The EU-Việt Nam Free Trade Agreement (EVFTA) has undoubtedly strengthened Việt Nam's attractiveness for European investors.

The EU, already a major investor in the country, has poured 28 billion euros into 2,450 projects, underscoring its continued confidence in Việt Nam's potential. Notably, EU investors have added 800 million euros in foreign direct investment between January and September 2023, bucking the global trend of declining FDI.

As the EVFTA approaches the fourth anniversary of its entry into force on August 1st 2024, a survey by the European Chamber of Commerce in Việt Nam (EuroCham) paints a nuanced picture of the agreement's impact. The EuroCham Business Confidence Index (BCI) survey, conducted by Decision Lab, reveals that EVFTA has undoubtedly opened doors for European businesses, but challenges remain.

While nearly two-thirds of respondents report some level of benefit, the extent of impact varies widely. Notably, 27 per cent of companies – a marked increase from 18 per cent in 2023 – now enjoy moderate to significant advantages, while another quarter, down from 31 per cent in 2023, has yet to see any tangible gains.

Despite these disparities, EuroCham members consistently cite tariff reductions, increased market competitiveness and expanded market access as key benefits. Other advantages include streamlined supply chains, improved business transparency and a stronger legal framework.

The EVFTA has significantly boosted Việt Nam’s exports to Europe, surging from 35 billion euros (US$37.8 billion) in 2019 to over 48 billion euros ($51.9 billion) in 2023. This growth is particularly pronounced in sectors such as electronics, textiles, footwear, agriculture and seafood. However, the increase in EU exports to Việt Nam has been far more modest, rising from 11 billion euros to only 11.4 billion euros over the same period, adding to a substantial trade imbalance.

The BCI survey reveals a number of obstacles that European businesses face in fully leveraging the EVFTA. These include complex regulatory requirements and a lack of recognition for international standards by local authorities. Additionally, a lack of understanding of the agreement among stakeholders, combined with customs valuation issues and opaque clearance procedures, complicate trade. Technical barriers, particularly in the areas of certification and product testing, also remain a significant hurdle.

"The EVFTA has certainly created new opportunities for European businesses in Việt Nam," said Dominik Meichle, Chairman of EuroCham Vietnam. "However, our survey shows that while progress has been made, challenges remain. As we enter the fifth year of the agreement, it is crucial to continue working on simplifying procedures, aligning standards, and ensuring everyone understands how the EVFTA works."

EuroCham Vice-Chairman Jean-Jacques Bouflet also noted that recent policy adjustments in Việt Nam have created challenges for European businesses operating under the EVFTA. "These changes, which include new internal and consumption taxes, and technical barriers to entry, are holding back the full potential of the agreement," he remarked. "However, we are actively engaged in constructive discussions to address these issues and find solutions that benefit both Việt Nam and Europe."

Thue Quist Thomasen, CEO of Decision Lab, emphasised the need for ongoing support and adaptation, stating: "The findings highlight that while the EVFTA is a powerful tool for economic growth, its success hinges on continued efforts to address regulatory complexities, technical barriers, and awareness gaps. A targeted approach to support businesses, particularly SMEs, in navigating these challenges is crucial."

Unlocking the EVFTA's full potential

Bouflet outlined EuroCham's strategic initiatives to address the identified challenges and maximise the benefits of the EVFTA.

He said: "EuroCham is committed to working with stakeholders to streamline regulatory compliance, advocate for greater recognition of international standards, and develop comprehensive education and awareness programmes on the EVFTA. We will also continue to push for solutions to technical barriers to trade, particularly in certification and testing, and advocate for further tariff reductions and streamlined customs procedures."

EuroCham Vietnam is actively championing the full ratification of the EU-Việt Nam Investment Protection Agreement (EVIPA) as a critical step in unlocking the full potential of the EVFTA for attracting foreign direct investment. While EU institutions have already given their approval, the EVIPA still requires individual ratification from all 27 EU member states. With 18 member states having already ratified the agreement, EuroCham Vietnam is working tirelessly with European stakeholders to encourage the remaining states to follow suit.

"EuroCham is dedicated to helping our members fully leverage the opportunities presented by the EVFTA," Meichle said. "We will continue to collaborate closely with Vietnamese authorities to address remaining challenges and ensure that both European and Vietnamese businesses can reap the full benefits of this landmark agreement." — VNS