EU competition in redrawn public procurement landscape

Competition in Vietnam’s government procurement market is expected to heat up with the involvement of EU contractors, driven by the country’s highest-ever market-opening commitment in this field. 

Nguyen Thi Thu Trang, director of the World Trade Organization and International Trade Centre under the Vietnam Chamber of Commerce and Industry, analyses the advantages and disadvantages, and how the market order will change.

eu competition in redrawn public procurement landscape
Nguyen Thi Thu Trang, director of the World Trade Organization and International Trade Centre, under the Vietnam Chamber of Commerce and Industry

In the EU-Vietnam Free Trade Agreement (EVFTA), Vietnam commits to opening part of its government procurement market to EU contractors.

Government procurement, or public procurement, is the act of obtaining goods or services for a public agency, using part of the public budget. In such public procurement, states tend to give priority to buying goods and services from local businesses and units, considering it a good way to ensure the highest benefit for the locals.

This is a popular practice that almost all countries follow. In the US, the “Buy American” scheme applies solely for the purchase of goods and services made by American groups.

A similar act is being applied in other countries, except for those with open market agreements. In some specific cases, only domestic contractors are allowed to compete for the public procurement packages of their countries.

In Vietnam before 2019, before the enforcement of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), there were in principle no foreign contractors freely joining government procurement packages in the country, except for cases of using foreign loans/international funding, or those offering international bidding.

Within the World Trade Organization (WTO), Vietnam is only an observer of the organisation’s Government Procurement Agreement and is yet to make any market-opening commitments in this field.

In the FTAs which took effect before last year, Vietnam also did the same.

eu competition in redrawn public procurement landscape

Bold step towards liberalisation

The EVFTA is not the first time that Vietnam has opened its government procurement market to foreign contractors, with the CPTPP being the first. However, in the EVFTA, the scale of packages that Vietnam permits EU firms to join is significantly wider than that in the CPTPP.

Specifically, in the EVFTA, Vietnam commits to opening government procurement packages for 20 central-level agencies, two localities (Hanoi and Ho Chi Minh City), and 42 other units including hospitals and universities. Meanwhile, for CPTPP contractors, Vietnam opened packages in 21 central-level agencies, 38 other units, and no localities.

The minimum threshold calculated in special drawing rights (SDRs) of packages that are subject to market opening to EU contractors is also much lower than that in the CPTPP. For example, in the CPTPP, except for construction packages, in the first five years of the enforcement only packages valued at VND98billion ($4.26 million) and higher are open to CPTPP contractors, and starting from the sixth year, the threshold is down to over VND65 billion ($2.83 million).

In the EVFTA, the threshold is applied only for the packages offered by localities and other units in the first 10 years, and then will be reduced by a schedule to over VND32 billion ($1.39 million) starting from the 16th year onward. The minimum threshold of packages for central government procurement is much lower, from VND49 billion ($2.13 million) in the first five years to over VND4 billion ($173,900) from the sixth year onward (see box).

Vietnam’s state budget is modest and so its expenditures therefore are not as big as in other countries. In spite of this, government procurement still makes up a significant part in the country’s total domestic spending. It could be said that the government is the big purchaser of goods and services in Vietnam.

 

For domestic contractors who had for years dominated the government procurement market, sharing a slice of the cake to EU firms is not good news, especially as EU competitors have strong expertise in capital, professionalism, competitive edge, and international experience.

eu competition in redrawn public procurement landscape

Challenges and opportunities

However, in a broader view, the market opening for EU contractors is not completely a serious threat to Vietnamese contractors.

Firstly, generally the structure of goods and services of the EU does not compete directly with Vietnam. In government procurement, EU contractors mostly have no special interest in goods and services that Vietnamese contractors have advantages in bidding for public procurement contracts such as agroproducts, foodstuff, woodwork, textiles and garments, footwear, and more.

