Vietnam has one of the only economies in the world that will grow in 2020, a distinction to be boosted as it heads into a final vote on its trade deal with Europe this week.
The National Assembly of Vietnam scheduled a vote on the long-awaited deal for Thursday. The European Union Vietnam Free Trade Agreement (EVFTA) is seen as one tool for the economy to recover from COVID-19, as well as a catalyst for labor and environmental reforms.
Businesses shut down for weeks, but reopening before most nations helped Vietnam lure foreign investment, like Apple’s first-ever decision to make an entirely new product in Vietnam, its latest headphones. The Southeast Asian nation reported no deaths from the virus and 325 cases, sparing it from the worst of the crisis, particularly as many neighbors brace for recession.
The deal, which is the EU's first with a developing nation, is expected to sail through Vietnam’s rubberstamp parliament and incentivize businesses to improve their product standards for export. Parliamentarian Hoang Van Cuong said the state should support businesses in making use of the deal.
“The government must make a list of exported goods to the EU market,” Hoang Van Cuong, a Member of Parliament representing Hanoi, said last week in a discussion to tee up the vote. “These goods are required to meet EU standards."
Officials on both sides call the trade deal ambitious because of its social and eco-friendly goals. Besides ultimately scrapping 99% of tariffs between the European Union and Vietnam, the deal requires the latter nation to legalize labor unions independent of the ruling communist party and strengthen environmental rules, such as those against illegal logging.
And there are other “major legal gaps” Vietnam will have to fill to enact the deal, the World Bank said. These relate to animal and plant sanitary standards, investor-state disputes, and rules of origin.
“If Vietnam can act in a decisive manner to close legal and implementation capacity gaps, it can capitalize a trade deal whose direct benefits are estimated to be largest in the country’s history,” Ousmane Dione, World Bank country director for Vietnam, said. “With COVID-19 acting as a reset button and EVFTA as an accelerator, now is the perfect time to embrace deeper domestic reforms.”
Vietnam’s major exports to the European Union include garments, footwear and other textiles, electronics, and agricultural goods, while imports from the bloc include machinery, medicines, vehicle parts and food products.
The trade deal should increase Vietnam’s exports to the world’s biggest market, building on the investment gains that were made possible because Vietnam limited the pandemic’s impact, Trinh Nguyen, a senior economist for emerging Asia at Natixis, an investment bank, said.
“Zero is certainly the new hero, and Vietnam is a frontier market that can lay claim to the impressive feat of having zero reported [deaths] from COVID-19,” she wrote in an analysis of the trade deal.
She added that to reap the full benefit of the EU deal, however, Vietnam would need changes, such as more domestic businesses joining in global supply chains, rather than relying on foreign businesses as investors relocate from China.
“Vietnam’s gross export growth is impressive but beneath the strong performance is domestic weakness,” Nguyen said. If that weakness is addressed, “Vietnam’s manufacturing luster will not be diminished and will continue to outshine the region in its higher growth trends.”
Should the trade deal take effect by July this year as expected, it would be the EU’s second in Southeast Asia, after one with Singapore.