The economic impact of the EU - Vietnam free trade agreement.
Date: 2019-06-11
Institutions: Directorate-General for Trade and Economic Security
Subjects: European Union, Viet Nam, economic consequence, free movement of goods, intellectual property, investment, non-tariff barrier, public procurement, trade agreement (EU), value chain, world economy

THE ECONOMIC IMPACT
OF THE EU - VIETNAM 
FREE TRADE AGREEMENT

1 January 2017 - 31 December 2017

Trade

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doi:10.2781/204879 

NG-04-19-007-EN-N

1 

THE ECONOMIC IMPACT OF THE EU - VIETNAM FREE TRADE AGREEMENT 

Executive summary 

The  trade  agreement  with  Vietnam  is  the  most  ambitious  the  EU  has  ever  concluded  with  a 
developing country. It was made possible because of its strategic importance to both parties. For 
the EU, the agreement represents an important stepping stone towards securing a stronger trade 
and  investment  partnership  with  a  dynamic  ASEAN  region  and  paves  the  path  for  future 
agreements with other ASEAN countries. For Vietnam,  it is a crucial step to consolidate  its long 
process of integration  in  the  global economy. By promoting trade  and investment linkages  with 
the world's largest trading block, Vietnam makes sure that openness continues to be at the centre 
of its development strategy to sustainably steer the country into a middle income economy.  

The agreement, comprehensive as it is, foresees not only the almost full elimination of bilateral 
tariffs and export taxes but also a substantial reduction of non-tariff barriers (NTBs) in the areas of 
services and investment. It also covers areas like government procurement, intellectual property 
rights (IPR), competition, and regulatory coherence.  

This report has been prepared with the aim to present to the general public the expected gains of 
the  agreement.  Such  an  endeavour  is  however  bound  to  remain  incomplete,  as  the  available 
methodological framework and data do not allow to adequately quantify the expected effects of 
all  areas  covered  by  the  agreement.  Still,  when  taken  in  its  quantitative  and  qualitative 
dimensions, the analysis presented here points to substantial benefits for Vietnam and the EU.  

The elimination of bilateral tariffs and export taxes, together with the reduction of NTBs affecting 
the  cross-border  exchanges  of  goods  and  services,  are  expected  to  boost  bilateral  trade 
considerably.  EU  exports  to  Vietnam  are  estimated  to  increase  by  around  29%,  while  Vietnam 
exports to the EU are estimated to grow by around 18%. These figures correspond to export gains 
of €8 billion by 2035 for EU firms, while Vietnam exports to the EU are expected to grow by €15 
billion.  

The much larger size of the EU economy and the greater liberalisation effort by Vietnam largely 
explain  the  relatively  higher  aggregate  income  impact  of  the  trade  agreement  in  Vietnam  (€6 
billion)  than  in  the  EU  (about  €2  billion).  While  the  latter  mostly  reflects  improvements  on  the 
terms  of  trade,  the  longer-term  benefit  of  the  agreement  for  the  EU  should  be  seen  from  the 
broader  perspective  of  a  further  strengthening  of  the  economic  relationship  with  the  ASEAN 
region, one of the fastest growing and most vibrant in the world.  

Finally, it is important to note that the quantitative analysis presented in this report represents a 
lower bound estimate of the economic impact of the agreement. The modelling assessment does 
not account for what are arguably some of its most significant benefits, which will be found in the 
regulatory changes that allow for the greater integration of the EU and Vietnamese economies for 
example in the areas of investment, IPR and public procurement. 

 
 
 
 
 
 
2 

               Table of contents 

1. 

2. 

Introduction 

Overview of EU-Vietnam economic and trade relations 

2.1. 

EU-Vietnam economic relations  

2.2.   

Trade in goods and services and investment 

2.2.1.  Trade in goods   

2.2.2.  Trade in services 

2.2.3.  Foreign direct investments (FDIs) stocks and flows  

2.3. 

Trade barriers in place    

2.3.1.   Tariff profile of Vietnam and the EU 

2.3.2.   Non-tariff barriers in place 

3. 

3.1. 

3.2. 

Comprehensive overview of the EU-Vietnam FTA 

Tariffs and export duties elimination 

Reduction of non-tariff barriers on trade in goods 

3.2.1.  Technical barriers to trade 

3.2.2.  Sanitary and phytosanitary measures 

3.2.3. 

Intellectually property rights (IPR) 

3.2.4.   Rules of Origin (RoO) 

3.3. 

3.4. 

Services trade liberalisation    

Liberalisation of FDI in manufacturing sectors 

3.5.  

Customs and trade facilitation 

4. 

Quantitative assessment of the agreement 

4.1.  Modelling technique  

4.2.  

Simulation design 

4.3. 

The potential impact on the EU and Vietnam 

4.4.  

The potential impact on third countries   

5.   

Additional economic impacts   

5.1. 

Public procurement  

5.2.    Global value chain integration 

3 

5 

5 

7 

7 

11 

12 

13 

13 

15 

17 

18 

19 

19 

21 

21 

23 

23 

26 

28 

28 

28 

32 

35 

38 

39 

39 

43 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 

1. Introduction 

The  purpose  of  this  report  is  to  offer  a  comprehensive  assessment  of  the  expected  economic 
impact  of  the  trade  agreement  between  the  European  Union  (EU)  and  Vietnam.  It  builds  on  a 
quantification  of  its  economy-wide  effects  grounded  on  the  use  of  a  computable  general 
equilibrium (CGE) model. Given the limitations of the latter, the assessment was complemented 
with qualitative analyses of the parts of the agreement that do not directly translate into specific 
and immediate changes in bilateral trade costs.   

The  trade  agreement  will  be  entering  into  force  in  the  context  of  a  fast-changing  Vietnamese 
economy  and  an  already  flourishing  commercial relationship between the EU and Vietnam.  The 
economic and social transformation of Vietnam in the past 30 years has been remarkable, and has 
lead  the  country  to  acquiring  lower  middle  income  status  in  2010  and  to  the  elimination  of 
extreme poverty and the reduction of income inequalities. Today, Vietnam is a vibrant economy 
of more than 94 million inhabitants,  with one  of  the fastest  growing middle class in the ASEAN 
region and a young and dynamic workforce. Its relatively high literacy rate and education levels, 
comparatively low wages, good connectivity and central location within ASEAN, make the country 
especially competitive and attractive to foreign investors.  

Unsurprisingly,  the trade and investment  links  between the EU and Vietnam  have  been  steadily 
strengthening,  since  the  establishment  of  formal  diplomatic  relations  in  1996.  The  other 
important  milestones  in  the  bilateral  relationship  were  the  conclusion  in  2004  of  the  bilateral 
negotiations that paved the way for Vietnam’s accession to the World Trade Organization (WTO) - 
the  first  bilateral  agreement  Vietnam  had  with  a  large  WTO  member  -  and  the  Early  Harvest 
Agreement1,  which  enabled  mutual  market  access  for  companies  three  years  before  Vietnam's 
accession  to  the  WTO.  The  EU  has  also  been  a  committed  supporter  of  Vietnam's  economy, 
notably through development aid packages.  

Through the years, the EU and Vietnam have built a modern and mature partnership. In 2017, the 
merchandise trade between the EU and Vietnam was worth €48 billion, making Vietnam the 19th 
largest  goods  trading  partner  of  the  EU  and  its  second  largest  trading  partner  in  ASEAN  (after 
Singapore). For Vietnam the EU is in its turn its second biggest export market and one of its main 
suppliers.  The  bilateral  relationship  between  the  EU  and  Vietnam  is  framed  by  the  Partnership 
and Cooperation Agreement that entered into force in October 2016.  At the same time, the EU 
and  Vietnam  Forest  Law  Enforcement,  Governance  and  Trade  (FLEGT)  Voluntary  Partnership 
Agreement signed in October 2018 aims at combating illegal logging by strengthening sustainable 
and  legal  forest  management,  improving  governance  and  promoting  trade  in  legally  produced 

1 The Agreement on Market Access is an offshoot of the bilateral WTO accession deal. Effective from January 2005, the 
agreement suspended quotas on Vietnam’s clothing exports to the EU. In exchange, Vietnam committed to treat the EU 
not  less  favourably  than  US  or  Japan.  In  addition,  Vietnam  offered  companies  of  EU  origin  reduced  tariffs  on  yarns, 
clothing, fabrics and made-up articles, fibres, beverages, motorbikes as well as manufacturing licenses in  the  pharma 
and  cement  sectors.  Vietnam  also  committed  to  increase  market  access  for  service  providers  in  the  telecoms, 
construction, computer, engineering, integrated engineering, architecture, and urban planning service sectors. Further 
it  granted  licenses  to  EU  companies  in  the  life  insurance,  distribution,  shipping,  computer  reservation  system, 
environmental, and real estate service sectors.  

 
 
 
 
 
                                                           
 
4 

timber.  This  proves  both  sides’  commitment  to  forge  a  modern,  broad-based  and  mutually-
beneficial partnership, based on shared interest and principles.  

The agreement represents a unique opportunity for European and Vietnamese businesses. It will 
put  EU  exporters  at  least  on  a  par  with  those  from  other  countries  and  regions  with  whom 
Vietnam  has  already  concluded  FTAs,  like  ASEAN,  Australia,  New  Zealand,  Chile,  China,  India, 
Japan, and South Korea. This will offer new business opportunities for agricultural, industrial and 
services exporters from the EU that have so far been curtailed by existing trade barriers. Vietnam 
will  in  turn  enjoy  privileged  access  to  the  EU  market  (on  similar  footing  to  South  Korea  and 
Singapore).  Consumers  and  firms  in  the  EU  and  Vietnam  will  stand  to  gain  from  the  increased 
availability of products and inputs.  

Moreover, considering the complementarity of EU and Vietnam comparative advantages profiles, 
Vietnam's strategic location in Asia, and its efforts towards greater integration with other ASEAN 
and Asian markets, the agreement can also be expected to promote production sharing between 
the  EU  and  Asia  as  EU  firms  choose  to  set  up  production  and  exporting  hubs  in  Vietnam.  The 
reforms that  Vietnam agreed to implement to improve  business  environment,  including greater 
transparency in public procurement markets, will also contribute to making Vietnam a privileged 
destination for investment from the EU.  

The  economic  analysis  presented  in  this  report  cannot  match  the  comprehensiveness  and 
complexity  of  such  an  agreement.  The  quantification  of  its  effects  is  necessarily  bound  to  be 
partial,  constrained  by  substantial  limitations  in  terms  of  the  availability  of  data  and  robust 
analytical methodologies at our disposal. Nonetheless, being based on a thorough reading of the 
agreement and grounded on the use of well-tested analytical tools, this assessment provides an 
important input to grasp the reach of the economic impacts at stake for the EU and Vietnam.  

Furthermore, given that it is the most ambitious and comprehensive trade agreement the EU has 
concluded  to  date  with  a  developing  country,  its  implications  will  necessarily  go  beyond 
economics.  For  the  EU,  the  agreement  with  Vietnam  will  serve  as  a  benchmark  for  future 
negotiations with developing countries and,  together with the trade  agreement with Singapore, 
also  constitute  a  reference  point  for  negotiations  with  other  ASEAN  countries.  While  the 
sustainable  development  dimension  of  the  agreement  is  of  utmost  importance  considering  the 
objective to promote basic rights at work, and human rights more broadly, and to seek adequate 
environmental protection (with the inclusion of strong commitments in these areas), the analysis 
of such components falls outside the scope of the assessment.  

The report is structured as follows. Chapter 2 features an overview of the EU-Vietnam trade and 
investment  relationship,  including  on  existing  barriers  to  trade.  Chapter  3  provides  a  detailed 
account  of  the  main  changes  that  the  trade  agreement  will  bring  along  with  regard  to  existing 
rules  and  regulations  framing  trade  and  investment  relations  between  the  EU  and  Vietnam. 
Chapter 4 offers a quantitative assessment of the impact of the agreement on the basis of a CGE-
modelling  simulation.  Chapter  5  provides  an  analysis  of  changes  to  the  public  procurement 
markets and the increase in production sharing between the EU and Vietnam; two areas that the 

 
 
 
 
5 

CGE  model  based  analysis  is  not  able  to  capture  but  that  are  expected  to  deliver  important 
economic benefits.   

2. Overview of EU-Vietnam economic and trade relations 

2.1. EU-Vietnam economic relations  

The  recent  change  to  the  scale  and  depth  of  the  economic  relationship  between  the  EU  and 
Vietnam must be seen in light of the drastic transformation of  Vietnam in the last 30 years as it 
emerged  from  poverty  and  isolation  into  a  buoyant  lower  middle  income  nation  that  is  quickly 
catching  up  with  its  Asian  neighbours.  Such  an  impressive  economic  track  record  can  best  be 
grasped by the  simple fact that the  country has been catching up rapidly  measured on the real 
GDP growth rate. As shown in Figure 1, Vietnam’s growth rate has been remarkable in the 2000-
2017  period,  averaging  6.4%  per  year.  The  EU  growth  rate,  on  the  other  hand,  has  been 
considerably lower and unlike in the case of Vietnam, economic activity even declined in 2009 and 
2012. In 2017, Vietnam’s growth rate is more than double as high as the one of the EU standing at 
6.8%  compared  to  2.4%  respectively.  Such  economic  dynamism  is  set  to  continue  with  the  IMF 
forecasts pointing to real GDP growth rate around 6.5% at least until 2023 (IMF 2018).  

Figure 1: Evolution Growth rate GDP for Vietnam and the EU (in %) 

Vietnam

European Union

10.00

5.00

0.00

-5.00

-10.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: World Bank 

To  understand  the  current  bilateral  trade  relationship  and  the  potential  impact  of  the  trade 
agreement, it must be borne in mind that the EU and Vietnam are two unequal partners in many 
respects. First, the EU is a much larger and affluent economy than Vietnam. As shown in Table 1, 
in 2017 the GDP of the EU was worth almost 80 fold that of Vietnam. The population of Vietnam is 
less than a fifth of that of the EU. Second, despite the impressive economic catching up effect of 
the past decades, the per capita income in Vietnam is less than a tenth of the EU's.  

