The Danish Ambassador to Vietnam, John Nielsen, has called for Vietnam to speed up institutional reform to make full use of the free trade agreement (FTA) with the European Union (EU).

The FTA between Vietnam and the EU will bring both opportunities and challenges when it takes effect, heard a seminar organized in Hanoi on June 25 by the Central Institute for Economic Management (CIEM) and the Danish embassy.

Nielsen pointed out the major challenges for Vietnam are to improve the quality of products, competitiveness, and the business and investment environment.

This is a tough task as there remain institutional and policy shortcomings. Though the Government has been trying to implement institutional reform in recent years, more effort will be needed to meet the requirements of FTAs, including that with the EU and the Trans-Pacific Partnership (TPP) currently under negotiation.

Nielsen called for Vietnam to attend to economic policies and prepare resources to fulfill its commitments to the FTA.

Nguyen Dinh Cung, president of CIEM, told the seminar that the FTA will require Vietnam to make drastic institutional changes to make the most of the opportunities and minimize the challenges from the trade pact.

The deal is expected to bring more benefits for the apparel, footwear and seafood sectors of Vietnam and the services, pharmaceutical and high technology sectors of the EU.   

The Danish ambassador said studies showed that the FTA with the EU will add 7-8% to Vietnam’s gross domestic product (GDP) growth and send Vietnam’s exports to the EU growing by around 10% by 2025.

Cung said FTAs will put more pressure on domestic economic reform.

Luong Hoang Thai, head of the Ministry of Industry and Trade’s Multilateral Trade Policy Department, said market openness is one of the most important parts of Vietnam’s commitments to FTAs.

Thai said the Vietnam-EU FTA includes a chapter on restructuring of State-owned enterprises (SOEs). The EU suggested Vietnam could maintain SOEs in some sectors to secure social welfare but SOEs must ensure transparency and compete with the private sector on an equal footing.

Oliver Massmann, a board member of the European Chamber of Commerce in Vietnam (EuroCham), said Vietnam should reform many sectors including SOEs to make the most of the FTA. Many SOEs are performing poorly, piling pressure on Vietnam’s reform drive.

SOE reform is the key to Vietnam, Massmann said.

Piergiuseppe Fortunato, economic expert at UNCTAC, told the seminar that Vietnam’s economy is now in a transition and the FTA with EU will help speed up this process.

In 2013, the EU became the second biggest trade partner of Vietnam as it imported 25 billion euros worth of goods from Vietnam. The EU was among the largest foreign investors in Vietnam with 110 projects licensed in 2013.

The EU has pledged to finance Vietnam around 400 million euros in the next six years.