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05 major impacts of EVFTA on Vietnam’s economy

05 major impacts of EVFTA on Vietnam’s economy

Wednesday 24, 06 2020
When EVFTA comes into effect, it will have many impacts on Vietnam's economy ...

Economic growth

According to a study by the Ministry of Planning and Investment on the impact of EVFTA, if the commitments on tariff reduction and non-tariff are fully implemented, combined with the effects from the US-China trade war and changes in policies of other countries, Vietnam's economic growth will be improved in the short, medium and long term.

Accordingly, the EVFTA is expected to help Vietnam’s GDP increase from 2.18 to 3.25% (for the first 5-year period), 4.57-5.30% (for the period for the next 5 years) and 7.07-7.72% (for the third 5-year period).

Participation in the EVFTA is believed to increase Vietnam's exports to the EU by 42.7% in 2025 and 44.37% in 2030 compared to the absence of the Agreement. The total export turnover of Vietnam to the world is expected to increase by an average of 5.21-8.17% (for the first 5-year period), 11.12-15.27. % (for the next 5-year period) and 17.98-21.95% (for the third 5-year period).

Export growth of some commodities to the EU market will increase, of which: Agricultural products: rice (increasing by 65% in 2025), sugar (8%), pork (4%), forestry products (3%), cattle and poultry meat (4%), beverages and tobacco (5%); Manufacturing and processing industries: textile (67%), apparel (81%), leather and footwear (99%); Service: water transport (100%), air transport (141%), finance and insurance (21%), other business services (80%), etc. Besides, Vietnam's imports from the EU market will also increase sharply, about 33.06% in 2025 and 36.7% in 2030.

Vietnam’s total import turnover is expected to increase by an average of 4.36-7.27% (for the first 5-year period), 10.63-15.4% (for the next 5-year period) and 16.41-21.66% (for the third 5-year period).

Items that are expected to be increasingly imported largely from the EU are transportation vehicles and equipment, accounting for about 12% of total added value, machinery and equipment (10%), textiles and phones, and electronic components (6-7%), agriculture, forestry and fishery (5%). Overall, EVFTA will help diversify Vietnam’s market so that the country will not have to depend too much on any one market, thereby helping to ensure Vietnam's economic security.

Some industries such as fisheries, textiles, footwear, electronics, etc. will experience great impact. Specifically, EVFTA will bring great market potential for Vietnam's seafood export. Export of this item to the EU is expected to increase at an average rate of 2% / year in the period of 2020-2030, while imports from the EU may be higher (in the range of 2.8% -5%). However, many short-term and long-term difficulties (proactive sources of raw materials, breeds, illegal fishing, antibiotic chemicals in fishery products) and high non-tariff barriers are huge challenges.

In addition, textile and garment export turnover to the EU market is expected to increase rapidly by about 67% in 2025. In terms of output, the EVFTA generally has a positive impact on output. When it comes into effect, the agreement will contribute a significant increase to Vietnam’s export of leather shoes to the EU, which is expected to double by 2025.

State budget

Tariff reductions under the EVFTA will have a two-way impact on State budget revenues. In particular, there will be reduction in State budget revenues due to reduction of import and export taxes; while the State budget revenues will also increase due to additional revenue from domestic under the positive impact of trade, investment and economic growth.

05 major impacts of EVFTA on Vietnam’s economy

Foreign direct investment

According to the Ministry of Planning and Investment, when EVFTA comes into effect, Vietnam is believed to have many institutional innovations and investment environment improvements to attract investors. The Agreement's broad and in-depth commitments on investment will help Vietnam continue to renovate its economic structure, improve its institution and business environment, and facilitate EU investors to do business in Vietnam. 

On the other hand, the commitment to facilitate investment along with the degree of liberalization of Vietnam's services sectors will boost FDI inflows from the EU into Vietnam in the near future.

EVFTA also sets up an expectation that the quality of investment in Vietnam from developed countries will increase as Vietnam increases its market opening of goods and services for EU businesses. This will create new impetus for FDI inflows to Vietnam. Accordingly, the structure of investment may also change as Vietnam attracts new investment partners, and fields to attract investment are expanded. 

Legislation, institutions, and business environment

EVFTA is an opportunity for Vietnam to perform institutional and legal reforms in line with international standards, perfecting the business environment in a more open, transparent and predictable manner, thereby promoting both domestic and foreign investment as well as other business activities, including cross-border transactions and services.

The amendments to the legal regulations in some areas such as intellectual property in accordance with EVFTA will also help businesses to enjoy greater protection of investment returns for their creative activities.
This is a motivation for businesses to continue investing more in innovating technologies, and creates a good environment for attracting foreign technology transfer to improve the quality of Vietnamese products.

EVFTA: challenges for SMEs

Source: tapchitaichinh

Vietnam Economy

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