 
 
 
 
 
 
 
Table 1: GDP and population in 2017 

Indicator 

Vietnam 

GDP (in billion €) 

GDP per capita (in €) 

Population (in millions) 

Source: Eurostat and the IMF 

195 

2,080 

94 

6 

EU (28) 

15,336 

29,900 

513  

Moreover,  Vietnam  still  presents  structural  features  that  are  typical  of  lower  middle  income 
economies. For example, agriculture still employs over 40%2 of the labour force, while delivering 
just  over  15%  of  value  added  as  shown  in  Table  2.  As  the  country  moves  from  a  state-run 
economy  into  a  modern  privately  organized  economy,  the  potential  to  boost  productivity  and 
income  from  the  reallocation  of  resources  to  the  more  productive  manufacturing  and  services 
sectors is still considerable.  

Table 2: Value added per economic activity as a percentage of GDP in 2017 

Country 

Agriculture 

Industry 

Services 

Vietnam 

EU 

Source: World Bank 

15 

1.4 

33 

22 

41 

66 

The strengthening of trade and foreign direct investments with key partners has been at the core 
of the structural transformation that Vietnam is going through3. However, there is still scope to 
open up the economy further. In 2016 the simple average applied tariff remained relatively high 
at 9.6% while the average bound tariff under its WTO commitments (on 100% of its tariff lines) 
stood at 11.5% (WTO 2018).  

Furthermore, notwithstanding the ongoing reforms, Vietnam continues to be a difficult place to 
do business, notably when it comes to trade logistics. Vietnam ranked 68th on the World Bank’s 
2018  Doing  Business  scoreboard  and  the  inefficiency  of  trade  logistics  was  identified  as  a 
particularly serious bottleneck (World Bank 2018). Nonetheless, compared to other lower middle 
income  countries  in  the  East  Asia  and  Pacific  region,  Vietnam  scores  higher  in  respect  to 
timeliness,  tracking  and  tracing,  logistic  competence,  and  international  shipments  (Figure  2).  In 
terms  of  customs  procedures  and  logistic  infrastructure,  Vietnam's  score  is  higher  than  the 
average  of  other  lower  and  middle  income  countries  but  lower  than  the  East  Asia  and  Pacific 
region.  

2 World Bank database, accessed 29 August 2018. 
3  Vietnam  is  actively  engaged  in  trade  liberalization,  having  recently  concluded  negotiations  for  the  Trans-Pacific 
Partnership (TPP) and is working towards a Regional Comprehensive Economic Partnership (RCEP) from within ASEAN.  

 
 
 
 
 
                                                           
 
7 

Figure 2: Logistics performance index 2018  

Income: Lower middle income

Region: East Asia & Pacific

Vietnam

Timeliness

Tracking & tracing

Logistics competence

International shipments

Infrastructure

Customs

LPI Score

Source: World Bank (2018) 

Against  this  background,  the  EU-Vietnam  trade  agreement  will  give  the  EU  an  additional 
opportunity to play a major role in the transformation of the Vietnamese economy, while making 
use of the numerous new business opportunities. 

2.2 

Trade in goods and services and investment 

2.2.1  Trade in goods 

Over  the  last  decade  Vietnam's  trade  in  goods  with  the  world  has  grown  at  a  rapid  pace. 
Vietnamese exports increased from €35bn in 2007 to almost €200bn in 2017. Similarly, imports of 
goods  from  rest  of  the  world  rose  from  €46bn  to  nearly  €200bn.  This  is  reflected  in  the 
corresponding shares of Vietnam’s goods imports and exports in global world trade. These shares 
increased from 0.44% to 1.24% and from 0.35% to 1.2% and respectively.  

Figure 3: Vietnam's share of global imports and exports 

Exports

Imports

1.4%

1.2%

1.0%

0.8%

0.6%

0.4%

0.2%

0.0%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: IMF Direction of Trade Statistics (2017) 

 
 
 
 
 
 
 
 
8 

Furthermore, as a consequence of the rapid economic transformation of its production structure, 
Vietnam's exports are becoming more sophisticated and its destination markets more diversified. 
By 2017, the top exports by broad sector were electrical and electronic equipment accounting for 
almost  40%  of  Vietnam’s  exports,  footwear  for  8%,  and  machinery  for  6%.4  These  represented 
more than 50% of Vietnam's exports to the rest of the world. The EU continues to be a key export 
market  for  Vietnam’s  good  exports.  It  ranks  second  with  a  share  of  19%  of  total  exports,  just 
behind the US (20%) and well ahead of China (14%) ranking third (Figure 4).  

Figure 4: Main destinations of goods exports from Vietnam in 2017 

Other 
20% 

United States 
20% 

EU28 
19% 

Japan 
8% 

China 
14% 

Taiwan 
2% 

Thailand 
2% 
Malaysia 
2% 

United 
Arab 
Emirates 
3% 

Hong 
Kong 
3% 

Korea, 
Republic of 
7% 

Source: IMF 

In  terms  of  import  structure,  electrical  machinery  and  equipment  goods  account  for  a  sizable 
share  of  Vietnam's  imports.  In  2017,  more  than  a  third  of  the  imports  were  electrical  and 
electronic  equipment  (€54bn)  and  other  (mechanical)  machinery  (€22.5bn).  In  respect  to  the 
geographical origin of the imported goods, China is the largest supplier accounting for more than 
a  quarter  of  the  total  imports  of  merchandise  products  (Figure  5).  The  second  most  important 
source of imports is Korea, accounting for a share of 20% in Vietnams good imports. In 2017, the 
EU was the 4th most important goods supplier after Japan responsible for 6% of Vietnam's total 
merchandise imports.  

4 International Trade Center (ITC), Trade Map (2017). 

 
 
 
 
 
 
 
 
                                                           
 
9 

Figure 5: Main suppliers of goods to Vietnam in 2017 

Other 
19% 

China 
26% 

South Korea 
20% 

Japan 
8% 

India 
2% 

Singapore 
2% 

Malaysia 
3% 

United States 
3% 

Thailand 
5% 

Taiwan 
6% 

EU28 
6% 

Source: IMF 

When looking at the importance of Vietnam in EU trade it is worth recalling the relative size of the 
two economies: in 2017, extra-EU trade in goods was nearly tenfold that of Vietnam with the rest 
of  the  world.  In  2017,  Vietnam's  merchandise  exports  to  the  EU  were  worth  €37  billion,  which 
represented around 2% of total EU imports of goods, making it the 10th largest EU supplier. In the 
same  year  Vietnam  purchased  nearly  €11  billion  worth  of  merchandise  from  the  EU,  which 
accounted for not more than 0.6% of total EU sales of goods to the rest of the world.5 

Traditionally,  and  as  a  result  of  the  country's  comparative  advantage  in  labour  intensive  goods, 
Vietnam has been an important EU  supplier of footwear, hats  and other headgear as well as of 
textiles and clothing. Table 3 shows that garment products make up approximately a fifth of the 
EU imports from Vietnam. Some sectors that are relatively new to the country like machinery and 
appliances  (mainly  telecommunication  equipment  like  mobile  phones  and  tablets6)  however 
already account for over half of EU purchases. The latter illustrates well the reach of the structural 
transformation  of  Vietnam's  economy  and  points  to  the  important  role  that  the  activities  of 
multinational firms play in this process. 

5 IMF Direction of Trade Statistics (DOTS) and DG Trade Integrated Statistical Database (ISDB). 
6  Telecommunications  equipment  (SITC  2412)  alone  accounted  for  €13.6bn.  This  represented  12.8%  of  the  total  EU 
telecommunications equipment imports, making Vietnam the major supplier of these goods to the EU. 

 
 
 
 
 
 
 
 
 
                                                           
 
10 

Table 3: EU imports from Vietnam by HS section in 2017, in million € and % 

Sectors 

1. Machinery and appliances 

2. Footwear, hats and other headgear 

3. Textiles and textile articles 

4. Vegetable products 

5. Miscellaneous manufactured articles 

6. Raw hides and skins, and saddlery 

7. Plastic, rubber and articles thereof 

8. Base metals and articles thereof 

9. Live animals and animal products 

10. Foodstuffs, beverages and tobacco 

11. Transport equipment  

12. Optical and photographic instruments etc 

Total 

Source: Eurostat Comext 

Imports 
million € 

19,241 

4,250 

3,523 

2,446 

1,483 

998 

994 

876 

777 

596 

508 

480 

Total  
% 

52.0% 

11.5% 

9.5% 

6.6% 

4.0% 

2.7% 

2.7% 

2.4% 

2.1% 

1.6% 

1.4% 

1.3% 

37,019 

100% 

Table 4 shows that EU exports to Vietnam consist mainly of machinery, chemicals and transport 
equipment, making it an important supplier of inputs and equipment goods that are essential to 
the ongoing transformation and modernisation of the Vietnamese economy. In 2017, these three 
broad sectors accounted for over 60% of EU merchandise sales to Vietnam.  

Table 4: EU exports to Vietnam by HS section in 2017 (in million € and %) 

Sectors 

1. Machinery and appliances 

2. Products of the chemical industries 

3. Transport equipment  

4. Live animals and animal products 

5. Foodstuffs, beverages and tobacco 

6. Vegetable products 

7. Optical and photographic instruments 

8. Raw hides and skins, and saddlery  

9. Base metals and articles thereof 

10. Textiles and textile articles 

11. Plastic, rubber and articles thereof 

12. Other 

Total 

Source: Eurostat, MADB 

Imports 
million € 

Total  
% 

2,740 

2,082 

1,757 

539 

516 

508 

344 

338 

334 

312 

227 

187 

25.8% 

19.6% 

16.5% 

5.1% 

4.9% 

4.8% 

3.2% 

3.2% 

3.1% 

2.9% 

2.1% 

1.8% 

10,624 

100% 

 
 
 
 
11 

Overall, EU exports to Vietnam have increased significantly with values rising from €3.5bn in 2007 
to nearly €11bn in 2017 corresponding to more than threefold surge (see Figure 6). Over the same 
period,  EU  imports  from  Vietnam  have  also  grown  substantially  with  values  rising  from  almost 
€8bn in 2007 to €37bn in 2017.  As imports have grown at a far greater pace than exports, the EU 
trade deficit with Vietnam has augmented from €4.3bn to over €26bn which corresponds to more 
than a fivefold increase.  

Figure 6: Balance of trade in goods EU-Vietnam (million €), 2007-2017 

Imports from Vietnam

Exports to Vietnam

Trade Balance

 50,000

 40,000

 30,000

 20,000

 10,000

€
n
o

i
l
l
i

M

 -

-10,000

-20,000

-30,000

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: Eurostat Comext 

2.2.2  Trade in services 

Vietnam's  trade  in  services  is  still  very  limited  on  a  global  scale.  In  2017,  commercial  services 
exports amounted to only €11 billion while imports stood at €15 billion. However, services trade 
growth  has  been  strong,  averaging  16%  between  2010  and  2017.  Travel  dominates  services 
exports (around 67% of total) followed by transport (20%). Similarly, imports are mainly driven by 
transport (48%) and travel (30%)7. 

EU  trade  in  services  with  Vietnam  also  lags  behind  trade  in  goods.  Exports  to  Vietnam  have 
increased by 32%  since  2010 to a total of  nearly €2 billion in 2016 (see  Figure 7). Imports  have 
also increased from €1.3 billion in 2010 to €1.7 billion in 2016. Data for 2016 shows that the EU 
had a trade in services surplus of about €200 million  with Vietnam. There have been significant 
fluctuations  in  the  trade  balance  over  the  seven-years  period  with  both  imports  and  exports 
varying in value.  

This all reflects the relative underdevelopment of the services industries in Vietnam and points to 
the  significant  untapped  potential  for  greater  commercial  linkages  in  services  in  the  future. 
Services  activities  make  up  the  largest  share  of  the  EU  economy  and  they  also  have  important 

7 Data prepared by DG Trade - Chief Economist Unit - Statistics sector from WTO-UNCTAD-ITC data. 

 
 
 
 
 
                                                           
 
 
 
12 

growth  potential  in  Vietnam.  The  rapid  urbanisation  and  growing  wages  are  expected  to  spur 
production and intensify the demand for services in the country8.  

Figure 7: EU-Vietnam trade in services, in million € 

Imports

Exports

Trade balance

€
s
n
o

i
l
l
i

M

 2,000

 1,500

 1,000

 500

 -

-500

2010

2011

2012

2013

2014

2015

2016

Source: WTO-UNCTAD-ITC   

2.2.3  Foreign direct investments (FDIs) stocks and flows  

Over the past years, Vietnam has seen a strong surge in FDI inflows triggered by the accession to 
the  WTO  in  2007  and  the  policies  implemented  to  attract  foreign  firms.  Figure  8  shows  that 
inward FDI stocks in the country have increased five-fold between 2006 and 2016 to reach €104 
billion.  The  attractiveness  of  the  country  for  foreign  investment  is  underlined  by  the  quick 
recovery  of  FDI  inflows  from  the  worldwide  FDI  slump  in  the  wake  of  the  2009  global  financial 
crisis.  

Vietnamese  outward  FDI  stocks  have  risen  from  €119  million  to  €9  billion  in  the  period  2006-
2016.  Similarly,  inward  and  outward  flows  grew  from  almost  €2  to  €11  billion  and  from  €68 
million to €1.2 billion respectively.  

For  more 

8 
https://www.usitc.gov/publications/332/Vietnam_working_Paper_final2a.pdf. 

International 

details 

Trade 

U.S. 

see 

Commission 

(2012). 

Available 

at: 

 
 
 
 
 
 
 
 
                                                           
 
 
 
13 

Figure 8: Foreign direct investment in Vietnam 

Stocks: Inward

Stocks: Outward

Flows: Inward

Flows: Outward

12,000

10,000

8,000

6,000

4,000

2,000

0

€
s
n
o

i
l
l
i

M

:
s
w
o
l
F

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

€
s
n
o

i
l
l
i

M

:
s
k
c
o
t
S

120,000

100,000

80,000

60,000

40,000

20,000

0

Source: UNCTAD 

The EU has played a major role in this dynamics. As Table 5 shows EU outward investment stock in 
Vietnam  increased  from  €4  to  €8  billion  in  the  period  2013-2016.  In  terms  of  inward  stocks, 
Vietnamese investments in the EU have also augmented from €33 million to nearly €150 million in 
the same period. 

