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Vietnam’s GDP forecast to rise greatly after EU free trade deal

If Vietnam and the European Union (EU) reach a free trade agreement by the end of this year, as expected, Vietnam’s economy will benefit the most from a higher gross domestic product (GDP) growth rate, said a senior EU official.

If Vietnam and the European Union (EU) reach a free trade agreement by the end of this year, as expected, Vietnam’s economy will benefit the most from a higher gross domestic product (GDP) growth rate, said a senior EU official.
If Vietnam and the European Union (EU) reach a free trade agreement by the end of this year, as expected, Vietnam’s economy will benefit the most from a higher gross domestic product (GDP) growth rate, said a senior EU official.

Vietnam’s annual economic expansion rate, hovering around 5-6 percent recently, may enjoy an additional 15 percent growth rate every year, Tomaso Andreatta, representative of the European Business Association in Vietnam (EuroCham), said Thursday at the Vietnam Business Forum 2014 (VBF).

The mid-term VBF 2014, hosted by the Ministry of Planning and Investment in Hanoi, aimed to offer a platform to discuss both opportunities and challenges and the socio-economic impacts of the Trans-Pacific Partnership agreement (TPP) and Vietnam-EU Free Trade Agreement (FTA).

The relationship between the EU and Vietnam is growing, not only in politics but also in development and economic integration.

The development of bilateral cooperation in the two fields was reinforced by the confidence of European investors in the Vietnamese market, which was reflected in the business confidence index (BCI) in the first quarter of 2014. It jumped from 50 to 59 points, surpassing the middle average for the first time since 2012.

After the FTA is signed, real wages of skilled laborers may increase by up to 12 percent, real salaries of common workers may rise by 13 percent and exports may go up by nearly 35 percent, Andreatta added.

However, the potential benefits may be undermined if Vietnam does not make a comprehensive commitment to the terms of international trade and ensure the effective enforcement of these provisions, Andreatta said, adding that he hoped the Vietnam-EU FTA will be signed by year-end.

It is important for Vietnam to ensure the signing and implementation of the FTA with the EU and others, such as other regional countries, as the ASEAN Economic Community will be officially established by 2015.

Andreatta said that protectionist policies need to be quickly removed so that businesses can adapt to the international standards of quality, price, and branding.

However, the EuroCham representative also stressed their deep concern over the issue of foreign ownership, especially in the banking sector. The share ownership of foreign investors in Vietnam-listed companies, excluding securities firms, is still limited to 49 percent under the current regulations. Therefore, EuroCham urged the Ministry of Finance to ease or remove the limit entirely for foreign investors.

Moreover, in the banking sector, restrictions on foreign ownership rates are not clear. Foreign investors are not only concerned over the limitation of ownership rates, but also concerned about the actual control of a credit institution in Vietnam.

As a result, EuroCham called for the removal of the limits of share ownership of foreign investors in domestic banks and increased activities, presence, and direct control of foreign investors in credit institutions.

The VBF is a policy channel between the Vietnamese government and the international business community that is held annually with the aim of building a favorable business environment, attracting investment and promoting sustainable economic development in Vietnam.

Minister of Planning and Investment Bui Quang Vinh said in a press conference to introduce the VBF late last month that he hoped “Vietnam will receive more candid comments and long-term sincere commitments, helping the country establish the continued faith of foreign investors through the mid-term VBF 2014.”

Pinning high hope

The EU will continue to be the most important market for goods exported from Vietnam, Jean-Jacques Bouflet, Minister Counselor and head of the Trade and Economic Section of the EU Delegation to Vietnam, said at a business forum on the FTA held by the Vietnam Chamber of Commerce and Industry (VCCI) in Ho Chi Minh City last month.

At the business forum, the experts said that an FTA between Vietnam and the EU, which is expected to be signed in October of this year, is likely to benefit businesses on both sides.

Currently, goods exported from Vietnam to the EU are entitled to the EU Generalized System of Preferences (GSP), a preferential tariff system which provides a formal system of exemption from the more general rules of the World Trade Organization.

However, GSP tariff preferences under the EU are unstable for regular GSP reviews conducted every three years.

Jean – Jacques Bouflet said the time for Vietnam to define a legal framework for a more stable relationship in bilateral trade is when the country achieves a strong level of competition in the international market.

“The FTA is certainly an appropriate answer for this because the preference for Vietnamese products will be guaranteed by a treaty,” he said. This will allow Vietnam to enjoy lower export tariffs than GSP preferential tariff rates when exporting goods to the EU.

If the Vietnam-EU FTA is signed, tariffs for most of Vietnamese export products to the EU will gradually reduce to 0 percent.

In addition, the FTA is expected to have generated greater effects, such as increased quality investment flows from Europe, the acceleration of the process of sharing expertise and transfer of green technology, and the creation of more employment opportunities and an increase in income for the people of Vietnam, he added.

Up to now, Vietnam and the EU have completed seven bilateral FTA negotiations and the next round of talks is expected to take place this month.

According to the VCCI in HCMC, the EU has surpassed the U.S. to become the largest export market of Vietnam and the second largest trade partner of Vietnam in 2012.

Bilateral trade turnover between Vietnam and the EU in 2013 reached US$33.6 billion, up 16 percent from the previous year.

Currently, the EU is one of the largest investors in Vietnam, with 1,401 investment projects and a total registered capital of $18.02 billion spread over various fields such as industry, construction, and services.

According to statistics, Vietnam mainly exports garments, footwear, coffee, furniture and seafood to the EU, and in exchange receives imports of machinery, medicine, aircraft, equipment, and vehicles from the EU.