EU, Vietnam Move Further Toward FTA
By staff writers
Despite some problems in the Eurozone, the European Union (EU) still sees Vietnam as an important trade partner and investment destination in Asia, and is pushing for a free trade agreement to facilitate bilateral trade and investment relations
In this spirit, David O’Sullivan, chief operating officer of the European External Action Service, visited Vietnam last week with an aim to press for progress in the negotiation of an EU-Vietnam Free Trade Agreement. O’Sullivan reaffirmed the importance which the EU attaches to forging a robust and broad-based partnership with Vietnam, on the basis of the new EU-Vietnam Partnership and Cooperation Agreement (PCA) concluded in 2010. “Vietnam is a key partner in Southeast Asia for the EU. Our relations are grounded on strong mutual interests. Both sides are committed to further expanding and strengthening their political dialogue,” he said.
Speaking to the local media in HCMC, O’Sullivan said European investment in ASEAN is, in general, much lower than their investment anywhere else, so there is room for European investors to increase investment in ASEAN, including Vietnam. O’Sullivan said Vietnam is a country with enormous potential and significant economic achievements in recent times. A great competitive advantage of Vietnam is low labor cost. However, besides low labor cost, there are many factors influencing an investment decision. “That is the cohesion of Vietnam’s system; that is the question of the security of investment. There’re also issues related to corruption that makes the investment difficult. So Vietnam needs to work out all of these elements to become an attractive investment destination. Of course, all the time, what Vietnam has to do is to move up the value chain and use low labor cost as an advantage in the beginning,” he said.
Earlier, the ambassador and head of the EU Delegation to Vietnam, Franz Jessen, said in a business gathering on February 14 in HCMC that he believed negotiations on a free trade agreement (FTA) with Vietnam would begin soon, as the two sides have made better preparations. Over the past year, the EU and Vietnam have had a number of discussions and tried to identify what to negotiate for the FTA, and that process is very close to completion.
Matthias Dühn, executive director of the European Chamber of Commence in Vietnam (EuroCham), said Vietnam had given a political signal that it was ready for launch of formal FTA negotiations with the EU as soon as the technical work had been completed. However, both sides still needed to agree in technical talks on the common framework of the agreement before the formal launch of negotiations. The framework involves issues including the market economy status and generalized system of preferences (GSP) for Vietnam, among others.
Jean Jacques Bouflet, head of the trade section at the EU Delegation to Vietnam, said at the above-mentioned gathering that the FTA meant not only the reduction in import tariffs but also the confidence of investors.
The EU is now a major export market for Vietnam. Official statistics show that Vietnam’s exports to the EU last year rose over 45% year-on-year to around US$16.5 billion. Foreign direct investment (FDI) from the EU constituted more than 12% of Vietnam’s total committed FDI in 2011.
Confidence bounces back
According to the European Chamber of Commerce in Vietnam (EuroCham), European companies’ confidence in Vietnam’s outlook has rebounded but their sentiment and assessment of the country’s current situation remain somber.
In a review of its latest survey among nearly 250 member businesses for the first quarter of 2012, EuroCham commented that their concerns about the country’s current business situation and outlook appeared to have eased slightly.
EuroCham saw signs of optimism among its member companies, as reflected in the survey that 39% of the respondents stated a ‘good’ or ‘excellent’ view of Vietnam’s outlook. But the survey indicated that a quarter of the respondents had a pessimistic outlook for business in the last six month. “These results are still not decidedly positive, but we can see that the continuous downward slide of business sentiment has halted. Whether companies’ business outlook will stagnate at this level or gradually improve remains to be seen,” EuroCham said.
As a result, European companies are still cautious about investment, though some more businesses plan this. According to the latest survey, 38% of the respondents are planning to increase their investment ‘slightly’ or ‘significantly’ by 10% while 31% want to maintain their level of investment and 24% are thinking of decreasing their investment in Vietnam in the medium term. “This shows an easing of the ‘wait and see’ attitude that we have seen in previous quarters. While this is a positive development, this time last year, 67% or respondents were planning more investments in Vietnam,” EuroCham said.
When asked about the link of the public debt crisis in the Eurozone with their companies’ investment decision for Vietnam, 55% of the respondents stated that the crisis affected them but 44% said that it did not impact their decision to invest in Vietnam. EuroCham Executive Director Matthias Dühn explained that European investors were increasingly looking for alternative investment destinations in ASEAN, including Vietnam.
Despite the economic woes in the EU, some European investors are seeing Vietnam as a potential destination for expansion in Asia. In December last year, the French famous cheese producer Bel opened a cheese production factory in My Phuoc 3 Industrial Zone in the southern province of Binh Duong. Antoine Flevet, Bel chairman, said the company had chosen Vietnam as the place for its first cheese factory in Asia because they wanted to turn it into the headquarters for expansion to the region. Bel invested five million euros in this factory which produces different cheese products for local sale and export.
Just last week, Piaggio, another European investor, opened a scooter engine manufacturing plant in the northern province of Vinh Phuc in a move to expand production capacity of its scooter assembly plant in the same province. The Italian scooter maker plans to invest some 70 million euros, or US$93.3 million, in Vietnam in the 2012-2014 period, over the total investment capital of 400 million euros of the group. Vietnam is considered its key production base to penetrate other markets in Asia. Therefore, the increased investment is expected to help the company achieve the global sales volume of one million units and the total net sales of two billion euros in fiscal 2014, half of which should come from the Asian market.
German investors are also actively engaged in Vietnam. Siemens Group is eager to join a multi-billion-dollar subway project in HCMC, while the high-tech company Bosch has expanded production at its facilities in Dong Nai Province. The wholesaler Metro Cash & Carry plans to expand operations throughout big cities and province around the country. In a talk with the Weekly early this year, Randy Guttery, managing director of Metro Cash & Carry Vietnam, said the company is looking for opportunities to set up more outlets nationwide in the years to come.
Other leading European investors, such as Nestlé, Unilever and Friesland Campina, have also increased investment in Vietnam to millions of U.S. dollars and expanded their operations to meet local consumers’ growing demand for safe, healthy foods and drinks.
Vietnam’s economy is facing big challenges from high inflation, credit squeeze and impacts of the global economic recession. However, with the Vietnamese Government’s strong efforts to restore macroeconomic stability, it is expected that the situation will improve and foreign investors will regain confidence and change their “wait-and-see” attitude.