The Entry Into Force Of Vietnam EU Free Trade Agreement May Affect China'S Textile And Clothing Industry!

After eight years of negotiation, signing and ratification, the free trade agreement between Vietnam and the EU (hereinafter referred to as the "agreement") will finally come into force on August 1, 2020.

As a result, Vietnam has become the first emerging market country in Asia Pacific countries to establish free trade relations with the EU, and is also the second ASEAN country to establish free trade relations with the EU after Singapore. Vietnamese companies will have access to the EU market with a population of 500 million, and Vietnamese consumers will have access to cheaper EU products and services.

After August 1, Vietnam's tariffs on 71% of the EU's exports and the EU's tariffs on 65% of Vietnam's exports will be exempted immediately. According to the agreement, about 99% of the tariff on bilateral trade in goods will be gradually reduced or even eliminated.

Vietnamese economists have compared the FTA to "the highway connecting Vietnam and the EU". Partly thanks to the free trade agreement with the European Union, Vietnam has set its economic growth target of around 5% in 2020.

In an interview with the first finance and economics reporter, Professor Huang Xingqiu of Vietnam Research Institute of Guangxi Normal University said that the entry into force of the agreement will vigorously promote Vietnam's economic development. At the same time, there are also challenges for Chinese enterprises in Vietnam. Chinese enterprises can increase their exports to the EU based on Vietnam. On the contrary, they also need to compete with EU goods that enter the EU duty-free in the local market of Vietnam.

Vietnam became the first Asia Pacific country to establish free trade relations with the European Union

Vigorously boost Vietnam's economy

Vietnam and the European Union officially launched the FTA negotiations in 2012, and reached a consensus in principle on the agreement in 2015. On June 30, 2019, the two sides signed an agreement in Hanoi, the capital of Vietnam. Since then, the EU Council approved the agreement at the end of March 2020, and the Vietnamese parliament also adopted the agreement in June.

The bilateral trade relationship between Vietnam and EU has developed rapidly. After entering the 21st century, the bilateral trade volume has increased nearly 13 times, from 4.1 billion US dollars in 2000 to 56 billion US dollars in 2019. Among them, Vietnam's export volume increased nearly 14 times, from 2.8 billion US dollars in 2000 to 41 billion US dollars in 2019.

At present, the EU is Vietnam's second largest export market after the United States and an important source of Vietnam's trade surplus. Vietnam's main exports to the EU include telecommunications equipment, clothing, footwear and agricultural products. The EU mainly exports electrical equipment, aircraft, automobiles and medical products to Vietnam.

Take agricultural products as an example. After the agreement came into force, Vietnam's tariff on exports to the European Union dropped from 5% to 20% before to zero. For Vietnam's fast-growing textile and garment industry, 42.5% of the tax has been cancelled, and the remaining tax will be reduced in 3-7 years.

According to the report of the Vietnamese government, the agreement will increase Vietnam's GDP by 2.18% - 3.25% in the first five-year period and 4.57% - 5.3% in the second five-year period. According to World Bank estimates, the agreement will boost Vietnam's GDP by about 2.4% by 2030.

Vietnamese media believe that with the implementation of the agreement, Vietnamese enterprises will have the opportunity to participate in new supply chain links, which is a great opportunity for Vietnam to fill the gaps in regional and global supply chains. The German media also said that the EU hopes to diversify the supply chain through the agreement and get rid of excessive dependence on a single country.

In an interview with the first finance and economics reporter, Huang Xingqiu said that the entry into force of the agreement, especially in the context of the current global epidemic of new crown pneumonia, is of greater significance.

Huang Xingqiu said: first of all, the agreement was hard won and is a new achievement of Vietnam's strategy of "diplomacy serving economic development". He said that in 2017, Vietnam's relations with Germany fell to a low point due to the arrest of Zheng Chunqing, a runaway official, in Germany by means inconsistent with international practice. In view of Germany's important influence in the European Union, the prime minister and Deputy Prime Minister of Vietnam have done a lot of work to Germany, and ultimately the agreement has not been affected by diplomatic events.

He said that in recent years, Vietnam's trade volume exported to EU countries has increased year by year. In the first quarter of 2020, although Vietnam's trade volume with the EU has declined due to the impact of the epidemic, it still maintains a certain scale. Take aquatic products as an example, the export volume still reaches 190 million US dollars. After the agreement comes into force, it will enhance Vietnam's export advantages and further boost Vietnam's economic development.

Increasing competitive pressure on Chinese Enterprises

After the agreement comes into effect, both Chinese products and Chinese enterprises in Vietnam will face major challenges. In particular, the textile products of the European Union will face competition in the labor-intensive market of China. In the Vietnam market, China's mechanical and electrical products may face competition from EU products.

However, not all goods manufactured in Vietnam can enjoy zero tariff. According to the EU origin principle, the raw materials of export products must be originated from Vietnam, the European Union or other countries that have signed a free trade agreement with the EU.

According to the director of Vietnamese garment enterprises to the media, at present, the fabrics used by enterprises are mainly imported from China and other countries, and enterprises can not use imported fabrics if they want to enjoy zero EU tariff. However, there are only a few textile printing and dyeing enterprises in Vietnam.

In addition to the principle of origin, Vietnam's exports to the EU may also face the challenges of non-tariff trade barriers such as sustainable development, social responsibility and environmental friendliness. However, Nguyen man shin, chairman of the Vietnam small and Medium Enterprises Association, said that these difficulties and challenges are also opportunities for Vietnamese enterprises to innovate and improve their management capabilities.

In an interview with the first finance and economics reporter, Huang Xingqiu said that there are at least 2000 Chinese funded enterprises in Vietnam. These enterprises need to carefully study the terms of the agreement, benchmark the quality requirements and technical requirements of EU products, and make good use of this opportunity to continue to expand export business to the EU.

At the same time, he said improving product quality would also help to compete with EU products that enter Vietnam duty-free. He reminded Chinese enterprises that "they must be aware of the possibility that Chinese enterprises may be defeated by EU products in the Vietnamese market. They can be invincible only by taking precautions and playing more first-hand games."

However, he also told the first finance and economics reporter that Chinese enterprises should not be too quick. Especially in the current epidemic situation, they need to obey a series of measures taken by the Vietnamese government to fight the epidemic and cautiously and steadily promote the resumption of work and production.

Huang Xingqiu told the first finance and economics reporter that Vietnam's economy is highly dependent on exports, and the Vietnamese government is an active supporter of trade liberalization and globalization, which is highly consistent with China's claim.

He said that China and Vietnam can take this opportunity to strengthen cooperation. For example, Vietnam can make use of China's China Europe train for land trade with the EU, and Vietnam hopes to play a greater role in this regard.

The train can start from Hanoi, the capital of Vietnam, enter China through Pingxiang, then pass through Chongqing and Xi'an, and finally arrive in Europe. In this way, Vietnamese products can enter the Chinese mainland market and the EU market in a more convenient way, "which is beneficial to both China and Vietnam." He said.