Table 5: EU Foreign direct Investment in Vietnam (million euros) 

Year 

2013 

2014 

2015 

2016 

Outward Flows 

Inward Flows 

Outward Stocks 

Inward Stocks 

3,148 

581 

747 

1,458 

-56 

-52 

72 

2 

4,134 

5,254 

6,432 

8,261 

33 

-28 

152 

148 

Source: Eurostat 

2.3. Trade barriers in place     

2.3.1. Tariff profile of Vietnam and the EU   

With  the  accession  to  the  WTO  in  2007,  Vietnam  adopted  a  more  liberal  tariff  schedule  on  an 
MFN  basis.  In  2016,  the  trade  weighted  average  tariff  imposed  by  Vietnam  against  EU  exports 
stood  at  5%.  The  corresponding  EU  trade-weighted  tariff  faced  by  Vietnam  was  around  half: 
2.3%9.  

However, the  level of protection imposed on bilateral trade varies widely across sectors. This is 
apparent  even  at  a  fairly  aggregated  level  by  HS  sections,  as  shown  in  tables  6  and  7.  Tariffs 
currently  faced  by  European  exporters  to  Vietnam  are  highest  on  "footwear",  "foodstuffs, 

9 This already takes into account the fact that Vietnam benefits from the EU Generalised System of Preferences. 

 
 
 
 
 
                                                           
 
 
 
 
 
 
 
14 

beverages, and tobacco", "articles of stone, glass and ceramics" and "miscellaneous manufactured 
articles". In "transport equipment" there is a large difference between the simple and the trade-
weighted tariff indicating wide heterogeneity in the tariff profile within the sector.  

Table 6: Structure of Vietnam tariffs on imports from EU by HS section (2017) 

HS 
section 

Label 

Imports from EU: 

Value in million € 

 EU exports 

Tariff: simple 
AV average 
(%) 

Tariff: weighted AV 
average (%) 

01 

02 

03 

04 

05 

06 

07 

08 

09 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

Total 

Live animals, animal products 

Vegetable products 

Animal or vegetable fats and oils 

Foodstuffs, beverages, tobacco 

Mineral products 

498 

223 

10 

448 

43 

Products of the chemical or allied industries 

1,486 

Plastics, rubber and articles thereof 

Raw hides, skins and saddlery 

Wood, charcoal, cork and articles thereof 

Pulp of wood, paper and paperboard 

Textiles and textile articles 

Footwear, hats and other headgear 

Articles of stone, glass, ceramics 

Pearls, precious metals and articles thereof 

Base metals and articles thereof 

Machinery and appliances 

Transport equipment 

Optical and photographic instruments 

Arms and ammunition 

Miscellaneous manufactured articles 

Works of art, antiques 

295 

317 

124 

160 

260 

13 

68 

125 

298 

2,484 

1,984 

512 

4 

118 

2 

9,471 

13.1 

16.2 

10.7 

28.7 

4.3 

2.8 

7.9 

10.8 

8.2 

11.4 

12.7 

25.0 

17.8 

10.9 

7.8 

4.7 

19.1 

5.4 

2.3 

18.1 

4.3 

9.9 

9.9 

6.9 

10.3 

23.0 

4.6 

3.0 

6.6 

6.2 

0.9 

5.0 

12.5 

22.9 

13.1 

3.7 

7.0 

3.0 

2.3 

0.5 

0.4 

14.9 

1.6 

5.0 

Source: DG Trade, MADB, Reporter: Vietnam, Partner: EU28, ISDB extraction date: 01/08/2018 

The EU tariff profile for imports from Vietnam reflects the country’s status as GSP beneficiary. The 
European  sectors  that  are  currently  most  protected  from  imports  from  Vietnam  are  footwear, 
foodstuffs, beverages and tobacco and transport equipment.  

 
 
 
 
 
15 

Table 7: Structure of the EU tariffs on imports from Vietnam by HS section (2016)10 

HS 
section 

 Label  

Imports from 
Vietnam:  

Value in million €  

Tariff: simple 
AV average 
(%) 

Tariff: 
weighted AV 
average (%) 

01 

02 

03 

04 

05 

06 

07 

08 

09 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

Live animals, animal products 

Vegetable products  

Animal or vegetable fats and oils  

Foodstuffs, beverages, tobacco  

Mineral products  

Products of the chemical or allied industries 

Plastics, rubber and articles thereof  

Raw hides, skins and saddlery  

Wood, charcoal, cork and articles thereof 

Pulp of wood, paper and paperboard  

Textiles and textile articles 

Footwear, hats and other headgear 

Articles of stone, glass, ceramics 

Pearls, precious metals and articles thereof 

Base metals and articles thereof 

Machinery and appliances 

Transport equipment 

Optical and photographic instruments 

Arms and ammunition 

Miscellaneous manufactured articles 

Works of art, antiques 

Total 

700 

2,224 

2 

506 

30 

172 

793 

804 

147 

25 

3,205 

3,635 

173 

117 

735 

17,261 

361 

391 

0 

1,321 

1 

32,603 

5.4 

6.1 

11.3 

10.2 

0.0 

0.5 

0.7 

1.3 

0.7 

0.0 

7.3 

4.5 

1.7 

0.0 

0.4 

0.2 

0.8 

0.1 

2.9 

0.1 

0.0 

2.9 

5.0 

0.3 

2.9 

8.3 

0.0 

0.2 

1.1 

0.9 

0.2 

0.0 

9.0 

9.0 

0.9 

0.0 

0.6 

0.0 

1.6 

0.2 

3.0 

0.1 

0.0 

2.3 

Source: DG Trade, MacMap, Reporter: EU28, Partner: Vietnam, ISDB extraction date: 01/08/2018 

2.3.2. Non-tariff barriers in place 

In  addition  to  tariffs,  the  business  environment  in  Vietnam  is  also  characterised  by  other 
measures of different nature that hamper foreign firms' access to the local market. The so-called 
non-tariff  barriers  (NTBs)  result  from  a  host  of  policy  interventions  that  intentionally  and/or 
unintentionally affect the trade of goods and services. It must be borne in mind that some of the 
trade  frictions  they  introduce  in  the  market  place  may  be  intertwined  with  factors  that  are 

10 Specific duties are also taken into account. 

 
 
 
 
 
                                                           
 
16 

inherent to the cross-national nature of trade, like for example language (i.e. the fact that rules 
and  regulations  are  solely  conveyed  in  the  local  language  may  contribute  in  some  cases  to  the 
opacity  of  the  regulatory  framework)  and/or  reflect  sovereignty  and  the  inherent  right  to 
regulate,  which  go  well  beyond  the  remit  of  trade  policy.  Another  important  point  is  that  the 
trade costs associated with NTBs are often difficult to measure. Moreover, most estimates of ad-
valorem  equivalents  (AVEs)  in  the  literature  derive  from  a  country's  overall  trade  and  are  not 
bilateral. Therefore given their nature, scope and diversity it is difficult to have an overall idea of 
how high they might be.  

The bilateral trade relationship between the EU and Vietnam faces various NTBs in place, of which 
we highlight some examples:  

SPS 

Market  access  for EU producers  is hampered by the fact  that Vietnam deviates from the World 
Organization  for  Animal  Health  (OIE)  standards  and  does  not  recognise  the  OIE's  Mad  Cow 
Disease (BSE) status assessment. Instead Vietnam requires its own risk assessment. EU Member 
States  have  been classified by OIE as having “negligible” or “controlled” BSE disease risk  status. 
Several EU Member States (subject to harmonised EU legislation) cannot export beef to Vietnam. 
At the same time Vietnam has been importing beef from other trading partners with a similar risk 
category  status  compared  to  several  EU  Member  States.  As  a  positive  development,  in  2015, 
Vietnam  allowed  exports  from  France  and  eliminated  the  associated  BSE  restriction.  In  2017, 
Vietnam  opened  its  market  to  Spanish  beef  while  six  EU  Member  States  have  submitted 
applications for being able to export beef to Vietnam. 

Pharma 

Although Vietnam extended full trading rights to pharmaceutical products as of 1 January 2009, as 
part  of  its  WTO  accession  commitments,  it  has  never  fully  implemented  this  commitment.  In 
practice, foreign firms do not have the right to import pharmaceutical products into the country. 
Moreover,  Vietnamese  legislation  does  not  offer  clear  provisions  to  safeguard  exclusivity  and 
confidentiality  of  the  data  that  pharmaceutical  companies  must  submit  as  part  of  market 
authorisation procedures. As a result, some producers are hesitant about entering the market11.  

Distribution services - Economic needs test  

Even  if,  since  2009  the  distribution  market  in  Vietnam  has  been  fully  open  to  foreign-owned 
operators, an economic needs test (ENT) is still compulsory for those wanting to open more than 

11 Pieces of legislation regulating this field, Circular No. 05/2010/TT-BYT and subsequent Circular No. 44/2014/TT-BYT, 
do not really remedy the situation as data protection is not automatic. 

 
 
 
 
                                                           
 
17 

one  retail  outlet.  Discretionary  interpretation  by  different  local  authorities  of  the  relevant  ENT 
criteria creates significant legal uncertainty for EU companies12. 

Trade in counterfeit products 

Trade  in  counterfeit  products  is  still  a  concern  in  Vietnam.  According  to  the  OECD-EUIPO  study 
‘Mapping the Real Routes of Trade in Fake Goods’, Vietnam appears to be an important producer 
of  counterfeit  jewellery,  clothing  and  textile  fabrics,  footwear,  foodstuffs,  as  well  as  optical, 
photographic and medical equipment.  

Intellectual property, geographical indications and public procurement 

EU stakeholders are also concerned about the length of IP registration processes for trademarks 
and slow appeal procedures. While EU stakeholders' experience with authorities at national level 
has been positive, weaknesses were still noted at local level. Further progress remains necessary 
regarding  IPR  enforcement.  EU  stakeholders  report  that  IPR  infringements  remain  prevalent 
across the country, especially in street markets and commercial areas. Concerns have been raised 
that sanctions against infringers have an insufficient deterrent effect and that there is still a lack 
of trained IP officials, including in the customs authorities. In the Commission's annual Report on 
EU Customs Enforcement of IPR in 2016, Vietnam remains one of the "top 7" countries whose IPR 
infringing  goods  were  detained  and  seized  at  the  EU  borders.  More  generally,  Vietnam's 
enforcement  system  has  remained  highly  complex,  making  it  challenging  for  IP  right  holders  to 
take effective and efficient action against IPR infringements. 

Regarding geographical indications (GIs), Vietnam still grants a higher level of protection to wines 
and spirits GIs than to the rest of agricultural and foodstuff GIs.  

3. 

Comprehensive overview of the EU-Vietnam FTA   

This economic assessment of the potential impact of the trade agreement between the  EU and 
Vietnam  aims  to  be  as  objective  and  comprehensive  as  possible  to  the  extent  allowed  by  the 
availability of well-tested methodologies and the necessary data. The comprehensiveness of the 
agreement and the breadth and depth of issues that it covers, however, pose challenges to this 
endeavour.  

This report adopts a multi-pronged approach that builds on an exhaustive reading of the text of 
the agreement in order to identify the main changes it brings to the conditions framing trade and 
investment relations between the EU and Vietnam. On that basis the quantification of the impact 
of  parts  of  the  liberalisation  agreement,  like  the  reduction  of  tariffs  and  export  taxes,  is  done 
using  standard  trade  policy  evaluation  methods  like  CGE  model  based  simulations.  Other 
regulatory  changes,  like  for  example  the  lowering  of  barriers  to  the  cross-border  delivery  of 

12  Rules  for  economic  needs  tests  were  relaxed  in  case  of  establishing  an  outlet  less  than  500m2.  Within  the  area 
planned  for  trading  activities  and  already  completed  construction  of  infrastructure,  ENT  is  not  required.  Circular  No. 
08/2013/TT-BCT provides for rules governing ENTs and sets the exemption from ENT for outlets of less than 500m2. 

 
 
 
 
                                                           
 
18 

services, are mapped into trade costs reductions, which are ultimately used as inputs to the CGE 
model-based  quantitative  analysis.  While  this  approach  inevitably  carries  some  degree  of 
imprecision we believe that the enhanced comprehensiveness that is offers makes it worthwhile 
pursuing.  Nonetheless,  some  parts of  the  agreement  cannot  be  quantified  in  the  same  manner 
due to data and modelling limitations. This is the case for example for the liberalisation of cross-
border  investment  and  public  procurement  for  which  the  present  analysis  provides  only  a 
qualitative assessment of their likely consequences. 

3.1 

Tariffs and export duties elimination  

As  with  any  trade  agreement  the  dismantling  of  border  restrictions  plays  a  central  role.  In 
particular,  the  agreement  between  the  EU  and  Vietnam  foresees  the  elimination  of  tariffs 
averaging  2.2%  in  the  EU  and  5%  in  Vietnam  on  a  trade-weighted  basis.  For  almost  all  import 
duties this will be done over seven years in the EU and ten years in Vietnam, as of the entry into 
force of the agreement. However, some flexibility is foreseen for sensitive products. For example, 
the EU tariffs on Vietnamese exports of textiles and apparel will be removed in five to seven years 
for sensitive items and in three years or directly upon entry into force for less sensitive goods. For 
footwear,  EU  tariffs  will  be  eliminated  after  seven  years  for  sensitive  items,  and  three  years  or 
upon entry into force on less sensitive ones. Vietnam, in turn, will withdraw tariffs on EU exports 
of almost all machinery and appliances and all textiles at the entry into force of the agreement. 
Also, around half of EU pharmaceutical exports will be able to enter the Vietnamese market duty-
free immediately13. 

Agricultural products: 

  EU’s  exports  to  Vietnam  will  be  mostly  fully  liberalised,  and  usually  in  no  more  than  7 

years and linear (except poultry, beer, cigarettes), despite some tariff peaks.  

  EU’s  agricultural  imports  from  Vietnam  are  mostly  (about  90%)  products  which  are 
already MFN duty-free. Some of the few that are not (noodles, rice, manioc starch) would 
be subject to limited partial openings in the form of tariff rate quotas (TRQs).  

