Institutional tweaks to open up EU investment

Although Vietnam’s adoption of trade and investment agreements with the European Union are expected to be a boon for Vietnam, it triggers a need for the country to continue intensifying regulatory reforms

– a key to help attract more investors and businesses from the EU.

1496p 6 institutional tweaks to open up eu investment

Spaniards Laura Fontan and Diego Cortizas set up Chula Fashion after visiting Hanoi in 2005. The company’s products reflect Vietnam’s cultural traditions, while incorporating Laura and Diego’s European heritage.

Diego designs the clothes, which are then hand-made in their factory in Hanoi. The brand is clearly identifiable on the Vietnamese market, and promotes socially responsible labour policies and sustainable fashion production.

Employing 68 people, Chula is firmly rooted in Vietnam with stores in Hanoi, the central ancient city of Hoi An, and Ho Chi Minh City, but has recently also opened a store in Bangkok and in Madrid capital city of Spain.

Last week, good news made its way to Chula Fashion when the Vietnamese National Assembly (NA) adopted the EU-Vietnam Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement (EVIPA). The new rules of origin in the trade deal will make it easier for Chula to export to the EU.

The EVFTA will remove Vietnamese tariffs of 7.5 per cent on EU textiles as soon as it takes effect, expected in August. This will enable Chula to use high-end European cotton and linen in addition to the textiles it sources from Asia.

“We’re passionate about corporate social responsibility – for example, three-quarters of our workforce have a physical disability,” Fontan said. “The EVFTA would make it easier for us to expand into European markets. With the agreement in place, we’ll be able to start thinking about using more European fabric in the clothes we make, as well as opening more stores over there.”

A big boon

With 94.62 per cent of NA members in favour, the EVFTA was adopted by the Vietnamese legislature which also did the same for the EVIPA, with 95.45 per cent of NA deputies in favour.

“It has been quite a historic moment in my life and for the EU Delegation to Vietnam,” Giorgio Aliberti, Ambassador of the delegation, told VIR. “It is a big success for Vietnam and the EU, reflecting huge efforts from both sides over the past 10 years. The EVFTA is a strong creator of trade and investment opportunities for both the EU member states and Vietnam.”

Wolfram Grünkorn, managing lawyer from German-invested law firm Grunkorn & Partner Law Co., Ltd., said that the firm has been supporting many German businesses and financiers to enter Vietnam, and the EVFTA will act as a big impetus for Vietnam to lure more European investment.

“Directly after the date of enforcement of the EVFTA, the investment opportunities in Vietnam will be scrutinised by many European companies,” Grünkorn said. “The development of the world economy is now interwoven with uncertainties. The US-China trade war is far from over, COVID-19 is exerting immense but unclear effects on supply chains and economic development. In this context, the EVFTA stands for stable and reliable economic co-operation.”

Sweden’s glove-making Hestra said the EVFTA will give EU glove-makers like it a helping hand.

“With the EVFTA in place, we would look to invest in a new factory in Vietnam with 200-400 employees, alongside our current factory. This would not only be a good opportunity for our company but would also create more job opportunities for the local community,” said Hestra’s director Svante Magnusson.

Hestra, which exports its gloves to over 30 countries worldwide, will benefit from the removal of EU tariffs on gloves of up to 9 per cent. This will make it easier for Hestra to export its products to the EU.

The EVFTA will eliminate over 99 per cent of tariffs, with the EU removing duties on thousands of items sourced from Vietnam. Meanwhile, Vietnam will liberalise 65 per cent of import duties on EU exports to the country, with the remainder of duties being gradually eliminated over a 10-year period. The EVFTA will benefit EU businesses exporting and investing in Vietnam.

According to the German Industry and Commerce Vietnam (AHK), the elimination of bilateral tariffs and export taxes, together with the reduction of non-tariff barriers affecting the cross-border exchange of goods and services, are expected to boost bilateral trade considerably and to create new opportunities emerge to access markets across a range of sectors, covering goods, services, and investment for German companies in Vietnam. This is particularly true in the automobile, green energy, electronics, IT, food processing, and healthcare sectors.

