Economy

The EU Has Signed A Gigantic Trade Deal With Vietnam

On the 30th of June, the European Union and Vietnam have signed a highly significant free trade agreement. European Trade Commissioner Cecilia Malmström was not exaggerating when she described it as “the most ambitious free trade deal ever concluded with a developing country”. What’s more, the agreement is just another in a long list of recent EU succeses: the ambition to make Europe the linchpin of international trade is becoming a reality.

The revamped trade deal with Mexico, and the titanic agreement with the South American trading bloc Mercosur, are also part of this success story, but it’s significant to note the effort the EU is putting into developing ties with the Far East. It was only two years ago that the EU lamented the lack of a coherent policy for southeast Asia, with only a free trade agreement with South Korea already in place. Two years later, the EU has signed large-scale deals with Singapore, Vietnam, and Japan – with the latter deal already undergoing implementation. This undoubtedly strengthens the European position in the Far East.

The Terms of the Deal

For starters, the free trade agreement will eliminate 99% of the tariffs on both sides. ‘Sensible goods’, i.e. agricultural products, will be the exception, and will be limited by quotas. The volumes involved are important: currently, the EU is Vietnam’s second largest export market after the United States, accounting for around 19% of its total exports. The main Vietnamese products that make their way to Europe are textiles, electronics, and coffee. The EU also exports to Vietnam, mostly high tech products, pharmaceuticals, machinery, and aircraft. The volume of these exports is growing by 11% every year, and stood at €12 billion for 2018.

Vietnam
European Commissioner for Trade Cecilia Malmstrom, Romania’s Business, Trade and Enterpreneurship Minister Stefan Radu Oprea and Vietnam’s Industry and Trade Minister Tran Tuan Anh exchange documents while attending the signing ceremony of EU-Vietnam Free Trade Agreement at the Government Office in Hanoi, Vietnam June 30, 2019. REUTERS/Kham

As usual, the agreement has provisions for the protection of food or drinks with a specific geographical origin. This protection includes both Vietnamese and European traditional products, like Mộc Châu tea or Calvados. It also contains provisions for public procurement. Under the framework of the agreement, companies will be able bid for public procurement contracts and access the services market both in Vietnam and in the EU. At the same time, the free trade agreement will not curtail the right of the two parties to decide how to organise their public services.

One the most important part of the FTA are the provisions for sustainable development: the FTA includes the implementation of the Conventions of the International Labour Organisation. These include the core standards on freedom of association, and prevention of child labour and slavery. The agreement also requires the implementation of international environmental deals, such as the Paris Agreement. In a classic exercise of EU soft power, the issues of fighting climate change and strengthening democracy go hand in hand with the economics of the trade deal.

The Road Ahead

The agreement has been discussed for a long time. It began as a negotiation between the EU and ASEAN, in 2007, but in 2009 the two parties decided to switch to bilateral negotiations. Future trade deals between the EU and ASEAN will start from the existing agreements and expand their scope. The free trade agreement with Vietnam would be the first of these ambitious trade deals, to be followed by the deal with Singapore, giving the EU a stable trading foothold in Southeast Asia.

The implementation of the free trade agreement will begin after the two parties ratify the agreement. For the European Union, this means that the European Parliament will have to vote in favour of the deal. One obstacle, however, remains: Vietnam’s human rights track record. This was one of the biggest concerns during the seven years of negotiations, and with good reason: Vietnam is a one-party State, known for the harsh treatment of dissidents. Reporters Without Borders classified Vietnam as the 176th country out of 180 for freedom of press.
Cecilia Malmström sees the free trade agreement as a way to engage with, and influence Vietnam on human rights. While she is adamant that the deal alone cannot remedy the lack of human rights in Vietnam, she also believes that increased contact and exposure will soften many of Vietnam’s positions.

Indeed, the final version of the agreement contains clauses that enable the parties to take action, should the human rights obligations contained in the text be breached. These actions include the suspension of the trade agreement itself. The European Parliament will have to decide if these provisions are enough.

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Tiago Nardi

He bakes cakes, eat cakes (not necessarily in that order) and pursues his curiosity, mostly through reading.

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