  Tariffs on beef will be eliminated in 3 years and on pork in 7 years.  

  As  regards  poultry,  which  was  the  subject  of  a  difficult  discussion  given  Vietnam’s 
sensitivity, the EU commitment to offer sector reciprocity led to the liberalisation (within 
10 years) of a product where the EU is a leading exporter to Vietnam. 

  On dairy, all duties would be abolished in maximum 5 years, with shorter staging on most 

cheeses, milk powder and liquid milk (3 years).  

  On alcoholic beverages, all duties will be eliminated in 7 years, with exception of beer (10 

years).  

13 The rest will be liberalised after seven years. 

 
 
 
 
                                                           
 
19 

  On  chocolate,  full  liberalisation  of  duties,  as  high  as  30%,  will  take  place  in  a  5-7  years 
period.  Pasta  (20%  to  38%  duty)  will  be  fully  liberalised  in  7  years  (10  years  for  some 
stuffed pasta, containing meat). The 20% duty on processed tomatoes will be dismantled 
in 5 years. 

EU tariff rate quotas for Vietnam: 

The  EU  has  granted  Vietnam  duty-free  tariff rate  quotas  on  rice,  sugar,  and other  products  like 
sweet corn, garlic and mushrooms exported by Vietnam (see table below). 

Table 8: EU tariff rate quotas in the EU-Vietnam FTA 

TRQ Nr 

1 

2 

3 

4 

Sector 

Eggs 

Garlic 

Sweetcorn 

Mushrooms 

5, 6 & 7 

Rice 

Agreed TRQ 

500 t 

400 t 

5 000 t 

350 t 

The concession on rice will be subdivided in 3 sub-TRQs to 
reduce the impact on the EU industry: 

30 000 t of milled and semi-milled rice 
20 000 t of husked rice (~14 000t in milled equivalent) 
30 000 t of fragrant rice 

8 

9 

10 

11 

Manioc starch 

Modified starches, sorbitol etc. 

Sugar  - 1701 and 1702 (including 
2 high sugar content lines 1806) 

30 000 t 

2 000 t 

20 000 t 

+400 t for speciality sugar tariff lines 1701 and 1490 

Ethanol 

1 000 t 

The export restrictions that Vietnam currently imposes on 470 tariff lines with a simple average of 
12% will be almost fully eliminated. Some export taxes were allowed to remain in place notably 
on the exports of some fossil fuels and some mineral products.  

3.2 

Reduction of non-tariff barriers on trade in goods 

3.2.1. Technical Barriers to Trade 

The agreement also offers important breakthroughs regarding the reduction of non-tariff barriers 
that affect trade in goods between Vietnam and the EU. In that respect, the technical barriers to 
trade (TBT) chapter of the agreement contains provisions that go beyond those in the WTO TBT 
Agreement  in order  to ensure  that  technical regulations, standards, and conformity assessment 
procedures are non-discriminatory and do not create unnecessary obstacles to trade. 

 
 
 
 
20 

With regard to technical regulations, Vietnam agreed to assess the available regulatory and non-
regulatory alternative to the proposed technical regulation and to endeavour to assess its impact 
in the form of a regulatory impact assessment as recommended by the TBT Committee. Vietnam 
also  agreed to review  its  technical regulations with a view  to increasing their  convergence with 
relevant international standards and to the use of relevant standards developed by a number of 
international  standards  setting  bodies  as  a  basis  for  Vietnam's  technical  regulations.  In  the 
agreement,  Vietnam  also  committed  to  review  at  regular  intervals  its  national  and  regional 
standards that are not based on relevant international standards, with a view to increasing their 
convergence with relevant international standards. 

Importantly, Vietnam agreed to consider the supplier's declaration of conformity as assurance of 
conformity among the options for showing conformity with its technical regulations. Furthermore, 
Vietnam also committed in the agreement to ensure that economic operators can chose amongst 
interest  between 
to  avoid  possible 
conformity  assessment 
accreditation bodies and conformity assessment bodies by ensuring their independence. 

conflicts  of 

facilities 

With  regard  to  transparency,  the  agreement  will  ensure  that  all  technical  regulations  and 
mandatory conformity assessment procedures are publicly available on official websites and free 
of  charge  and  allow  economic  operators  of  the  other  Party  to  participate  in  any  formal  public 
consultation process concerning the development of technical regulations. 

Finally,  Vietnam  committed  to  prevent  conflicts  of  interest  between  market  surveillance  and 
conformity  assessment  functions,  as  well  as  between  market  surveillance  bodies  and  economic 
operators subject to their control. 

Motor vehicles 

It  is  fair  to  say  that  these  are  some  of  the  far-reaching  deliveries  from  the  agreement  that  are 
likely to impact the way EU firms will do business in Vietnam. In the car sector, the agreement will 
improve the access conditions to the Vietnam market for EU producers by encouraging Vietnam 
to  sign  up  to  the  UNECE  1958  Agreement  on  automotive  technical  regulations  and  to  accept 
UNECE-conforming  automotive  products 
technical 
requirements14. Such provisions are due to take effect within three years following the entry into 
force of the FTA15,16.  

from  EU  suppliers  without 

further 

Pharmaceuticals  

In addition to the above-mentioned provisions in the IPR chapter, the pharmaceuticals sector will 
benefit from several other provisions in various chapters of the agreement aimed to ease bilateral 

14  Per  UNECE  practice  automotive  parts  are  accepted  by  members  on  the  basis  of  UNECE  marks  only.  This  includes 
products  with  new  technologies  as  well  as  new  whole  vehicles  as  long  as  they  are  covered  by  a  valid  UNECE 
International Whole Vehicle Type Approval. 
15 "EC whole vehicle" certificates are to be accepted by Vietnam within 5 years of the FTA coming into force. 
16 All 77 UNECE regulations applying to passenger cars and parts are covered. Regulations that apply to parts for small 
buses and big trucks are also covered to the extent they are included in the UNECE Regulations on passenger cars. 

 
 
 
 
                                                           
 
21 

trade.  For  example,  the  FTA  requires  Vietnam  to  recognise  and  adopt  international  standards, 
practices  and  guidelines  for  pharmaceutical  products  and  medical  devices17.  Vietnam  also 
committed to  simplify requirements  for marketing authorisations in order to reduce  delays and 
costs in allowing the introduction to the local market of research-based medicinal products.  

The  agreement  also  settles  another  long-standing  friction  regarding  trade  in  pharmaceutical 
products and the scope of Vietnam’s obligations under the “trading rights” provisions of its WTO 
Protocol  of  Accession.  Vietnam  agreed  to  adopt  and  enforce  the  appropriate  legal  instruments 
necessary to allow foreign pharmaceutical companies to import pharmaceuticals (which obtained 
marketing  authorization  in  the  local  market)  to  sell  to  local  distributors  or wholesalers.  Foreign 
firms  in  the  sector  will  also  be  given  permission  to  build  their  own  warehouses,  to  provide 
information to healthcare practitioners and to perform clinical studies and testing.  

3.2.2. Sanitary and phytosanitary measures 

Vietnam and the EU agreed on the principle of using the WTO SPS Agreement as the main guide 
for  framing  any  future  measures  of  this  nature.  The  parties  also  agreed  to  adopt  standards 
developed  by  international  standard  bodies.  The  aim  is  to  make  SPS  requirements  more 
operational and transparent to facilitate bilateral trade. This will offer solutions to concrete issues 
that  have  affected  the  bilateral  relationship  for  a  long  time,  like  for  example  the  lack  of 
agreement on the establishment of health status for certain animal diseases (notably BSE). In that 
regard  the  parties  have  also  agreed  to  adopt  the  international  health  status  formulated  by  the 
World Organisation for Animal Health (OIE).  

3.2.3. Intellectual Property Rights (IPR) 

Vietnam agreed to make far-reaching changes to its domestic legal framework strengthening the 
protection  of  intellectual  property  rights,  which  is  of  particular  importance  for  the  EU  business 
interests.  Moreover,  Vietnam  will  adopt  the  WIPO  Internet  Treaties18  to  address  issues  like  the 
protection of copyrights of material disseminated  over digital networks such as the Internet.  By 
doing so, Vietnam will also provide adequate legal protection and effective remedies against the 
circumvention  of  technological  measures  (such  as  encryption)  used  by  right  holders  to  protect 
their rights19.  

In addition,  the  deliberate alteration or deletion of electronic  "rights management  information" 
i.e. the information which accompanies any protected material, and which identifies the work, its 
creators,  performer,  or  owner,  and  the  terms  and  conditions  for  its  use  is  prohibited.  The 
agreement  will  also  give  authors,  broadcasters,  performers  and  producers  additional  rights  in 

17  The  agreement  makes  specific  reference  to  standards  developed  by  the  WHO,  the  OECD,  the  International 
Conference on Harmonization (ICH) and the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-
operation  Scheme  (PIC/S)  for  pharmaceutical  products.  For  medical  devices  standards  the  agreement  refers  to  the 
International Medical Device Regulators Forum (IMDRF). 
18  The  WIPO  Copyright  Treaty  and  the  WIPO  Performances  and  Phonogram  Treaty  (known  together  as  the  "Internet 
Treaties") set down norms preventing unauthorized access to and use of creative works on the Internet or other digital 
networks. 
19 These "anti-circumvention" provisions tackle the problem of "hacking". 

 
 
 
 
                                                           
 
22 

Vietnam  like  the  right  of  reproduction,  distribution  and  of  making  available,  the  right  of 
communication to the public and the right to single equitable remuneration (for broadcasts and 
communication to the public). In practice, this means, for example, that European artists can get 
royalties from food, drink and retail establishments that play music to attract consumers. Vietnam 
will  also  apply  the  WIPO  recommendation  on  the  protection  of  well-known  trademarks,  which 
takes into consideration additional parameters that are not restricted exclusively to its degree of 
prominence  amongst  relevant  consumers  in  a  country.  It  also  agreed  on  offering  additional 
clarification for grounds for revocation, including the obligation to have a requirement of use and 
protection against misleading use of names.  Finally Vietnam committed to accede to the Hague 
Agreement20 and to extend the protection for designs to 15 years. Patent owners will also benefit 
from an extension of patent protection in case of delays in marketing authorisation procedures. 

important  achievement  of  the  agreement  regards  the 

Another 
increased  protection  of 
undisclosed  information  and  data.  For  pharmaceutical  products  (including  biologics)  and 
agrochemical  products,  data  protection  has  now  been  set  to  five  years.  In  addition,  the  Parties 
agreed to protect plant varieties rights, in accordance with the International Convention for the 
Protection  of  New  Varieties  of  Plants  (UPOV)  and  its  latest  revision  (the  so-called  "1991  UPOV 
ACT"). This means that innovative plant varieties that can lead to better yields will be protected. 
The  latter  is therefore  likely  to  be  introduced  more quickly  onto  the  Vietnamese  market  to  the 
benefit of farmers and consumers.  

The agreement settles another long-standing friction regarding trade in pharmaceutical products 
and the scope of Vietnam’s obligations under the “trading rights” provisions of its WTO Protocol 
of Accession. Vietnam agreed to adopt and enforce the appropriate legal instruments necessary 
to allow foreign pharmaceutical companies to import pharmaceuticals (which obtained marketing 
authorization in the local market) to sell to local distributors or wholesalers. Foreign firms in the 
sector  will  also  be  given  permission  to  build  their  own  warehouses,  to  provide  information  to 
healthcare practitioners and to perform clinical studies and testing.  

Vietnam will also provide an extension of patent protection, for up to two years, for delays in the 
marketing  approval  of  pharmaceutical  products  if  the  approval  process  takes  more  than  24 
months.  In  other  words,  Vietnam  shall  compensate  for  unreasonable  delays  in  granting  of 
marketing  authorisations  for  pharmaceutical  products  by  extending  patent  protection  up  to  2 
years. 

Finally, Vietnam also agreed to recognise a list of 169 EU GIs21 and to award a level of protection 
on par to that offered by EU legislation. The listed GIs will be able to coexist with prior registered 
trademarks  in  Vietnam22.  This  will  be  backed  by  appropriate  administrative  sanctions  on  the 
Vietnamese market, including upon request of an interested party. 

20 Procedural treaty on the registration of designs. 
21 Moreover it will be possible to add new GIs in the future. 
22 Specific solutions were found for five EU GIs. The "Champagne" GI will fully be protected after a transition period of 
10 years, also against uses in transliteration such as "sam bahn". The GIs for the cheeses "Feta", "Asiago", "Fontina" and 
"Gorgonzola" will be protected in the Vietnamese market but prior and actual commercial uses in good faith prior to 1 

 
 
 
 
                                                           
 
23 

As  regards  enforcement,  the  FTA  improves  the  legal  framework  on  the  enforcement  of  IPRs  by 
including  provisions  that  define  more  precisely  the  obligations  of  Vietnamese  authorities  and 
customs  officers  while  attributing  the  increased  competences  and  better  tools  to  address 
infringements.  Vietnam  also  agreed  to  recognise  a  number  of  entities  as  entitled  applicants  to 
enforcement  measures  and  to  provide  provisional  measures  and 
injunctions  against 
intermediaries.  It  also  turned  the  right  to  information  into  an  obligation  extending  it  to  other 
entities  than  the  infringer,  while  introducing  additional  obligations  regarding  provisional 
measures like the possibility of recurring penalty payments, blocking of bank accounts and other 
assets  and  allowing  possibility  to  replace  injunctions  or  corrective  measures  by  pecuniary 
compensation in certain cases of unintentional infringement. The FTA also grants custom officers 
the  ability  to  act  ‘ex-officio’  (i.e.  to  intervene  without  having  to  wait  for  a  complaint  while 
imposing  the  obligation  to  extend  border  enforcement  measures  to  exports  of  infringing  goods 
and of cooperating with right-holders and to use risk analysis. 