“The EVFTA is extremely important for the German economy, because Vietnam is Germany’s second-biggest trading partner in the ASEAN region. More than 4,000 German companies have already been exporting to Vietnam, thereof 69 per cent are small- and medium-sized enterprises,” said AHK’s chief representative Marko Walde.

The EU is one of the most important sources of foreign funding for Vietnam. Currently, investors from 23 EU member states have registered over $24 billion into nearly 2,200 projects in Vietnam.

The EVFTA is expected to be a major driver of Vietnamese exports, and help Vietnam to diversify its markets and exports, especially its key staples such as agro-forestry-fishery products, electronics, footwear, and garments and textiles which are the country’s competitive advantages. Currently Vietnam’s exports rely on its traditional markets like China, the US, Japan, and South Korea.

 

Last year, Vietnam’s largest export markets included the US ($60.7 billion), the EU ($41.7 billion), China ($41.5 billion), the ASEAN ($25.3 billion), Japan ($20.3 billion), and South Korea ($19.8 billion).

According to a study by Vietnam’s Ministry of Planning and Investment, the EVFTA will help Vietnam’s exports to the EU climb by an additional 2.18-3.25 per cent in the first five years of entry into force, and an additional 4.57-5.3 per cent in the next five years.

The EVFTA will also help boost Vietnam’s export turnover from the EU by 42.7 per cent in 2025, and 44.37 per cent in 2030. It will also help raise Vietnam’s import turnover from the EU by 33.06 per cent in 2025 and 36.7 per cent in 2030.

According to the European Parliament, Vietnam, a fast-growing and competitive economy whose bilateral trade with the EU has quintupled over the past 10 years, is equally keen on the EVFTA, which could potentially bring €15 billion ($16.53 billion) a year of additional exports to the EU by 2035.

Need for further reforms

A senior expert from the EU Delegation to Vietnam told VIR that though the EVFTA is a big boon for Vietnam, it will still be a hard nut to crack.

“To benefit from the EVFTA, Vietnam needs to boost its institutional reforms,” he noted. “Investors from the EU actually don’t really need tax slashes in Vietnam, but a more business-friendly climate.”

According to the expert, though Vietnam is now considered the best investment spot in Southeast Asia, European investors and businesses need a more transparent, predictable, and stable investment and business climate which Vietnam is now trying to create.

“They often consider many factors before making final investment decisions. Now in Vietnam, paper-based procedures remain, making it a waste of time and money for those wishing to conduct business and investment in the country,” he said. “Investors also need an international-standard mechanism in granting licences.”

For example, one significant issue, which unfortunately was not tackled by the existing Law on Investment and the current Law on Enterprises, is the requirement to undergo a double approval process for establishing a foreign-invested enterprise (FIE) in Vietnam.

The current requirement to obtain both an investment registration certificate (IRC) and an enterprise registration certificate (ERC) makes the FIE establishment procedure not only slower, but also more complicated and ultimately uncertain.

“This double requirement also negatively affects the merger and acquisition (M&A) market, since M&A transactions targeting private companies often necessitate amendments to the ERC and/or IRC held by the target company or its investors,” said an EuroCham Whitebook 2019 on trade and investment issues of European businesses in Vietnam. “It goes without saying that requiring one single certificate should be more than sufficient for establishing any FIE, and is considered standard practice in most jurisdictions around the world.”

EuroCham suggested that ultimately, the key conceptual and structural change which would need to occur in order to streamline foreign investment processes and stimulate the M&A market would be to abolish the concept of registered investment projects in connection with the establishment of FIEs. Foreign investors should be able to establish subsidiaries and joint ventures in Vietnam, without needing to formulate and obtain approval of registered investment projects.

Abolition of the requirement to register foreign investment projects would make redundant the concept of and requirement for IRCs.