On the contrary, the government procurement packages that EU businesses are forecast to have strong interest in, such as high-tech devices and machinery, are not the top focus and priority among Vietnamese firms. Therefore, direct competition in government procurement packages in Vietnam with the future involvement of EU contractors will not be as tough as expected.

Secondly, although minimum thresholds of government procurement packages that Vietnam commits to open to EU contractors in the EVFTA are lower than in the CPTPP, such remains higher than the common ones in Vietnam, and the schedule to lower it is long. Thus, in the short term, the packages with small and average threshold will yet to face competition from the EU.

Moreover, for some groups of specific and sensitive products like pharmaceuticals and products for national defence, Vietnam has specific market-opening commitments with a significantly slower timeline, and quotas of total contract value reserved specifically for Vietnamese firms.

Even for packages expected to be exposed to competition with EU competitors, this is not all bad news. As to these packages, Vietnam not only promises to open to EU contractors, it also commits to ensure the bidding process and procedures are transparent and meet the high standards of the EVFTA. For genuine Vietnamese businesses, this will help them expel negative phenomena in bidding, thus increasing the opportunities to win bids for them.

The EVFTA even brings about huge opportunities for Vietnamese contractors who are capable enough to access the EU’s giant government procurement market.

The EU’s commitment to open its government procurement market to Vietnam is significant. This may be the reason why it asked Vietnam to make significantly stronger market-opening commitments than in the CPTPP.

In fact, the EU has already made a similar market-opening commitment in the EU-Singapore FTA in this field. However, Singapore is not a direct competitor with Vietnam in the majority of products. The main competitors of Vietnam in the EU market, such as ASEAN and China, are yet to have the rights to approach the EU government procurement market. VIR

Nguyen Thi Thu Trang

New faces in government procurement

New faces in government procurement

European businesses are preparing to join Vietnamese public procurement on the back of the EU-Vietnam Free Trade Agreement (EVFTA). 

EVFTA widens varied procurement chances

EVFTA widens varied procurement chances

Starting from this year, investors from EU member states will for the first time be allowed to tender for many types of public projects in Vietnam under EU-Vietnam Free Trade Agreement commitments.

 
 

Other News

.
Half of local businesses use IFRS
Half of local businesses use IFRS
BUSINESSicon  12/10/2020 

More than half of companies in Vietnam have been adopting international financial reporting standards to meet investors’ expectations and improve their corporate governance, a survey showed.

Party Resolution boosts marine economy and defence
Party Resolution boosts marine economy and defence
BUSINESSicon  12/10/2020 

The sustainable development of the marine economy in association with the consolidation of defence and security is among the important sections of a resolution from the Communist Party of Vietnam

Vietnam to develop livestock sector
Vietnam to develop livestock sector
BUSINESSicon  11/10/2020 

PM Nguyen Xuan Phuc has approved a plan to develop the livestock sector for the 2021-2030 period with a view to 2045.

72% of EU businesses plan to expand in Viet Nam
72% of EU businesses plan to expand in Viet Nam
BUSINESSicon  11/10/2020 

A majority of European businesses in Viet Nam expect to increase their operations in the country, the sixth Business Sentiment Survey of the EU-ASEAN Business Council released on Thursday shows.

VN eyes boosting processed meat industry
VN eyes boosting processed meat industry
BUSINESSicon  11/10/2020 

The husbandry industry is hoped to become a modern economic sector industrialised in all stages from production, processing, preservation and...

Vietnam vows to develop eco-friendly chemical industry
Vietnam vows to develop eco-friendly chemical industry
BUSINESSicon  10/10/2020 

Nguyen Van Thanh, director general of the Vietnam Chemical Agency, speaks about some of the strengths and weaknesses in the 2007 Law on Chemicals.

Banks put pedal to the metal in digital transformation
Banks put pedal to the metal in digital transformation
BUSINESSicon  10/10/2020 

The banking industry has been recently abuzz with digital transformation as lenders embark on their journey to become more tech-enabled to keep pace with disruptive technologies.