3.2.4. Rules of Origin (RoO) 

Rules of origin negotiated in the agreement follow the EU approach and share the main features 
of  those  of  the  EU’s  General  System  of  Preferences  (GSP)  as  well  as  of  the  EU’s  FTA  with 
Singapore.  They  contain,  however,  a  number  of  requirements  and  flexibilities  which  take  into 
account the specific situation of Vietnam and of the EU. For garments to qualify for Vietnamese 
origin and hence be imported into the EU under reduced or zero duty rates, producers will need 
to  set  up  the  entire  textiles  value  chain  in  Vietnam.  The  use  of  textiles  originating  in  other 
countries with which the EU has an FTA in place can be allowed, thereby fostering a higher degree 
of integration into global value chains. 

3.3 

Services trade liberalisation   

The agreement includes a number of provisions to improve bilateral market access conditions for 
firms  in  services  sectors.  These  include  regulatory  changes  affecting  cross-border  services  trade 
(what is called mode 1 following the GATS nomenclature for market access in services) and cross-
border commercial presence via foreign direct investment (mode 3).  

The  EU  agreed  to  offer  Vietnam  the  assurance  that  its  current  level  of  openness  will  remain 
unaltered.  This means that  the  EU  agreed to  bind vis-a-vis  Vietnam  market  access  and  national 
treatment commitments that go beyond GATS23. However, as the EU services sectors are already 
generally  relatively  open  it  has  not  agreed  to  implement  any  additional  reduction  of  the 
remaining "barriers" in place. For Vietnam, on the other hand, the agreement presented a good 
opportunity  for  an  extensive  overhaul  of  the  legal  and  regulatory  framework  of  many  of  its 
services sectors, which in some cases included making new market access and national treatment 

January 2017 will be allowed. No new entrants will be allowed after that date. In addition, for "Feta" prior uses are only 
allowed if the cheese is made from sheep's milk or made of sheep's and goat's milk. 
23  For  the  EU,  in  line  with  past  methodological  practices,  this  means  that  the  CGE-based  quantification  presented  in 
section 4 adopted a 3% across-the-board reduction in services trade barriers.   

 
 
 
 
                                                                                                                                                                                
 
24 

commitments  that  go  beyond  the  country's  GATS  obligations.  In  the  text  of  the  FTA  we  have 
identified around 320 individual sector-specific elements, which include for example:  

  On commercial banking, Vietnam undertook binding commitments  on its currently open 
regime  on  transfer  of  financial  information  and  financial  data  processing.  In  addition,  it 
agreed  to  liberalise  the  requirements  for  approval  by  the  regulatory  authority  of  new 
banking products or services and removed other restrictions to competition in the sector. 
For  example,  foreign  banks  branches  controlled  by  an  EU  financial  institution  are, 
following the agreement, allowed to submit combined financial reports including balance 
sheet,  income  statement  and  cash  flow  statement  which  means  that  individual  reports 
are no longer required. 

  On insurance, Vietnam agreed to bind its open regime regarding the transfer of data and 
data privacy and the regulatory approval of new products. Vietnam also agreed to bind its 
liberal regime of not imposing discriminatory requirements for collateral and localisation 
of assets. 

  On  securities,  Vietnam  committed  to  allow  market  access  and  national  treatment  in 
respect to the cross border provision of financial data processing and to the provision of 
advisory, intermediation and other auxiliary securities related to trading for own account 
or  for  account  of  customers  as  long  as  they  are  permitted  to  Vietnam's  own  financial 
services  suppliers,  participating  in  issues  of  all  kinds  of  securities,  asset  management 
settlement and clearing services for securities etc.   

 

 Vietnam also made commitments applying to all financial services which aim at ensuring 
that  internationally  agreed  standards  for  regulation  and  supervision  in  the  financial 
services sector and for the fight against tax evasion and avoidance are implemented and 
applied in its territory; Vietnam also agreed to a set of principles on transparency and will 
make  available  its  requirements  for  completing  applications  relating  to  the  supply  of 
financial services and  inform the applicant of the status of its application, among others.   

  On  courier  services,  Vietnam  committed  to  implement  the  separation  of  accounting  of 
commercial  and  statutory  functions  and  to  improve  its  bindings  for  non-discriminatory 
market  access  for  private  courier  services  firms.  Vietnam  agreed  to  liberalise  postal 
services, except those subject to universal service obligations and reserved services which 
means that while many postal services are still provided under monopoly, under the FTA, 
Vietnam will  allow  the  EU  to  benefit  from  further  liberalisation  in  this  sector when  this 
will  be  decided.  For  example,  it  is  likely  that  the  provision  of  universal  service  will  be 
changed and some of the postal services will not be reserved services offered only by the 
universal  service  provider  as  is  the case  today.  If  this  happens,  then  the  EU will  benefit 
through Vietnam's broad commitments in the FTA and therefore EU providers will be able 
to supply such liberalised services. Vietnam will also go beyond its GATS commitments on 
issues  ensuring  fairer  competition  by preventing  anticompetitive  practices  in  the  postal 
sector, committing to the application of certain standards on licensing and to provisions 
ensuring  the  independence  of  the  postal  authority  and  its  impartiality  from  the  market 
participants.   

 
 
 
 
25 

  On  logistics  services,  Vietnam  agreed  to  binding  commitments  in  customs  brokerage, 
cargo  handling,  and  ground  handling  related  to  giving  firms  access  to  authorized 
economic  operator  (AEO)  status.  Vietnam  also  fully  committed  cross  border  container 
station, depot and handling services; storage and warehouse services; dredging services. 
In  addition,  there  is  new  market  access  for  cross  border  passengers  and  freight 
transportation and passengers and freight maritime transportation. It also increased the 
commercial  presence  foreign  equity  share  from  49%  to  up  to  70%.  Finally,  Vietnam  will 
also permit, subject authorisation, the international maritime transport service suppliers 
of the EU and/or its Member States to re-position their owned/leased empty containers 
and to provide feeder services, between certain Vietnamese ports. 

  On business services, Vietnam committed for the first time the whole sector of computer 
services  instead  of  committing  only  certain  sub-sectors  capturing  hence  all  future 
technologies in the sector. 

  On  environmental  services,  Vietnam  committed  for  the  first  time  in  the  agreement  the 
provision of sanitation  (and similar services) as well as  nature  and landscape protection 
services  for  all  modes  of  supply  without  any  limitations  for  both  market  access  and 
national treatment. 

  On education, Vietnam committed for the first time the provision of cross border higher 

education services for market access and national treatment. 

 

In distribution services, Vietnam committed to the complete elimination of the economic 
needs  test  on  outlets  for  retail  services  within  5  years  from  the  entry  into  force  of  the 
agreement. As Vietnam implemented its GATS commitments on the distribution of wines 
and spirits in a rather restrictive way, it signed in addition an Understanding concerning 
such distribution services of wines and spirits ensuring that the commitments made under 
GATS  are  not  implemented  in  a  detrimental  manner  for  the  EU  providers  of  wines  and 
spirits.     

  On telecommunications, Vietnam commitments  related to commercial presence  include 
an increase of the foreign equity cap for all non-facilities based basic telecommunication 
services (including voice telephone, packet-switched data, circuit switched, private leased 
circuits  services,  etc  from 65%  of  legal  capital of  the  joint  ventures  to 75%  subject  to a 
transitional  period  of  5  years.  Vietnam  also  increased  the  non-facilities  based  Virtual 
Private Network foreign equity cap from 70 to 75%. In addition, Vietnam committed to a 
set  of  regulatory  disciplines  aiming  at  ensuring  a  level  playing  field  for  all  operators, 
domestic  and  foreign  such  as  licensing  fees,  access  and  interconnection,  number 
portability  for  mobile  services,  co-location,  leased  circuits  and  unbundled  network 
elements.  At  the  same  time  Vietnam  introduced  very  important  principles  on  the 
functioning of the regulators ensuring their independence while regulating the sector. 

  Vietnam also agreed to a set of principles aiming at regulating licensing and qualification 
procedures  which  are  included  in  a  dedicated  Chapter  on  Domestic  regulation.  These 
principles will ensure that licensing requirements and procedures are not used as a means 
to  obstruct  entry  into  the  market  and  deter  the  development  of  fair  competition. 

 
 
 
 
26 

Applicants  of  licences  will  be  further  protected  against  any  arbitrary  treatment  of  their 
applications while a set of rights is ensured such as the right to appeal, to obtain a reply 
on their application within a reasonable timeframe etc. 

  On  health  related  services,  Vietnam  committed  for  the  first  time  social  services  (with 
accommodation  and  without  accommodation)  for  commercial  presence  subject  to 
requirements while committed fully to cross border without any limitation.  Furthermore, 
Vietnam  abolished  the  GATS  limitation  for  hospitals  that  "The  minimum  investment 
capital for a commercial presence in hospital services must be at least US$20 million for a 
hospital, US$2 million for a policlinic unit and US$200,000 for a specialty unit."  Following 
this  abolition  and  the  one,  included  in  GATS,  Vietnam  now  offers  in  the  FTA  full 
commitments to medical and dental services. 

3.4.  

Liberalisation of FDI in manufacturing sectors 

The  FTA  includes  commitments  on  market  access  via  commercial  presence  in  manufacturing 
sectors  in  Vietnam.  In  most  sectors  Vietnam  already  complies  with  the  majority  of  such 
commitments.  The  most  important  changes  that  the  FTA  will  bring  relate  to  the  screening  and 
approval  of  FDI  projects.  Vietnam  currently  evaluates  investment  license  applications  using  a 
number of criteria24, and requires approval by the National Assembly25 for several types of FDIs26. 
With  the  agreement,  Vietnam  committed  to  remove  administrative  hurdles,  except  in  sectors 
where conditions apply (see box 2).  

The  other  important  change  relates  to  the  national  treatment  article  in  the  agreement  that 
prohibits  any  kind  of  discriminatory  measure  other  than  the  ones  specified  in  Vietnam's 
reservation  schedule,  like  for  example  with  regards  to  the  attribution  of  subsidies  to  domestic 
firms under certain conditions. Private land ownership will also remain prohibited in Vietnam27. 

24  These  include:  1)  investor’s  legal  status  and  financial  capabilities;  2)  the  project’s  compatibility  with  Vietnam’s 
“Master  Plan”  for  economic  and  social  development  and  projected  revenue;  3)  technology  and  expertise;  4) 
environmental  protection;  5)  plans  for  land  use  and  land  clearance  compensation;  6)  project  incentives  including  tax 
rates, and 7) land, water, and sea surface rental fees.   
25  Projects  which  are  not  approved  by  the  National  Assembly  or  the  Prime  Minister  are  approved  by  the  provincial 
People’s Committee. 
26 Projects with a large environmental impact; Projects that change the land usage purpose in national parks; Projects 
located  in  protective  forests  larger  than  50  hectares;  Projects  that  require  relocating  20,000  people  in  remote  areas 
such as mountainous regions. Foreign investment projects that require Prime Ministerial approval include: Projects to 
build airports, seaports, or casinos; to explore, produce and process oil and gas; or to produce tobacco, Projects having 
investment  capital  more  than  VND5,000  billion  ($233  million);  Projects  with  foreign  investors  in  sea  transportation, 
telecommunication  or  network  infrastructure,  forest  plantation,  publishing,  or  press;  and  100  percent  foreign-owned 
scientific and technology companies or organizations. 
27 However, the Land Law of 26 November 2003 (as amended) allows land to be leased, and assets associated with the 
land and the value of land-use rights to be mortgaged. Although the duration of a land-lease agreement should not 
exceed 50 years, leases may be extended upon expiry of the initial terms. For certain projects (e.g. large investments or 
those benefiting socio-economic difficult areas) the Government may grant land leases with an initial duration of up to 
70 years. 

 
 
 
 
 
                                                           
 
27 

Box 2: FDI in Vietnam - Conditional Sectors 

Vietnam’s investment framework as described in the WTO TPRM conducted in 2013 is grounded 
on  the  Enterprise  Law  (No.  60/2005/QH-11) and  on  the  Investment  Law  (No. 59/2005/QH-11)28 
that  apply  to  domestic  and  foreign  investors.  Also  relevant  are  the  Land  Law  of  26  November 
2003 and the Decree No. 102/2010/ND-CP of 1 October 2010, which guides the implementation 
of certain provisions of the Enterprise Law, and prohibits investments deemed as detrimental to 
national defence and security, historical and cultural ethics, national traditions and fine customs, 
and  the  environment.  In  addition,  it  lists  the  sectors  in  which  investment  is  conditional,  which 
include  sectors  like  manufacture of  refined  petroleum  products;  extraction of crude  petroleum; 
mining  of  metal  ores;  other  mining  and  quarrying;  publishing,  printing  and  reproduction  of 
recorded  media;  manufacture  of  beverages;  manufacture  of  tobacco  products;  production  of 
electricity;  transmission  and  distribution  of  electricity,  and  distribution  of  water.  Also  in  fishing 
and  aquaculture  and  forestry  investment  is  conditional.  In  all  other  sectors  investment  is 
permitted without being subject to conditions.  

In  addition,  Vietnam  has  negotiated  some  sector-specific  reservations  that  will  allow  it  to 
continue to apply some additional investment restrictions in some sectors, notably:   

 

 

 

In  manufacturing  of  wood  and  of  products  of  wood  and  cork  (except  furniture)  and  in 
manufacturing  of articles of straw  and plaiting materials  Vietnam maintains the  right  to 
apply investment restriction to protect natural forests.   

In manufacturing of chemicals and chemical products, Vietnam reserves the right not to 
issue  investment  licenses  to  foreign  investors  for  the  production  of  industrial  explosive 
devices (ISIC 2429). 

In  manufacturing  of  other  non-metallic  mineral  products,  foreign  investments  on  the 
production of construction glasses, production of clay bricks, production of vertical shaft 
cement  production  equipment  and  baked  earth  bricks  and  tiles,  production  of  ready 
mixed  concrete,  stone  crushing  shall  continue  to  be  subject  to  planning  by  the 
Vietnamese  government.  In  addition,  investments  in  the  glass  and  glass  products, 
structural non-refractory clay and ceramic products, cement, lime and plaster, and articles 
of  concrete,  cement  and  plaster  will  continue  to  be  subject  to  planning  by  the 
government. 