It is clear that much remains to be carried out for Vietnam to attract more investments like those by Chula or Hestra.

“We believe that there may be more interest from EU investors into Vietnam, but such interest being translated into real investments would depend on how Vietnam changes its policies under international standards,” the EU expert told VIR.

Tariff removals on range of key EU products

- Almost all machinery and appliances will be fully tariff-free at entry into force, and the rest after seven years. Current duties are 35 per cent.

- Motorcycles with engines larger than 150cc will see tariffs fully removed after seven years (current duty is 75 per cent) and cars after 10 years (down from 78 per cent)

- Car parts will be duty free after seven years (current duties are 32 per cent).

- Roughly half of EU pharmaceuticals exports will be duty free at entry into force and the rest after seven years (currently facing duties of 8 per cent).

- All textile fabric exports will see their duties removed at entry into force (currently with a tariff of 12 per cent).

- Nearly 70 per cent of EU chemicals exports will be duty free at entry into force (current duties up to 5 per cent) and the rest after three, five or, respectively, seven years (current tariffs of 25 per cent).

- Wines and spirits will be fully tariff-free after seven years (down from tariffs of 50 and 48 per cent respectively)

- Frozen pork will be duty free after seven years, beef after three years, dairy products after a maximum of five years, and food preparations after a maximum of seven years.

- Tariffs on chicken will be progressively reduced to zero in the next 10 years.

- For sensitive agricultural products, the EU will not open its market up to Vietnamese imports completely. Quotas will limit the quantity that can enter the EU duty-free. This includes rice, sweet corn, garlic, mushrooms, eggs, sugar and high-sugar-containing products, manioc starch, other modified starches, ethanol, surimi and canned tuna. VIR

Thanh Dat

COVID-19 affects Vietnamese businesses in benefiting from EVFTA

COVID-19 affects Vietnamese businesses in benefiting from EVFTA

Although the Europe-Viet Nam Free Trade Agreement (EVFTA) is great news for Vietnamese businesses, they should not expect too much as the COVID-19 pandemic is still raging in Europe.  

EVFTA paves way for high-quality FDI flows from Europe to Vietnam

EVFTA paves way for high-quality FDI flows from Europe to Vietnam

The European Union (EU)-Vietnam Free Trade Agreement (EVFTA) is expected to trigger high-quality FDI flows from Europe to the Southeast Asian country, said Vietnamese Trade Counsellor in Italy Nguyen Duc Thanh.

 
 

Other News

.
Evaluating the regionwide race for overseas investment
Evaluating the regionwide race for overseas investment
FEATUREicon  24/06/2020 

Currently, there is a movement of foreign direct investment (FDI) capital flow from China to other countries, especially in the ASEAN  region.

Alternative strategies for sourcing
Alternative strategies for sourcing
FEATUREicon  24/06/2020 

Vietnam can continue to profit from an increased significance of “local-for-local” and dual/multiple sourcing strategies as foreign investors use the country as a supply hub for the Asia-Pacific region.

Vietnam to go digital through decade of all-purpose action
Vietnam to go digital through decade of all-purpose action
FEATUREicon  23/06/2020 

Vietnam has made a new policy move in its journey to transform itself into a digital economy and improve its legal framework, much to the appreciation of investors and businesses.

'Lucky' hammock helped war correspondent safely report the news from the frontline
'Lucky' hammock helped war correspondent safely report the news from the frontline
FEATUREicon  21/06/2020 

Journalism can be a very dangerous job, especially for war correspondents who often put their own lives on the line as they report the news.

Vietnam's “lychee kingdom” looks to conquer demanding markets
Vietnam's “lychee kingdom” looks to conquer demanding markets
FEATUREicon  20/06/2020 

Thieu lychee, a specialty fruit of Luc Ngan district in northern Bac Giang province, are expected to soon be readily-found in one of the most choosy markets in the world, Japan, 

Resources that need conserving
Resources that need conserving
FEATUREicon  18/06/2020 

Statistics show that the electricity demand is growing at a rate three times higher than that of the electricity output supplied to the market. 

