EVFTA is not a 'magic wand' if businesses can't overcome obstacles: VCCI official

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Director-General of the Legal Department of Vietnam Chamber of Commerce and Industry (VCCI), Mr. Dau Anh Tuan.

What have Vietnamese businesses benefited from the EU-Vietnam Free Trade Agreement (EVFTA)?

First of all, nowadays, the European Union (EU) is one of the most important markets for Vietnamese companies. Its enticements not only comes from being a major consumer market for Vietnamese product but also for being a key source for high tech machinery and materials. Because of those reasons, EVFTA has become one of the most important free trade agreement (FTA) Vietnam has ever signed, granting Vietnamese companies access to the second-biggest market in the world in terms of purchasing power.

The benefits of signing a free trade agreement with the EU is undeniable, especially considering Vietnam is one of only two countries in ASEAN that have signed such agreement with the EU, the other being Singapore. But unlike Vietnam, Singapore doesn’t have large a manufacturing industry, which makes Vietnam the first country in ASEAN to export directly to the EU market. Besides, Vietnam is the first country amongst its competitors to have FTA with the EU, not even China has been able to do so.

Strategically, the EU market is tough and demanding, which will not only put pressure on Vietnamese companies to raise the standards and quality of their products but also requires them to grow their businesses and be confident, in order to compete in this market. It is dangerous if Vietnamese companies are only accustomed to large, relatively “easy-going” markets, only to struggle when it comes to more demanding ones. The EVFTA presents an opportunity for companies to innovate themselves in terms of quality, technology and sustainable standards to reduce risks and avoid being too reliant on one single market.

Can EVFTA create a boost for the import and export sector, along with the domestic market of Vietnam?

Next to the 15 other FTAs that have already been in effect, signed, or are still being negotiated, EVFTA is a necessary addition for Vietnam. I hope that, during these turbulent times of global commerce, Vietnamese companies will be able to diversify their markets, instead of focusing on one major traditional one. This is also a suitable step considering we have signed trade agreements with ASEAN, with China and other North-East Asian countries, with countries included in the CPTPP, and now with the EU. Diversification has become critical in the COVID-19 age, as companies are having their supply chains disrupted or having trouble finding a market for their products.

The COVID-19 pandemic has proven that domestic markets also play an important role, and instead of focusing on exporting to one single foreign market, companies should shift their attention to the domestic ones.

EVFTA can also help increase foreign investment in Vietnam. Having signed multiple trade agreements, the Vietnamese market presents a clear advantage for any company looking to export their products to other countries. Not only that, but Vietnam also possesses a strong, low-cost workforce and manufacture, a fast-growing infrastructure network, and government policies aim to support foreign investors. For these reasons, we can expect a large influx of foreign investments to Vietnam, especially investments in the high-tech sector.

The EU is a tough and demanding market, requiring a high level of transparency. This surely will create challenges for Vietnamese companies to abide by its strict regulations, including technological standards, quality of products, tracing the origin of a product,... What do you think about these challenges?

This is absolutely true, with EVFTA in effect, tariffs will be cut significantly and in the future, entirely. But Vietnamese companies will also have to adapt to EU high demands including technological barriers, quality of products, and strict Rule of Origin of products to enter this market. To be able to do so, they have to understand the EU market, well informed, and well prepared to meet these requirements.

Besides, although they may have entered the EU market, Vietnamese companies must also be prepared to face international commercial litigations from foreign competitors, both from the EU or from other countries. This requires companies to be well informed and adapt to the rules of international commerce. Therefore, EVFTA is a “new playing field” and Vietnamese businesses must learn its new set of rules and get used to it.

Since most companies in Vietnam are small and medium-sized businesses, lacking in experience and ill-equipped to face these challenges, the Government needs to take a more active role in supporting these companies by familiarizing them with the rules and regulations of the EU, adapt to its high standards and also handle the risks while doing business there. Companies cannot face these challenges alone, the government, VCCI, and different business associations must take part in helping them utilize the opportunities created when entering the EU market.

By your assessment, what have Vietnamese companies struggled with the most in EVFTA?

The most common problems that Vietnamese companies face when utilizing FTA agreements are information and understanding. In a recent survey conducted by VCCI, most companies know very little about EVFTA, they can only describe the general purpose of the agreement but not the details of it. Furthermore, they lack the understanding of the characteristics of different markets or their non-tariff barriers to trade. Because of that, informing Vietnamese companies has become a critical requirement.

To accomplish this goal, new documents must be written to further interpret the EVFTA. These documents should guide companies through the clauses of the Agreement, analyze and explain all the different aspects of each sector.

Next, there must be a point of contact for companies to go to when they are having questions about EVFTA. This creates a need to establish an information center to effectively respond to these questions.

In addition, compared to other countries, Vietnam’s administrative procedures are still inconvenient. Measures must be taken to streamline procedures and improve regulations to resolve these difficulties for Vietnamese businesses. Though procedures have been improved in recent years, this process needs to be accelerated further to meet the demand of companies.

In your opinion, what should government agencies and ministries do to assist companies in facing the challenges or take advantage of opportunities presented by EVFTA?

From my many years of experience implementing FTAs in Vietnam, I can say for certain that, signing FTAs is a very important first step, but it’s not some sort of “magic wand” to boost the economy. This also goes for the EVFTA. Vietnamese businesses will struggle to gain a foothold in the EU market, so it is important to devise a program to assist companies during the process of implementing this FTA.

First of all, there must be a media campaign to assist and inform companies on how to take full advantage of the EVFTA. This campaign must be conducted through an effective media network, aim to fully prepare companies for the EU market, either through a risk assessment system to inform which companies that are at risk of international litigation, or inform companies of new standards or regulations set up by the EU.

Second, there must be a program to revise laws and regulations but still adhere to the commitments that Vietnam has made. I want to stress that these revisions are aimed at assisting and protecting Vietnamese companies but must respect previous commitments and agreements made by Vietnam.

Thirdly, after the COVID-19 pandemic, the world is shifting its supply chains away from China and so Vietnam must take advantage of this opportunity. To do this, we must find ways to attract more foreign investments in Vietnam. On the one hand, we have to build a suitable infrastructure for companies and businesses, and on the other hand, we must focus on finding investors that can effect positive changes to the economy and not directly compete with Vietnamese companies. EVFTA offers Vietnam a chance to take a more active role in encouraging foreign businesses to invest in Vietnam.

Fourth, EVFTA requires the government to improve its regulations and procedures to create a more business-friendly environment for Vietnamese companies so that they can compete effectively with foreign companies.

Last but not least, we need a more effective system of government agencies aimed specifically at promoting trade and investments.

Thank you, sir!

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