Impact assessment of the EU-Vietnam FTA

The Project at A Glance

Vietnam has a dynamic and rapidly growing economy, comprising a market of 93 million consumers. Vietnam’s diversified economy boasts exports of agricultural, fishery and technology products. The EU is Vietnam’s largest trading partner. About 20 % of Vietnam’s exports were destined for the EU, while around 6.3% of Vietnam’s imports were sourced from the EU in 2016. In 2015, the EU and Vietnam successfully concluded the EU-Vietnam FTA, which is a deep comprehensive free trade agreement, and the most ambitious that Vietnam has concluded.
International Economics Consulting Ltd. collaborated with Egis to assist the Ministry of Industry and Trade in Vietnam to update the Impact Assessment Study of the EU-Vietnam FTA originally conducted in 2014, and to detail the impact in key sectors. This project was undertaken in the context of the EU-MUTRAP programme. The purpose of the EU-MUTRAP programme was to support the Ministry of Industry and Trade in developing its institutional capacity for policymaking, policy consultation, and the negotiation and implementation of commitments in trade agreements, with a particular focus on the EU. The objective of this assignment was to raise the awareness of Vietnam’s decision-makers and industries on the adjustment measures they could take, as well as support their ability to identify better trade strategies.

What We Found

To examine the potential impact of reducing or eliminating tariffs on trade between Vietnam and the EU, the Global Trade Analysis Project (GTAP) was used.

National Income: Vietnam is expected to gain significantly from bilateral trade liberalisation with the EU. Compared with the business-as-usual baseline, the expected gains are expected to amount to USD 3.2 billion in 2020, USD 6.7 billion in 2025 and USD 7.2 billion in 2025. Moreover, the Vietnamese economy is estimated to be 2.5 per cent, 4.6 per cent and 4.3 per cent larger respectively in 2020, 2025, and 2030 in contrast to a scenario where there is no FTA with the EU.
Fiscal Impact: Given that the Vietnamese Government collects about 15% of its tax revenue through duties on imports, there is some concern over the fall in revenue following the reduction of tariffs. However, tariff revenue would decrease moderately following the implementation of the EVFTA.

Our Strategy and Impact

While the terms of the Agreement are known, the degree to which both parties fully implement it remains uncertain. While the tariff-cutting measures should be straightforward, the removal of barriers to service trade will require many regulatory changes in Vietnam.
Our analysis showed that an FTA with the EU will result in positive gains for Vietnam. The FTA will equally contribute to the economic growth of the country. However, Vietnam’s growth trajectory is secured both with and without the FTA. At the sectoral level, our analysis reveals a number of behind-the-border measures which constrain the full potential of liberalisation. Cooperation with regard to the harmonisation of non-tariff measures such as Sanitary and Phytosanitary (SPS) measures can mitigate some of the issues encountered and increase the transparency of behind-the-border measures.
Moreover, Vietnam has the advantage of being the first country in ASEAN to sign an FTA with the EU. In time, however, this advantage will be lost as the EU extends preferential access to other ASEAN Member States or other countries in the region. However, Vietnam does not necessarily face significant competition from other ASEAN potential FTA members, with the greatest regional competitor being predominantly China.

Our Core Solutions

At International Economics Consulting, we build tailor-made strategies for both import and export-oriented business solutions. We carry out sensitivity analysis and prepare detailed resource scheduling and standard performance dashboards to track the implementation process and financial ratio performance of your products and services. We help investors assess the opportunities in different markets, determine the feasibility and viability of projects, and benchmark the wider ecosystem to support business growth. We also assist clients in building economic indicators to analyse the trade flows and identify patterns, trends, and trade complementarity in value chains of goods and services between member countries.