Trade pact promotes EU investment in Vietnam

“Unlocking” investment capital flows

Under the EVFTA, Vietnam has committed to eliminating 48.5 percent of tariff lines for imports from the EU (equivalent to 64.5 percent of the import value from the EU) immediately upon the agreement’s entry into force. The tariffs will continue to decrease, especially after the third year. From 2022 to 2027, the special preferential import tariff will be reduced from 10.2 percent to approximately one percent.

The EVFTA increases EU investors’ interest in the Vietnamese market - photo: Duc Dat

EU investments accounted for around five percent of the annual amount of registered foreign capital in Vietnam during the 2016-2020 period, which increased to 8.9 percent in 2022 and 9.2 percent in 2023. The Netherlands, France, Luxembourg, Germany, Denmark, and Belgium are the top six EU investors in Vietnam.

The EVFTA has contributed to turning the EU into the sixth largest foreign investor in Vietnam, with 2,450 projects and total investment capital of over 28 billion euros. Despite the global decline in FDI trends, EU “eagles” still trust in Vietnam’s potential, investing more than 800 million euros in the country in 2023.

EU investment has been concentrated on high-tech industries. Recently, however, there has been a shift towards increased focus on services in sectors, such as telecommunications, finance, office leasing, retail, clean energy, supporting industries, food processing, high-tech agriculture, pharmaceuticals, and more. FDI flows from the EU to Vietnam are forecast to increase significantly in the medium and long term, with many high-value, quality projects.

According to Ngo Chung Khanh, Deputy Director General of the Ministry of Industry and Trade’s Multilateral Trade Policy Department, in the current complex geopolitical context, it is inevitable for the EU to diversify its markets and supply chains. The EU tends to shift investments to markets with stable political environments, favorable business and investment conditions, and advantages in accessing global markets. Vietnam will benefit from this trend.

Notably, the EVFTA helps Vietnam attract investment from not only EU businesses, but also non-European companies that want to take advantage of the trade deal’s tariff preferences when exporting to Europe.

Many coffee producers from Europe, the US and countries in the Asia-Pacific region, such as Singapore, India, and others, have invested in Vietnam recently. Their Made-in-Vietnam products benefit significantly from reduced tariffs under the EVFTA when exported to Europe.

Dominik Meichle, Chairman of the European Chamber of Commerce in Vietnam

Making the most of EVFTA

According to Dominik Meichle, Chairman of the European Chamber of Commerce in Vietnam (EuroCham), the EVFTA has created new opportunities for European businesses in the Vietnamese market. However, to provide greater confidence for investors doing business in Vietnam, the country needs to address many issues, particularly those related to legal procedures and tax policies.

EuroCham’s Business Confidence Index (BCI) survey shows that European businesses face many challenges in taking full advantage of the EVFTA. Among these challenges are unclear legal statuses, time-consuming procedures, and the inequity between domestic and foreign investors under certain tax policies.

Meichle affirmed that EuroCham will continue to work closely with Vietnamese authorities to address the remaining challenges and ensure that both Vietnamese and European businesses can fully capitalize on the opportunities presented by this landmark agreement.

EuroCham is actively supporting the full ratification of the EU-Vietnam Investment Protection Agreement (EVIPA) as a crucial step to “unlocking” the full potential of the EVFTA to help Vietnam attract more FDI. Although EU institutions have approved the agreement, the EVIPA still requires individual ratification from all 27 EU member states, with 18 member states having already ratified it.

Dao Thu Trang, Head of the Market Development Strategy Consulting Department under the German Chamber of Industry and Commerce in Vietnam, stated that the EVFTA is a key highlight in attracting investment from EU countries, including Germany, into Vietnam.

According to Trang, to increase EU trade with and investment in Vietnam, regulatory agencies should ensure effective implementation of the EVFTA and amend related legal documents. Additionally, improving the competitiveness of local businesses should be a priority, focusing on developing reputable and sustainable supply chains.

The Vietnamese Government should have suitable strategies and policies to develop a skilled and capable workforce to reassure German and other European investors about long-term and sustainable development in the Vietnamese market.