  Some  sub-sectors  of  machinery  will  also  remain  subject  to  restrictions.  For  example 
according to decree No. 187/2013/ND-CP the production of assorted fireworks (excluding 
signal fires used for navigational safety under the guidance of the Ministry of Transport), 
sky  lanterns,  assorted  devices  causing  interference  to  vehicle  speedometers  goods  in 
foreign firms is not allowed.  

28 The two laws were adopted in November 2005 and came into on 1 July 2006. Both were revised on 1 July 2015. 

 
 
 
 
                                                           
 
28 

 

In the transport equipment sector the investment in automobile production and assembly 
will  continue  to  be  subject  to  government  planning.  According  to  this  reservation,  local 
manufacturers of automobiles may be given privileges in terms of production quantity to 
meet  the  demand  of  domestic  market  and  location  preferences.  The  situation  will  be 
similar  for  investment  in  motorcycle  assembly  and  manufacture,  following  Decision  No. 
02/2007/QD-BCT  on  the  development  of  Vietnam’s  motorbike  industry.  Restrictions  to 
investment will also remain in place in building and repairing of ships like the requirement 
that foreign equity participation does not exceed 50% in joint ventures. In manufacturing 
of  railway  and  tramway 
locomotives  and  rolling  stock  Vietnam's  schedule  of 
commitments  maintains  the  possibility  of  barring  foreign  firms  from  operating  in  the 
railways sector, which can be  found in Decision 1686/QD-TTg dated 20/11/2008. In  this 
sector  any  foreign  operator  must  enter  into  a  joint  venture  with  the  Vietnam  Railways 
Administration  or  the  Vietnam  Railways  Corporation;  the  foreign  party's  capital 
contribution  may  not  exceed  49%.  In  manufacturing  of  aircraft  and  spacecraft  Vietnam 
will  maintain  the  restriction  that  can  be  found  in  Decision  No  38/2007/QD-TTg  dated 
20/3/ 2007 that stipulates that foreign equity participations shall not exceed 49% of the 
legal capital of joint-venture companies in the sector. 

Due to limitations of the CGE model used, the changes in the regulatory framework that aim to 
liberalise FDI in manufacturing will not be captured in the quantification of the economic impact 
of the agreement presented in section 4. 

3.5. 

Customs and trade facilitation 

The agreement includes a specific chapter on customs and trade facilitation that aims to facilitate 
trade between the EU and Vietnam by modernizing and simplifying customs rules, requirements, 
formalities,  and procedures  in Vietnam.  For this analysis it is important to isolate the  impact of 
the  FTA  from  that  of  the  WTO  Trade  Facilitation  Agreement  (TFA)  that  is  currently  being 
implemented  by  the  two  parties.  With  that  in  mind  a  thorough  analysis  of  the  agreement  was 
undertaken  to  identify  the  WTO  TFA  -plus  or  WTO  TFA-extra  elements  in  the  FTA.  The  latter 
introduces  a  commitment  for  regular  consultations  between  border  agencies  and  various 
stakeholders.  In  addition,  Vietnam committed  to  ensure  that  fees  and  charges  shall  not  exceed 
the approximate cost of the services provided and shall not be calculated on an ad-valorem basis.  

4. 

Quantitative assessment of the agreement  

4.1.  Modelling technique   

The quantification of the economic impact of the commitments undertaken to reduce tariffs and 
export  taxes  as  well  as  non-tariff  barriers  affecting  the  cross-border  exchanges  of  goods  and 
services  between  the  EU  and  Vietnam  (including  the  value  of  binding  commitment  of  market 
access commitments that go beyond WTO) is based on a simulation using a dynamic computable 
general equilibrium (CGE) model of the world economy.  

 
 
 
 
 
29 

CGE  models  are  the  most  widely  used  tools  to  assess  the  impact  of  trade  policy  initiatives  by 
simulating  the response values of macroeconomic variables like income, prices, production and 
trade  flows  and  comparing  them  against  the  values  of  the  same  macroeconomic  variables  in  a 
"business as usual" baseline. In the case of dynamic CGE models like the one used in this analysis 
the  baseline  extends  over  the  total  implementation  period  (and  beyond).  The  underlying  long-
term macroeconomic, technological and employment trends are the same in the baseline and in 
the policy scenario so that any differences between the two in terms of the value of the simulated 
macroeconomic variables is driven only by the trade policy change. 

Table 9: Sector disaggregation and correspondence to GTAP sectors  

Description 

GTAP Sectors 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 
12 
13 

14 

15 
16 
17 
18 

19 

Rice 

Cereals 
Vegetables, Fruits and 
Nuts 
Oilseeds,  Vegetable Oils 
and Fats 
Sugar 
Plant and Animal Fibres,  
and Other Crops 
Bovine and other 
Ruminant Meats 
Other Meat (Poultry, 
Pork) 

Dairy Products 

Forestry 

Fisheries  
Other Food 
Beverages and Tobacco 

Fossil Fuel 

Minerals 
Textiles 
Wearing Apparel 

Leather Product 

Wood and Paper  

1 (PDR); 23 (PCR) 

2 (WHT); 3 (GRO) 

4 (V_F) 

5 (OSD); 21 (VOL) 

6 (C_B); 24 (SGR) 
7 (PFB); 8 (OCR), 
12 (WOL) 

20 

21 

22 

23 

24 

25 

Description 
Chemicals, Rubber and 
Plastic Products 
Mineral Products 
Metals and Ferrous 
Metals  

GTAP Sectors 

33 (CRP) 

34(NMM) 

35 (I_S), 36 (NFM) 

Metal Products 

Motor Vehicles 

37 (FMP) 

38 (MVH) 

Transport Equipment  

39 (OTN) 

9 (CTL); 19 (CMT) 

26 

Electronic Equipment 

40 (ELE) 

10 (OAP); 20 
(OMT) 
11 (RMK); 22 
(MIL) 

13 (FRS); 

14 (FSH) 
25 (OFD) 
26 (B_T) 
15 (COA); 16 
(OIL); 17 (GAS); 32 
(P_C); 
18 (OMN) 
27 (TEX) 
28 (WAP) 

29 (LEA) 

30 (LUM), 31 
(PPP) 

27 

28 

29 

30 
31 
32 

33 

34 
35 
36 

37 

38 

39 

Other Machinery and 
Equipment 

41 (OME) 

Other Manufacturing 

42 (OMF) 

Utilities 
Construction 
Trade 
Transport nec 

43 (ELY); 44 (GDT); 45 (WTR) 

46 (CNS) 
47 (TRD) 
48 (OTP) 

Water Transport 

49 (WTP) 

Air Transport 
Communications 
Financial Services 

Insurance 

50 (ATP) 
51 (CMN) 
52 (OFI) 

53 (ISR)  

Business Services 

54 (OBS) 

Other Services 

55 (ROS); 57 (DWE), 56 (OSG) 

Source: own aggregation of the GTAP database 

We have used the dynamic version of the GTAP model (see box 3 for additional information) and 
the GTAP database version 929. The baseline for the simulation used to evaluate the impact of the 
agreement is projected up to the year 2035. All modelling results are reported in respect to that 

29 The GTAP database is developed by the GTAP consortium at the University of Purdue. Its regular updates build on the 
collaborative efforts of dozens of researchers, governmental agencies and international organizations around the world 
who  use  it  extensively  for  trade  policy  analysis.  For  more  information  see:  https://www.gtap.agecon.purdue.edu/ 
databases/v9/default.asp. 

 
 
 
 
 
 
 
 
 
                                                           
 
30 

year. The final set of import tariff cuts are  to be implemented within 10 years of the entry into 
force  of  the  agreement  while  the  cuts  of  export  tariffs  are  to  be  implemented  with  16  years30. 
Assuming  the  agreement  enters  into  force  in  2019  a  cut-off  date  of  2035  allows  time  for  any 
further dynamic effects of the last export tax reductions to unfold.  

The baseline projection draws on IMF near term economic forecasts taken from World Economic 
Outlook  report  released  in  April  2017  (IMF  2017).  For  the  long-term  we  relied  on  the  CEPII 
projections  for  GDP  real  growth  rates  as  well  as  population,  skilled  labour  and  unskilled  labour 
growth  rates,  see  Fouré  et  al.  (2016).  While  the  GTAP  database  accounts  for  the  existing  tariff 
schedules  under  Most-Favoured-Nation  (MFN)  treatment  as  well  all  preferential  tariff  rates  as 
negotiated  in  FTAs  and/or  offered  in  unilateral  tariff  liberalization  made  by  countries  this 
information  had  to  be  updated  to  account  for  recent  FTAs  that  were  signed  by  the  EU  and 
Vietnam  after  201131.  More  specifically  the  FTAs  that  the  EU  signed  with  Korea,  Singapore  and 
Canada  were  added  to  the  baseline  as  well  the  economic  partnership  agreements  with  West 
Africa and the  Southern African Development Community.  In the case  of  Vietnam the following 
FTAs were added to the baseline: Eurasian Economic Union, ASEAN Economic Community, CPTPP, 
ASEAN+1  (involving  Australia  and  New  Zealand,  China,  India,  Japan,  South  Korea)32.  The  WTO's 
Trade  Facilitation  Agreement  was  not  pre-simulated  but  trade  facilitation  gains  under  the  EU-
Vietnam were evaluated in this analysis on a post-TFA basis, as discussed above in section 3.533. 

Box 3: Overview of the dynamic GTAP model; characteristics and assumptions 

CGE models offer an integrated framework that captures the main features of an economy, based 
on  standard  national  income  and  expenditure  accounts,  a  production  function  for  each  sector 
that  combines  sector-specific  requirements  of  factors  (capital,  skilled  and  unskilled  labour)  and 
intermediate  inputs,  and  a  trade  account  that  captures  all  the  international  linkages  for  each 
sector of the economy (at the level of final and intermediate products).  

These models offer the possibility to carry out comprehensive evaluations of the impact of policy 
changes like the implementation of a new trade agreement by accounting for the potential impact 
on the underlying domestic and international interlinkages across markets for goods and services 
and for factors of production. With CGE model-based simulation it is possible to simultaneously 

30 The tariff phase-out was based on FTA tariff reduction schedule, taking into account tariff rate quotas (TRQs), export 
taxes,  and  the  fact  that  the  Vietnam  tariff  reduction  schedule  is  based  on  MFN  rates  which  are  above  the  GSP  rates 
applied by the EU. The GTAP v9 protection data (for 2011) were used except for the key leather sector. For that sector 
the  benchmark  GTAP  tariff  for  the  EU  was  10.66%,  which  contrasted  with  the  much  lower  figure  (7.05%)  in  World 
Integrated  Trade  Solution  (WITS)  for  2011  that  is  based  on  the  Trade  Analysis  and  Information  System  (TRAINS) 
database. In WITS only the data for 2010 is similar to that of GTAP at 11.31%. But this turned out to be an outlier in the 
time series, which otherwise varies from 6.63% to 7.32% over the period 2005-2015.  
31 For practical reasons, only agreements concluded in 2011 or more recently and that account for at least  1% of the 
parties’ trade are pre-simulated.  
32 While in meantime the United States have decided to formally reject the  TPP, there are indications that rest of the 
membership are considering continuing with its implementation in the current form. Moreover the United Stated has 
hinted  that  it  may  pursue  bilateral  agreement  with  several  of  the  TPP  members.  As  the  final  outcome  remains  still 
unclear the analysis was developed with the TPP in the baseline. 
33 The agreement entered into force on 22 February 2017  when the WTO obtained the two-thirds acceptance of the 
Agreement from its 164 Members. 

 
 
 
 
                                                           
 
31 

impacts  on  the  different  components  of  national  accounts  (consumption, 
quantify  the 
investment,  government  expenditure,  real  exports,  and  real  imports),  on  economic  welfare34, 
sectoral  output  and  value  added  as  well  as  import  and  export  flows  (bilateral  and  global) 
reallocation  of  labour  (skilled  and  unskilled)  across  sectors  and  price  adjustments  (consumer 
prices and terms of trade) and government revenue. This is done by comparing all these variables 
computed  under  a  scenario  that  features  the  introduction  of  the  trade  policy  change  with  the 
same variables in a "business as usual" baseline in which the policy change is absent. The GTAP 
model that we used was especially conceived to pick up the intricacies of trade policy initiatives 
and related trade costs savings.  

The  CGE  model  used  in  this  economic  assessment  of  the  EU-Vietnam  FTA  is  the  dynamic  GTAP 
model (GDyn) developed by the Center for Global Trade Analysis at the University of Purdue, see 
Ianchovichina & McDougall (2012) for more detail35. This is a multi-sector, multi-region dynamic 
general equilibrium model that builds on and extends the standard, comparative static version of 
the  GTAP  model  featuring  endogenous  capital  accumulation  based  on  a  recursive  dynamic 
investment  framework  and  a  Monash-type  investment  function.  In  such  a  recursive  dynamics 
setting,  capital  supply  responds  to  changes  in  the  rates  of  return  to  capital.  The  growth  rate  of 
capital is determined by investors’ willingness to supply increased capital to each sector in each 
country,  which  in  turn  depends  on  changes  in  the  expected  rates  of  return  (ROR)  for  capital  in 
that  sector  and  region.  Assuming  that  investors  are  cautious,  any  shock  to  the  ROR  in  a  given 
sector and region is, however, eliminated only gradually. Hence investment is treated similarly as 
in  models  that  incorporate  costs  of  adjustment  that  are  positively  related  to  the  level  of 
investment in a given year (based on, e.g., construction/installation costs of capital suppliers). The 
Monash model, however, instead of relying on increasing adjustment costs as the mechanism to 
limit investment, incorporates investor perceptions of risk for this purpose36.  

In addition capital is assumed to be perfectly mobile across sectors leading to a single rental price 
of  capital  that  clears  the  market.  Savings  are  treated  as  in  the  static  GTAP  model:  the 
representative  household  allocates  regional  income  to  maximize  per  capita  utility  based  on  a 
Cobb-Douglas  utility  function  complemented  with  non-homothetic  preferences  on  the  private 
consumption  side.  The  Cobb-Douglas  specification  ensures  that  budget  shares  are  constant, 
implicitly assuming a constant marginal propensity to save of the household. As in most recursive 
dynamic models,  each  period's  equilibrium  determines  the  level  of  global  savings  and  implicitly 
the aggregate amount of investment expenditure available in that specific period.  