Phu Quoc seeks to become Vietnam’s first island city
Phu Quoc seeks to become Vietnam’s first island city
FEATUREicon  16/06/2020 

If you like to dive into reefs, kayak in bays, hire a motorbike to explore, or just lounge on a beach, Phu Quoc Island is what you are looking for.

Sands shifting as pandemic shakes up geopolitical arena
Sands shifting as pandemic shakes up geopolitical arena
FEATUREicon  12/06/2020 

With the current upheaval taking place around the world due to the coronavirus pandemic, how can geopolitical frictions between the major powers impact nations like Vietnam that are looking to attract top investment?

When heat becomes a source of energy
When heat becomes a source of energy
FEATUREicon  11/06/2020 

The investment in renewable energy is increasing as fossil fuels, including coal, petroleum and natural gas, cannot meet the increasing demand for energy in Vietnam and the world as a whole given the rapid population growth. 

Sustainable crab catching a boon for islanders
Sustainable crab catching a boon for islanders
FEATUREicon  09/06/2020 

It’s sunrise on the Cham Islands. Members of the local land crab cooperative rush home with baskets full of crabs after a night hunting in the hilly forest. 

From retail to finance, Vietnam all set to rebound with poise
From retail to finance, Vietnam all set to rebound with poise
FEATUREicon  08/06/2020 

Vietnam’s early efforts to weather the COVID-19 storm have helped its economy to reopen much sooner than others, with many sectors that have suffered badly from the outbreak – from retail to finance –now recovering with poise.    

“Old normalcy” remains far distant
“Old normalcy” remains far distant
FEATUREicon  07/06/2020 

Vietnam’s air carriers expect their business opportunities to be gradually better again as of the beginning of this year’s third quarter.

Former top striker Ngoc Cham still living her passion
Former top striker Ngoc Cham still living her passion
FEATUREicon  05/06/2020 

Though she's been retired from football for a decade, former national team striker Do Thi Ngoc Cham is still giving back to the beautiful game.

Chance of a lifetime
Chance of a lifetime
FEATUREicon  08/06/2020 

Would the movement of the international capital flow together with the re-arrangement of the global supply chain since the start of the Sino-U.S. trade war and especially under the impact of the Covid-19 pandemic 

Dual lightning strikes to turn Vietnam’s e-commerce equilibrium upside down
Dual lightning strikes to turn Vietnam’s e-commerce equilibrium upside down
FEATUREicon  04/06/2020 

The e-commerce market is looking at two high-calibre developments with the merger of Tiki and Sendo and the entry of heavyweight competitor Facebook. 

Can Vietnam could take advantage of new foreign investment strategies?
Can Vietnam could take advantage of new foreign investment strategies?
FEATUREicon  03/06/2020 

Over the past few decades, many companies worldwide have come to China, seeking a place to set up production bases and do business as they were lured by the country’s low labour costs and enormous domestic consumer market, 

Post-pandemic focus for new investments
Post-pandemic focus for new investments
FEATUREicon  03/06/2020 

A series of favourable policies are expected to be issued by the government’s upcoming taskforce in the country’s bid to attract a new investment wave after the health crisis.

"Passion - The Mother of Invention", says Vietnamese scientist
"Passion - The Mother of Invention", says Vietnamese scientist
FEATUREicon  02/06/2020 

No half measures. That’s the one thing that has stood out about Vu Ngoc Tam since he was a kid.

An initiative of national strategic importance
An initiative of national strategic importance
FEATUREicon  01/06/2020 

HCMC authorities put forward a proposal to develop the Eastern Creative City during a working session with the Prime Minister early this month. 

Four key measures help Vietnam control coronavirus
Four key measures help Vietnam control coronavirus
FEATUREicon  29/05/2020 

Vietnam did not shy away from broadcasting the seriousness of Covid-19.

 
 
 
Leave your comment on an article

OR QUICK LOGIN