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Landmark EU-Vietnam Trade Deal Seen as Model for SE Asia

FILE - Vendors sit outside a shop selling clothes in Hanoi in October 2014. A potential trade pact between Vietnam and the European Union may mean more exports for Vietnam.

Expect to see more Vietnamese buying Italian machinery and more Austrians wearing sneakers from Vietnam, as the southeast Asian country moves closer to finalizing a trade deal with the European Union.

With negotiations ended early this month, the prospective trade pact offers strategic potential on both sides. For Vietnam, it would diversify ties beyond those with regional powers, China and the United States. For Europe, it would stake a bigger claim in Asia at a time when more attention has centered on the U.S.-driven Trans-Pacific Partnership.

EU officials have touted the Vietnam deal, which eliminates 99 percent of tariffs, as their first with a developing country and a possible model for future free trade agreements.

"It sets the reference for others in Southeast Asia," Simon van der Burg, the Dutch Consul General in Ho Chi Minh City, said last week in an address to the European Chamber of Commerce, referred to as Eurocham.

Rules of the deal

The draft agreement could be a model in that it requires communist Vietnam to reform state-run companies and strengthen environmental protection. The deal also pairs commerce with development aid.

EU trade negotiator Jana Herceg told Eurocham that Vietnam would be receiving support to prepare for the trade agreement, as well as to boost green technology, energy, health care, tourism, and other sectors.

"The money or the funds which we are giving to Vietnam are broader than just the capacity building related to the free trade agreement," said Herceg, the deputy head of economics and trade at the EU Delegation to Vietnam.

‘Profits over people’

Economist Dennis McCornac at Loyola University Maryland questions whether the trade-offs are worthwhile for Vietnam. He views European policy as less beholden to commercial interests compared with the 12-nation TPP trade deal, which he criticized as being written by corporate lobbyists. But both agreements are expected to increase the cost of medicine in developing countries by strengthening brand-name patents.

"It really is the case that it's going to hurt the poor people, those who can't afford the drugs," McCornac said in an interview. "It's really profits at the expense of people."

One-on-one deals

Previously the European Union had tried to strike a single trade pact with the entire 10-member Association of Southeast Asian Nations (ASEAN). But efforts fell apart as the difficulty of corralling so many actors became increasingly apparent.

So the European political and economic bloc changed tack, negotiating deals with each government individually. Singapore was the first to finish, followed by Vietnam. Herceg said that if the Vietnam deal works out, it could set an example and speed up talks with other parties, including the Philippines, Malaysia and Thailand.

"They are reflecting, or thinking what to do next," she said of the other countries. "But I'm pretty sure the agreement with Vietnam, when it's in place, people in the region will start waking up and they will basically want to maybe secure their relationship also through an agreement."

Timeline for Vietnam

Herceg predicts the EU-Vietnam agreement will be published by January, after which lawyers will verify that the text complies with national and international laws. It'll also have to be translated into Vietnamese and 24 European languages before ratification.

Le Trieu Dung, the Vietnam Ministry of Industry and Trade's deputy director general for multilateral trade policy, thinks the deal could even take effect before the 2018 target.

"For our domestic procedure, I fully believe that we — whatever necessary steps we have to take it will be fast, because we would like to implement this agreement very early," he told Eurocham.

FILE - Vietnam's Prime Minister Nguyen Tan Dung, third from right, chains hands with other leaders during the 10th China-ASEAN Summit in Kuala Lumpur, Malaysia, on Nov. 21, 2015.
FILE - Vietnam's Prime Minister Nguyen Tan Dung, third from right, chains hands with other leaders during the 10th China-ASEAN Summit in Kuala Lumpur, Malaysia, on Nov. 21, 2015.

Such a penchant for trade is reflected in the many deals Vietnam is seeking with everyone from South Korea to Israel to the ASEAN Economic Community. One European diplomat said he was struck by how many state visits Vietnam has hosted or taken abroad.

Every week there's a Vietnamese headline touting the country's productive talks with foreign counterparts, whether they're Cuban, Bulgarian or Indian.

McCornac chalks it up to diversification. Vietnam is spreading out its risk, he said, so that it doesn't depend on one economic partner, especially the big brother next door.

"They're saying, we want to get out of China's shadow," McCornac said. "So we're signing deals with all these places."