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Vietnam Signs “Milestone” Trade and Investment Agreements with EU, Upping Pressure on Competition from Other Asian Countries

On 30 June 2019, the EU and Vietnam signed two long-awaited agreements which provide for a significant liberalisation in trade and facilitation of investments between the two trading partners. The ambitious deals are expected to deepen economic relations between the EU and the Southeast Asian country, but could also see increased competition from Vietnam, for those exporting goods from Hong Kong and mainland China. While ratifications are now awaited in order for the accords to become operational, human rights concerns could present obstacles that should not be underestimated.

On 30 June 2019, the European Union and Vietnam signed two long-awaited agreements: a free trade agreement (“FTA”) which will progressively eliminate duties on almost all goods traded between the two sides, as well as an investment protection agreement (“IPA”). In a joint press statement, EU Trade Commissioner Cecilia Malmström and Minister of Industry and Trade for Vietnam, Tran Tuan Anh, welcomed the signatures and praised the agreements as “the most ambitious free trade deal between the EU and an emerging economy to date”, adding that these deals “mark a milestone in our strong partnership”. According to the European Commission, the agreements also further reinforce the EU's engagement with the Southeast Asian region, which contributes to the strengthening of cooperation between ASEAN and the EU, aiming towards closer trade and investment relations between the two regions.

The EU-Vietnam FTA envisages the removal of 99% of the customs duties on goods traded between the signatories. Once the deal enters into force, 65% of duties on EU exports to Vietnam and 71% of duties on Vietnamese exports to the EU will be eliminated. The remainder will be phased out gradually over a period of up to 10 years in the case of EU exports and up to 7 years in the case of Vietnamese exports. The FTA will also reduce many non-tariff barriers to trade and liberalise services and public procurement markets.

As for the EU-Vietnam IPA, this will replace the bilateral investment treaties currently in force between EU Member States and Vietnam, thereby bringing the applicable substantive rules on protection of foreign investments in line with modern standards. These rules will be enforced through the new Investment Court System which will, it is argued, enhance the democratic legitimacy of the investor-state dispute settlement process, including its transparency and the consistency of the case-law.

Vietnam is the EU’s second-largest trading partner in the Southeast Asian region, with trade worth nearly EUR 50 billion for goods and more than EUR 3 billion for services. Hong Kong traders are likely to see an increase in competitiveness, as Vietnam mainly exports textiles, shoes, smartphones, computer parts and food products to the EU and in the words of Vietnam’s Trade Minister Tran Tuan Anh, the FTA will immensely boost its trade with the EU. At the same time, Vietnam’s market, consisting of 95 million people and a fast-growing consumer class, is expected to attract many European companies, the EU press has reported. Furthermore, an increasing number of European businesses are said to be establishing there to set up a hub to serve the Mekong region, in spite of the relatively modest current EU investment stock in Vietnam.

Beyond the encouraging economic prospects, the agreements provide for significant measures with respect to sustainable development, intellectual property protections and the implementation of core labour standards. Measures include, for example, commitments to effectively execute the Paris climate agreement, to respect the principles of the International Labour Organization regarding fundamental worker’s rights, as well as to guarantee the protection of 169 traditional European food and drink products recognised as Geographical indications.

While the negotiations between the EU and Vietnam were concluded back in December 2015 and resulted in an agreement that was supposed to cover both trade and investment, a pending opinion of the European Court of Justice in the context of the FTA between the EU and Singapore delayed the formal conclusion. Following the opinion, which concerned the division of competences between the EU and its Member States, the EU-Vietnam deal was split into two separate agreements. They will now be presented to the National Assembly of Vietnam for ratification as well as to the European Parliament for consent. The Investment Protection Agreement must, however, also be ratified by the national parliaments of the EU Member States before it can be officially concluded by the EU Council.

Furthermore, concerns in relation to the deterioration of human rights in Vietnam could hinder the entry into force of the agreements. While the European Commission has underlined the possibility for appropriate action in the case of breaches of human rights in light of the institutional and legal link of the FTA to the EU-Vietnam Partnership and Cooperation Agreement, some members of the European Parliament (“MEPs”) have expressed serious concerns. In a letter dated 21 June 2019 to Donald Tusk, who is the President of the EU Council, fourteen MEPs from the socialist and the green political parties noted that Vietnam has not only failed to achieve progress but the situation has deteriorated since 2016. In the absence of clear benchmarks or timelines on reversing the current state of affairs, they have demanded that the EU Council, the Commission, the European External Action Service and EU Member States aim at securing concrete and sustained human rights improvements in Vietnam. Indeed, the MEPs have pointed to the importance of such commitments from the Vietnamese authorities in the context of the European Parliament’s consideration as to whether or not to give consent to the agreements.

In their joint statement, Commissioner Malmström and Minister Tran Tuan Anh expressed hopes for a swift ratification of the agreements. If obstacles are avoided, the trade deal could reportedly be approved on both sides and enter into force by the end of 2019. In the case of the investment treaty, however, the process will presumably take longer in view of the required ratifications by the national parliaments of EU Member States.

Content provided by Picture: HKTDC Research
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