On Thursday, Vietnam and the European Union will mark the fourth anniversary of the European Union Vietnam Free Trade Agreement or the EVFTA for short. This agreement has brought down tariff barriers and boosted trade but it hasn’t been without its challenges, some of which still persist. This article looks at how this landmark agreement has been implemented, the challenges it has faced, and the challenges it still faces.
Between 2010 and 2020 Vietnam went on a free trade frenzy signing bilateral free trade agreements with Chile, Cuba, Japan, South Korea, and the United Kingdom as well as signing on to multilateral free trade agreements including the RCEP and CPTPP.
Possibly one of the most talked about agreements, however, was the European Union Vietnam Free Trade Agreement or the EVFTA.
For Vietnam, the EVFTA promised more foreign direct investment from European Union member states and access to the bloc’s 300 million or so consumers. For the EU, it promised to make utilising Vietnam’s low-cost labour cheaper and easier by bringing down tariffs for Vietnamese exports, as well as opening up access to one of Southeast Asia’s most rapidly growing consumer markets. Everybody was set to win.
But the partners were not evenly matched. For one, the EU had a GDP in 2019 of almost US$16 trillion whereas Vietnam’s GDP was just a smidge over US$408 billion. Ergo, the European Union had significantly greater negotiating power than its trade partner.
With this in mind, the EU was able to add to the agreement a number of additional non-trade caveats around protecting the environment, workers’ rights, and sustainability more broadly. This made it one of the most comprehensive next-generation free trade agreements ever signed but also somewhat more challenging for Vietnam to implement.
For one, phytosanitary measures have been a key obstacle.
Notably, instant noodles from Vietnam, back in 2022, were found to contain residue of a pesticide, known as ethylene oxide, that was considered unsafe by EU standards. Similarly, okra, dragon fruit, and durian have also been found, in some instances, to contain levels of pesticides exceeding EU limits. This has resulted in additional inspections on entry into the EU for these goods and has put them at risk of being prohibited entry altogether.
Phytosanitary requirements, however, can be relatively easily overcome with technical reforms–better investment in equipment and training, etcetera. It’s the clauses in the agreement, however, that require political reform that seem to be a little more tricky.
For example, a number of provisions were included in the agreement that would see civil society play a bigger role in its implementation. Specifically, the agreement dictated the establishment of Domestic Advisory Groups–or DAGs–from both the EU and Vietnam that would include non-government actors and meet regularly to discuss the outcomes of the agreement and raise any concerns.
Vietnam, however, was slow to meet its end of this part of the deal and cancelled the first round of discussions back in 2021. This was to the ire of the EU which issued a statement on the matter stressing “The economic, social and environmental pillars of sustainable development are as equally fundamental to the effective implementation of the FTA as the preferential trade aspects.”
Notably, these requirements have since been met with the DAGs from both countries meeting for the ninth time back in April.
But it’s in labour market reforms that current tensions persist.
Per the EVFTA, Vietnam must ratify the United Nations’ Freedom of Association and Protection of the Right to Organise Convention, or Convention 87 as it is more commonly known. It is expected to do so this year. However, there has been some controversy around these reforms.
For background, as it stands, all labour unions must be a part of the Vietnam General Confederation of Labour which is more-or-less an extension of the government. Ratifying Convention 87, however, would mean that workers would be able to organise independently. But whereas on paper Vietnam has said it will adopt these changes, a leaked government directive has suggested that in practice it does not intend to do so.
This has also ruffled EU feathers with its DAG in June, in a statement saying that the group is ‘deeply concerned’ with respect to Directive 24. It also goes on to condemn the arrests of several environmental activists in Vietnam calling these acts “serious, systematic violations of the EVFTA.”
It’s not exactly clear what a deal breaker would be for the EU–the EVFTA has now been in place for four years and the Convention is still yet to be ratified. That said, it’s worth noting that the EU is not all bark and no bite–in 2020 it partially withdrew from an Everything But Arms trade agreement with Cambodia over human rights and labour rights concerns.
Similar action from the EU could prove much more costly for Vietnam with its exports to the EU increasing significantly under the agreement from US$62.3 billion in 2019 to US$74.8 billion in 2023. This, however, would also likely make it significantly more difficult to unstitch.
So where does that leave it?
There is little doubt that from a trade and investment perspective, both the EU and Vietnam have seen broad benefits. The EVFTA, however, is not just about trade and investment but also a significant number of reforms that Vietnam seems reluctant to adopt. With this in mind, measuring the success of the EVFTA really becomes a question of by what measure it is assessed.
What is clear, however, is that it has not been all smooth sailing and there are still a number of conflicts that need to be resolved. In this context, European firms doing business in Vietnam should make sure to stay on top of how this develops moving forward and can best do so by subscribing to the-shiv.