It  is  important to  note that  while  the  dynamic GTAP  model  used  for the  simulations of  the EU-
Vietnam  FTA  is  a  state-of-the-art  model  tailor  made  for  trade  policy  assessment,  the  simulated 
impact should be considered within the general limitations applying to CGE models. For example, 
the  model  doesn’t  capture  all  the  complexities  of  modern  trade  agreements  (notably  when  it 

34 Economic welfare is based on “equivalent variation”, the lump sum payment at pre-shock prices that would have to 
be made to households to leave them as well off as in the post-shock economy. 
35  For  more 
the  activities  and  output  of 
https://www.gtap.agecon.purdue.edu/. 
36 The parameter that mediates the supply response of capital i.e. the elasticity of the supply of capital to RORs is set at 
unity, based on firm-level gravity modelling. 

the  GTAP  consortium  please  see 

information  related 

to 

 
 
 
 
                                                           
 
32 

comes  to  reduction  of  non-tariff  barriers  to  cross-border  trade  and  investment)  due  to 
unavailability of sufficiently reliable data. It also cannot account for welfare gains from access to 
greater variety  of  final  products  and  intermediate  inputs.  Furthermore,  CGE models only  assess 
the impact of a trade agreement on existing trade flows and not the potential expansion of trade 
on the introduction of new products and services. Finally, general equilibrium modelling generally 
doesn’t  account  for  greater  incentives  to  innovate  and  knowledge  transfer  induced  through  a 
trade  agreement,  which  are  long-term  drivers  of  intra-industry  productivity  gains.  For  all  these 
reasons it is fair to view the results for the CGE modelling simulations as lower bound estimates of 
the true economic impact of a trade agreement.  

To  focus  on  key  results  the  57  sectors  in  the  GTAP  database  were  aggregated  into  39  broader 
sectors, see table 9 for a full listing of the sectors considered and the correspondence  with the 
original GTAP sectors. Also the countries in the GTAP database were bundled up into the following 
parties  of  interest:  EU,  Vietnam,  USA,  China,  Turkey,  Brunei,  Singapore,  Indonesia,  Malaysia, 
Philippines,  Thailand,  Least  Developed  ASEAN  Countries  (e.g.  Cambodia,  Laos  and  Myanmar), 
Other  Least  Developed  Countries,  Rest  of  the  TPP  (e.g.  Australia,  Canada,  Chile,  Japan,  Mexico, 
New Zealand, and Peru), and Rest of the World. 

Before entering into specific details on the results of the CGE model simulation it is important to 
highlight that while these quantitative techniques offer very useful and detailed insights into the 
economic  impact  of  FTAs they  should  not  be  taken  as  precise  estimates.  For a  number  of  valid 
reasons  CGE  models  tend  in  general  to  underestimate  the  economic  impact  of  trade  policy 
initiatives  (see  box  3  above).  In  addition,  simulation  results  based  on  any  GCE  model  must  be 
interpreted  in  light  of  its  specific  characteristics.  In  the  case  of  the  present  analysis  it  must  be 
borne in mind that we have relied on the widely used assumption that the labour supply is fixed 
(i.e. it is assumed that the FTA does not change the long-run employment level in the economy 
and the latter does not respond to changes in wages). Moreover, the model does not account for 
Foreign Direct Investments (FDI). Finally, the external trade balance is allowed to adjust freely as 
well as the government balance. 

4.2. Simulation design 

In addition to the elimination of tariffs and export taxes37 the following goods and services sectors 
as well as trade facilitation shocks have been included in the CGE model described in detail above: 

37 Given the lack of detailed, comprehensive and robust data on export taxes we have developed a baseline profile for 
the  export  tariffs  imposed  by  Vietnam  on  the  basis  of  the  FTA  liberalization  schedule.  For  purposes  of  the  modelling 
exercise described in section 4 the identified export taxes at the level of tariff lines were aggregated across all HS 6-digit 
codes with all other HS 6-digit export taxes set to zero. On that basis we have worked on the basis of simple averages to 
aggregate the data up to GTAP sectors in order to address the possible problem of endogeneity bias. The latter arises 
from the fact that, in developing a trade-weighted average tariff for each sector, the higher export tariffs that eliminate 
exports (which is the objective of the  export tax) would be given a zero weight,  which would push the sector  export 
tariff downwards. The use of a simple average avoids this problem. As a result the average export restrictions will be 
reduced to less than 2%. 

 
 
 
 
 
                                                           
 
33 

Goods sectors NTBs 

As pointed out in section 3.2 some of the important improvements in market access apply to the 
motor vehicles and pharmaceuticals sectors. However, what will be the exact impact in terms of 
market access improvements is difficult to assess using the traditional quantitative analysis tools 
at  our  disposal.  Nonetheless  we  have  tried  to  take  into  account  the  impact  of  the  regulatory 
changes foreseen in the agreement in these two sectors. 

To include the impact of the regulatory changes in the automotive sector in the CGE model-based 
simulation we have built on an ex-post analysis of the impact of similar provisions in the EU-Korea 
FTA.  The  assumption  that  was  made  is  that  the  EU  import  share  in  the  automotive  sector  in 
Vietnam  will  increase  in  line  with  what  was  observed  in  the  Korean  market  after  the 
implementation period of the agreement with South Korea38.  

In respect to pharmaceuticals, it is difficult to quantify a priori what the regulatory changes would 
mean in terms of the reduction of trade costs and in terms of additional market shares given the 
current dominance of EU pharma firms in Vietnam. Nonetheless, the inclusion of a separate annex 
on  pharmaceuticals  with  a  well-developed  section  on  transparency  can  be  regarded  also  as  an 
improvement in Vietnam’s international standards compliance related to trade facilitation in the 
sector. We capture this in the CGE model simulation by including an additional small cut (0.32%) 
in the trade costs affecting this specific sector39. 

Services sectors liberalisation 

Regulatory  changes  like  the  ones  listed  in  section  3.3  are  important  achievements  of  the 
agreement in terms of economic returns, especially  given the  high services specialisation of the 
EU  economy  and  the  dynamic  growth  of  the  tertiary  sector  in  Vietnam.  However,  an  ex-ante 
quantification  of  their  economic  impact  is  problematic  due  to  the  difficulty  in  establishing  a 
precise effect on firms' costs and the shortcomings in incorporating foreign investment in general 
equilibrium modelling tools. Due to the latter the CGE model-based simulations account only for 
changes to cross-border services trade (and not commercial presence). To compute their impact 
on  trade  costs  all  regulatory  changes  with  binding  effects40  in  each  service  industry  in  Vietnam 
were  identified  and  mapped  out  following  the  OECD’s  Services  Trade  Restrictiveness  Index41 

38 On the basis of the experience with the EU-Korea FTA during the period of implementation of the latter (2011-2013) 
the analysis in section 4 assumes that provisions for the car sector in the FTA between the EU and Vietnam will result in 
in the same increase in the EU market share in Vietnam.  
39 This is based on 2.2% improvement in the sector-specific OECD trade facilitation indicator. However, given that in the 
quantitative CGE-based analysis presented in section 4 the pharmaceutical industry is part of a broader sector that also 
includes chemicals, rubber and plastics, the sector-specific percentage trade costs reduction that was used in the CGE 
model simulation was rescaled on the basis of the import trade weight of HS30 products (pharmaceuticals). As a result 
the reduction of trade costs that was considered for the broader sector was 0.2%.    
40 The impact of the “best endeavour” clauses has not been calculated since they do not create a binding commitment 
between parties.  
41 For more information: http://www.oecd.org/tad/services-trade/services-trade-restrictiveness-index.htm. 

 
 
 
 
 
                                                           
 
34 

(STRI42) for cross-border trade (Mode 1) and compared against the current levels of restrictiveness 
(accounting for applied restrictions and GATS commitments), see box 143. 

Box 1:  The value of services bindings 

For firms operating in services sectors an important benefit that FTAs can deliver is the binding of 
the  existing  market  access  conditions.  In  legal  terms  this  is  achieved  by  reducing  or  eventually 
eliminating  the  difference  between  the  commitments  each  party  has  undertaken  in  the  WTO's 
General  Agreement  on  Trade  in  Services  (GATS)  and  the  level  of  protection  they  apply.  This 
difference is often referred to as "water". It gives an idea of the existing policy space of a country 
to  increase  market  access  restrictions  without  violating  WTO  commitments,  see  Miroudot  and 
Pertel (2015).  

By  removing  this  "water" authorities  reduce  the  uncertainty  that  businesses  face  about  market 
access  conditions  in  the  future,  which  promotes  more  trade  and  investment.  The  investment 
literature shows  that  firms make  state-contingent decisions:  if there  is  uncertainty about  future 
states and given the, at least partial, irreversibility of investment decisions they factor in the cost 
of  investment  the  option  value  of  delaying  and  that  of  accumulating  the  necessary  additional 
information44. The same reasoning would apply to the decisions backing the necessary investment 
to  engage  in  cross-border  services  trade.  This  role  of  uncertainty  is  especially  important  in 
international  trade  given  the  important  information  asymmetries  about  foreign  markets.  The 
higher the uncertainty about future market access the fewer firms will be ready to take the risk to 
start serving customers abroad. 

The OECD has undertaken work on the measurement of policy uncertainty in services sectors that 
led to the first estimates of the "water" in the GATS bindings computed as the difference between 
the STRI indices based on applied restrictions against commitments under GATS. In this report to 
calibrate  the  policy  shock  for  the  CGE  simulation  presented  in  section  4  we  follow  this 

42  This  methodology  covers  both  horizontal  and  sector-specific  commitments.  The  horizontal  commitments  stipulate 
conditions and restrictions that apply to all sectors of the economy. 
43 At the time of the analysis the OCED had not published a STRI for Vietnam so one had to be produced from scratch to 
capture  the  current  regulatory  landscape  in  the  country  across  the  different  services  sectors,  including  applied 
measures  and  GATS  commitments  (as  reported  in  GATS/SC/142,  19  March  2007).  This  work  was  guided  by  the 
methodology developed by the OECD and on the information collected from Vietnam’s laws and regulations and other 
secondary sources including the World Bank's STRI and the APEC STAR Database. The STRIs developed by the OECD for 
similar countries (notably China, Indonesia and Korea) were used as benchmarks. The analysis was done for 34 sectors 
(19 of the OECD’s 22 services sectors as audio, visual, and broadcasting were excluded and 15 additional sectors) and 
the  regulations  considered  were  mapped  out  under  five  policy  areas:  restrictions  on  foreign  ownership  and  other 
market  entry  conditions;  restrictions  on  the  movement  of  people;  other  discriminatory  measures  and  international 
standards; barriers to competition and public ownership; and regulatory transparency and administrative requirements. 
These policy areas were further broken down in order to capture specific issues of relevance for each sector. Given that 
the  original  OECD  STRI  lacks  measures  to  properly  capture  the  restriction/liberalizations  related  to  licensing 
requirements it was decided to add further information to the area of transparency requirements, based on the STRI 
developed by the World Bank (while keeping the same overall scores for the five policy areas). 
44 As a result such costs linked to uncertainty can deter investment. As Dixit and Pindyck (1994) emphasize such “hurdle 
rates” are substantially higher than the cost of capital and may be a significant factor inhibiting investment. Bloom et al. 
(2007) make the case that uncertainty does indeed make firms more cautious and, further, that this effect is large. 

 
 
 
 
 
 
 
  
                                                           
 
35 

methodology. To get to a composite non-tariff barrier per sector that accounts for both applied 
restrictions and the existing "water" we follow the methodology proposed in Ciuriak and Lysenko 
(2016)  that  attributes  to  reductions  in  "water"  half  the  weight  of  the  reductions  in  applied 
restrictions.  

The  exact  change  in  the  overall  restrictiveness  in  each  sector  ultimately  depends  on  the 
extensiveness of the regulatory change and also  on the weight given to each type of regulatory 
reform  (as  assigned  by  the  OECD).  The  difference  between  the  post-agreement  and  pre-
agreement STRI in a given sector shows the relative importance of the  reduction of the existing 
barriers  to  services  trade  in  the  sector.  The  impact  of  improved  bindings  was  established  by 
comparing the STRI calculated on the basis of GATS commitments (GTRI) and the STRI computed 
on the basis of the new commitments agreed in the FTA (which are binding to both parties). This 
allowed  taking  into  account  the  reduction  in  policy  space  that  is  implied  by  the  FTA45.  By 
combining  the  reduction  in  actual  barriers  and  the  binding  shock  we  computed  the  percentage 
change of a composite measure (accounting for applied restriction and policy space) of the non-
tariff  barriers  that  affect  trade  in  each  of  the  services  sector.  This  provides  a  synthetic  and 
quantifiable view of the changes in the regulatory environment in each sector in Vietnam in the 
presence of the FTA. This change was then applied to a measure of the sector specific ad-valorem 
trade  costs  equivalents46  to  generate  estimates  of  the  trade  cost  reductions  by  GTAP  services 
sector. Overall as a result of the implementation the weighted average reduction in costs affecting 
cross-border services trade in Vietnam are expected to fall by 8.8%. This information was used to 
calibrate the liberalisation shock associated with the implementation of the agreement. 

Trade facilitation 

In  order  to  account  for  the  customs  and  trade  facilitation  reforms  identified  above  in  the  CGE-
based  quantification  we  resorted  to  mapping  the  policy  changes  above  into  Vietnam's  OECD’s 
Trade  Facilitation  Indicators  (TFI)47,48.  This  resulted  in  a  3.47%  improvement  of  Vietnam's  score, 
which led to 0.5% reduction in Vietnam's trade costs across the board49.   

4.3. 