12 loss-making mega-projects proceed slowly
12 loss-making mega-projects proceed slowly
BUSINESSicon  10/10/2020 

The assets of the 12 loss-making mega-projects under the Ministry of Industry and Trade (MOIT) total VND59.1 trillion, while total accounts payable is VND63.3 trillion.

Vietnamese businesses wait for new rescue package
Vietnamese businesses wait for new rescue package
BUSINESSicon  11/10/2020 

Most enterprises say they are still experiencing a sharp decrease in revenue, cash flow imbalance and decline in confidence.

Equitisation doesn't necessarily mean a better future for SOEs
Equitisation doesn't necessarily mean a better future for SOEs
BUSINESSicon  10/10/2020 

Equitisation should be a magic wand to improve the performance of a State-owned enterprise (SOE), but in some cases, it is not.

Banks push bancassurance amid low credit growth
Banks push bancassurance amid low credit growth
BUSINESSicon  09/10/2020 

Banks are pushing the sale of life insurance products (bancassurance) in the context of low credit growth since the beginning of this year due to the impacts of the COVID-19 pandemic.

Sound direction for Vietnam’s chances of economic revival
Sound direction for Vietnam’s chances of economic revival
BUSINESSicon  09/10/2020 

Despite heavy aftermaths caused by the global health crisis, the Vietnamese economy remains in positive growth in the first nine months of the year on the back of the government’s sound responses to curb the pandemic return.

Reforms to cut unwanted administrative processes
Reforms to cut unwanted administrative processes
BUSINESSicon  09/10/2020 

In a bid to boost institutional reforms towards a modern market economy, further abolishing and reducing business regulations to create a bigger space for the private sector to develop will serve as a new driving force 

Rising handling charges neccessary to advance
Rising handling charges neccessary to advance
BUSINESSicon  09/10/2020 

International shipping lines are expected to face an increase of 12 per cent in domestic container handling service charges at Vietnamese seaports from early 2022, triggering concerns over a possible charge burden on local shippers.

Fish sauce producers in a tight spot
Fish sauce producers in a tight spot
BUSINESSicon  09/10/2020 

Traditional fish sauce is one of the most typical components in Vietnamese cuisine and while its nutritional value has been analysed thoroughly, getting EU customers to consume it more regularly remains a challenge.

Tra fish famers, exports hit hard by Covid-19 pandemic
Tra fish famers, exports hit hard by Covid-19 pandemic
BUSINESSicon  09/10/2020 

Tra (pangasius) fish prices have dropped to their lowest levels in 11 years since exports have been hit by Covid-19, according to the Vietnam Association of Seafood Exporters and Producers (VASEP).

September surprise: fruit prices soar to record high
September surprise: fruit prices soar to record high
BUSINESSicon  09/10/2020 

Passion fruit, pomelo, dragon fruit and fresh coconut have been exported to Europe in large quantities under the EVFTA, which took effect this year.

Mystery businessmen pours VND150 billion into ITA, Dang Thi Hoang Yen makes surprise move
Mystery businessmen pours VND150 billion into ITA, Dang Thi Hoang Yen makes surprise move
BUSINESSicon  09/10/2020 

The ITA shares of the Tan Tao Group unexpectedly witnessed an impressive trading session with a record high trading volume.

SOE equitization: state takes loss, and investors lose money
SOE equitization: state takes loss, and investors lose money
FEATUREicon  12/10/2020 

Many state-owned enterprises (SOEs) have been equitized but have not seen considerable changes as the state's ownership ratio remains high. Many of them are still taking losses and struggling to survive.

VN rice exporters gear up to penetrate EU arena
VN rice exporters gear up to penetrate EU arena
BUSINESSicon  08/10/2020 

Vietnamese companies have been stepping up investment to boost rice exports to Europe – however, it remains a challenging task penetrate the market efficiently.

 
 
 
Leave your comment on an article

OR QUICK LOGIN