the EU's second-biggest trading partner in Southeast Asia – last year, their bilateral trade amounted to $56.45 billion.

"The EVFTA is now more important than ever, as trade wars and a global pandemic disrupt normal business operations on an unprecedented scale," the European Chamber of Commerce in Vietnam said on Monday. "This agreement represents a true 'win-win' not just for European and Vietnamese enterprises but also for citizens on both sides. Now, the next step is to ensure a smooth and effective implementation.”

The agreement is also expected to spur more foreign manufacturers to relocate their operations to Vietnam, instead of China. Not only that, but the euro bloc is certain to increase its purchase of Vietnamese goods.

Nikkei Asian Review reported that the trade deal will particularly boost sales of apparel and footwear, which presently represent about one-fifth of Vietnam's total exports. Vietnam is currently the third-largest apparel exporter after only China and Bangladesh.

The covid-19 pandemic has shut down much of Vietnam’s textile and apparel sector.

Now with the trade arrangement imminent, Vietnam’s Ministry of Planning and Investment expects the country’s overall export revenue to the EU to surge by 42.7% by 2025 and by 44.37% by 2030.

Vietnam has entered into various other trade deals in recent years – it is already part of the Regional Comprehensive Economic Partnership, which comprises all of Southeast Asia as well as Australia, China, India, Japan, New Zealand and South Korea. Business groups in Vietnam are now urging the government to sign a trade deal with the U.S.