The potential impact on the EU and Vietnam 

The  CGE model-based  simulation  confirms  that the  importance of the  economic  gains  from  the 
agreement  is  likely  to  be  different  for  the  two  parties.  The  CGE  simulations  with  the  dynamic 
GTAP model show that the agreement is due to deliver a €6 billion increase in economic welfare 

45 The difference between applied restrictions and GATS bindings corresponds to the binding overhang and is also called 
the "water in the bindings". This is often perceived as the policy space that countries can use without breaching their 
GATS commitments. 
46 As estimated by CEPII, see Fontagné et al. (2011). 
47 The TFI index incorporates a large number of indicators that measure the ease of carrying out trade transactions (e.g. 
Vietnam’s  TFI  is  comprised  of  78  indicators).  These  are  aggregated  into  several  intermediate  categories.  TFI  values 
range from 0 to 2, where 2 corresponds to the best performance that can be achieved.  
48  These  WTO  TFA-plus  impacts  are  of  a  bilateral  nature,  as  the  two  measures  (consultations  with  traders  and 
evaluation of fees and charges) would be either purely bilateral consultations or available on request by EU traders. 
49 For countries in Vietnam’s income class, the TFI factors account for about 15.5% of trade costs, as measured by the 
World Bank’s trade cost data. 

 
 
 
 
 
                                                           
 
36 

in Vietnam by 2035 (relative to a situation without the agreement in place). In the case of the EU, 
the welfare gain would reach €1.9 billion, mostly reflecting improvements in the terms of trade50. 
For both Vietnam and the EU,  these are net welfare gains already  taking  into account the tariff 
revenue losses.  

The  difference  in  the  size  of  the  impact  of  the  agreement  for  the  EU  and  Vietnam  reflects  the 
initial conditions. The EU is a much bigger trading partner to Vietnam than Vietnam is to the EU. 
This means that the economic returns from the bilateral liberalisation and resulting improvement 
in  market  access  will  necessarily  translate  into  bigger  macroeconomic  gains  for  Vietnam. 
Moreover, the agreement requires Vietnam to undertake a much greater liberalisation effort than 
the EU. This means that in Vietnam there will be a lot more scope to reap economic returns from 
efficiency gains.  

Figure 9: Economic and trade gains, changes relative to baseline  

Bilateral exports in € billion 

Bilateral exports in %

16

14

12

10

8

6

4

2

0

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

EU

Vietnam

Source: GDyn simulations   

Figure  9  shows  the  impact  of  the  agreement  on  bilateral  trade  flows  in  absolute  and  relative 
terms. By 2035 the boost given to bilateral trade flows compared to the situation without the FTA 
is  considerable  for  the  two  parties.  EU  exports  to  Vietnam  are  due  to  increase  by  around  29% 
while  Vietnam exports  to the  EU  are expected to grow  by around 18%. When it comes  to total 
trade  flows  the  percentage  changes  are  considerably  more  important  for  Vietnam  given  the 
greater contribution of the bilateral trade to its total trade. In absolute terms Vietnamese exports 
of goods and services to the EU increase by €15 billion while EU exports to Vietnam augment by 
€8.3 billion. 

50  Terms  of  trade  gains  refer  to  the  improvement  in  the  real  purchasing  power  of  an  average  consumer  due  to  the 
increase in the ratio of export to import prices.  

 
 
 
 
 
 
 
 
 
                                                           
 
37 

Table 10: Impact on EU trade of specific sectors with Vietnam, variation in % and EUR millions 

Exports to Vietnam 

Imports from Vietnam 

% 

EUR 

% 

EUR 

Rice 

Cereals 

Vegetables, Fruits and Nuts 

Oilseeds,  Vegetable Oils and Fats 

Sugar 

Plant and Animal Fibres,  and Other Crops 

Bovine and other Ruminant Meats 

Other Meat (Poultry, Pork) 

Dairy 

Forestry 

Fisheries 

Other Food 

Beverages and Tobacco 

Fossil Fuels 

Minerals 

Textiles 

Wearing Apparel 

Leather Products 

Wood and Paper Products 

Chemicals, Rubber and Plastics 

Mineral Products 

Ferrous Metals 

Metal Products 

Motor Vehicles 

Transport Equipment 

Electronic Equipment  

Other Machinery and Equipment 

Other Manufacturing  

Utilities 

Construction 

Trade 

Transport Nec 

Water Transport 

Air Transport 

Communications 

Financial Services 

Insurance 

Business Services 

286.6 

3.7 

76.1 

96.8 

130.5 

132.5 

90.2 

37.7 

36.5 

4.3 

26.1 

64.9 

69.6 

116.8 

3.0 

134.2 

302.7 

153.8 

72.5 

30.0 

124.6 

10.0 

100.5 

444.8 

76.8 

25.9 

26.4 

211.2 

3.0 

2.8 

6.8 

13.2 

6.4 

4.9 

73.8 

9.4 

2.6 

10.4 

1 

2 

13 

27 

1 

294 

51 

161 

93 

7 

3 

578 

229 

39 

11 

349 

91 

448 

173 

655 

81 

39 

107 

1,538 

572 

56 

575 

81 

1 

37 

119 

243 

57 

104 

632 

226 

31 

535 

311.8 

14.1 

0.7 

4.7 

170.5 

0.5 

0.0 

16.7 

342.7 

10.6 

2.6 

30.9 

14.4 

-0.9 

6.5 

69.9 

87.4 

62.2 

5.3 

4.4 

3.9 

13.3 

2.6 

4.0 

7.0 

-0.8 

-0.8 

1.7 

10.6 

7.4 

7.2 

8.5 

8.9 

8.5 

6.5 

6.8 

8.3 

6.3 

82 

0 

3 

0 

15 

9 

0 

6 

0 

0 

1 

678 

2 

0 

3 

929 

5,091 

7,477 

174 

126 

23 

60 

40 

10 

75 

-196 

-32 

15 

119 

121 

201 

73 

52 

91 

174 

247 

81 

543 

 
 
 
 
 
 
38 

Other Services 

8.6 

136 

6.3 

318 

Source: GDyn simulation results 

Table  10  makes clear  that the  sectoral  impacts  in terms of  bilateral trade  flows  are substantial, 
particularly in percentage terms. In absolute terms, the most notable impacts are the increases in 
Vietnam  exports  to  the  EU  of  "wearing  apparel"  (up  €5  billion)  and  of  "leather  products"  (up 
around  €7  billion).  In  contrast,  Vietnam  exports  to  the  EU  in  some  equipment  sectors  like 
"electronics" and "other machinery and equipment" are due to decline (albeit moderately). This 
indicates  that  the  FTA  may  promote  further  Vietnam's  specialisation  in  the  sectors  where  the 
country has traditionally held a comparative advantage.  

Regarding  EU  exports  to  Vietnam  the  impacts  are  more  evenly  distributed  across  sectors:  the 
main increases are expected in "motor vehicles" (up €1.5 billion), "chemicals, rubber and plastics" 
(up  €655  million),  "communications"  (up  €  632  million),  "other  food"  (up  €578  million),  "other 
machinery and equipment" (up €575 million), "transport equipment" (up €572 million), "business 
services"  (up  €535  million)  and  "leather  products"  (up  €448  million).  For  the  other  sectors  the 
expected increases in trade values are very modest.  

The impact of the considerable increase of leather products and apparel imports from Vietnam on 
EU  producers  is  due  to  be  substantially  mitigated  by  a  combination  of  export  gains  and  trade 
diversion.  EU  exporters  of  leather  products  make  significant  gains  (€700  million)  in  the 
Vietnamese market and elsewhere. Moreover, much of the market share captured by Vietnam in 
the  EU's  market  place  comes  at  the  expense  of  third  parties:  total  EU  imports  of  leather  and 
footwear products rise by only €1.9 billion. The situation is similar in the apparel sector with total 
imports due to go up by only €1.2 billion. 

4.4.  

The potential impact on third countries 

The  impact  of  the  agreement  on  third  parties  is  muted.  The  biggest  impact  on  real  GDP  in 
percentage terms are to be expected in ASEAN's Least Developed Countries (-0.1%) and Turkey (-
0.05%) due to trade diversion. However, in absolute values, China will suffer the biggest reduction 
in welfare as Vietnam takes away significant market share in leather and wearing apparel in the 
EU  market.  Globally,  the  impact  of  the  agreement  is  positive  leading  to  an  increase  of  world 
national income of almost EUR 3 billion. 

     Table 11: Real GDP and welfare impacts on trade partners  

US 

China 

Turkey 

Brunei 

Singapore 

GDP  

National income 

(%) 

(EUR millions) 

0.00 

0.00 

-0.03 

-0.01 

-0.01 

-363 

-2,313 

-535 

3 

-56 

 
 
 
 
 
 
39 

Indonesia 

Malaysia 

Philippines 

Thailand 

ASEAN LDCs 

Rest of TPP 

Other LDCs 

ROW 

World total ( including EU and 
Vietnam) 

       Source: GDyn simulation results 

5.    Additional economic impacts   

5.1 

Public procurement    

-0.01 

-0.01 

-0.02 

-0.02 

-0.09 

0.00 

-0.02 

-0.01 

0.00 

-135 

-36 

-228 

-151 

-132 

-193 

-458 

-753 

2,961 

Although  it  is  very  hard  to  offer  a  precise  quantification  of  the  economic  impact  of  the  legal 
provisions  included  in  the  agreement  regarding  the  functioning  of  public  procurement  markets 
this is an area where important returns are expected as Vietnam is currently making an important 
public  investment  effort  to  improve  its  underdeveloped  infrastructure.  The  poor  transport 
infrastructure  is  often  pointed  out  as  an  important  bottleneck  for  the  continuation  of  the 
modernisation  of  the  country's  economy.  Greater  openness  and  transparency  in  the  country's 
pubic  procurement  markets  will  benefit  EU  firms  by  giving  them  the  possibility  to  tender  for 
public contracts linked to the infrastructure investment. It will also benefit Vietnam by giving its 
public institutions access to goods and services with better quality/prices ratios offers.         

For now, the total value of public procurement tenders in Vietnam is still small in absolute terms; 
in 2014 it amounted to €16.8 billion, which represented 12% of Vietnam’s GDP51.  Table 12 shows 
that  open  bidding  was  the  dominant  tendering  mode  (58%  of  the  total  value  of  tenders), 
amounting to around €9.7 billion. Direct appointments represented just 24% of total procurement 
values (€4.1 billion) but accounted for the lion’s share of the numbers of tenders. This is because 
these tend to be smaller contracts (average value of €41,544). In contrast, the average value for 
open bid tenders was around €586,767.  

Currently, public procurement is mainly regulated by the 2013 Law on Bidding52, which set out the 
rules for the selection of contractors. As this law was issued after Vietnam became an observer of 
the  WTO  Government  Procurement  Agreement  (GPA),  its  regulations  are  already  in  line  with 
international  practices  notably  in  terms  of  definitions,  bidding  procedures,  and  notifications. 

51  Exchange rate conversion factors are based on the IMF World Economic Outlook Database. 
52 43/2013/QH13 and Decree No 63/2014/ND-CP. 

 
 
 
 
 
 
 
                                                           
 
40 

Moreover, the entire legislative and regulatory framework is available online as is the information 
regarding procurement opportunities in Vietnam.53  

Table 12: Overview of Vietnam’s public procurement market in 2014 

Tenders 

VN Dong 
billions 

EUR 
billions 

% of 
Total 

Average 
Value  
(EUR) 

Average  
Value  

(SDR) 

Total Procurement 

471,672 

16.76 

100% 

of which: Investment & Development 

112,260 

365,899 

13.00 

78% 

Open Bidding 

16,573 

273,733 

9.72 

58% 

586,767 

518,716 

Direct Appointment 

98,237 

114,880 

4.08 

24% 

41,544 

36,726 

Source: Ministry of Planning and Investment of Vietnam 

The  agreement  builds  on Vietnam's  current  legal  framework  to  improve  transparency  and  legal 
certainty regarding national treatment and market access. Given that Vietnam is not yet a party to 
the  GPA,  the  latter  has  been  the  guiding  principle  of  the  negotiations.  As  far  as  disciplines  are 
concerned, Vietnam has accepted a government procurement chapter that incorporates over 90% 
of revised GPA rules, with even some GPA plus elements for both sides.  

More specifically, to improve transparency Vietnam has agreed to reinforce market consultation 
and  publication  of  notices.  Article  9.10  of  the  agreement  requires  that  at  the  beginning  of  the 
procurement cycle parties carry out consultations with the private sector to assess its needs. This 
is something that the current Vietnamese law does not require. However, given that it is a lower 
middle  income  economy,  Vietnam  was  granted  the  benefit  of  a  limited  list  of  transitional 
measures.  For  example,  Vietnam  was  given  up  to  10  years  to  develop  a  central  web  portal  for 
advertising procurement contracts54 and to improve the handling of international tendering by its 
procuring officers. In addition, Article 9.6 requires that the summary of the contract notices are 
made  available  in  English.  The  EU  agreed  to  financially  support  the  necessary  infrastructure 
investment in respect to making the summary notices available. It is important to highlight that 
these new transparency obligations will have multilateral effect. They will not benefit only firms 
from  the  EU  but  also  from  other  countries  that  have  access  to  the  Vietnamese  public 
procurement market. 

To  ensure  national  treatment  for  EU  firms,  the  agreement  will  impose  additional  disciplines  on 
Vietnam’s  current  regime.  According  to the  latter,  foreign  entities  that meet basic  standards  of 
good standing55 are allowed to bid on tenders in some cases but not all. For example, pursuant to 
Article  5.1.  of  the  Law  on  Public  Procurement  No.43/2013/QH13  from  2013:  "A  tenderer  or 

53  It  is  made  available  on  the  Ministry  of  Planning  and  Investment’s  website  (http://muasamcong.mpi.gov.vn/ 
main/index_en.html)  as  well  as  from  listings  of  government  or  private  tenders  in  Vietnam  provided  by  Intellasia 
(http://www.dau-thau.com). 
54  Vietnam  committed  (under  the  same  Article  VI)  to  develop  a  central  web  portal  for  advertising  procurement 
contracts, which should be operational at the latest 10 years after entry into force of the FTA. 
55 Article 5 in the Law of Bidding 2013 stipulates that suppliers need to have: (a) legal registration; (b) independent and 
healthy finance; (c) not be banned from the bid participation; and (d) be on the short list in the case of limited bidding. 

 
 
 
 
 
 
 
 
 
 
                                                           
 
41 

investor  being  an  organization  shall  be  deemed  to  be  eligible  when  it  satisfies  the  following 
conditions: It must have a partnership with domestic contractors or use sub-contractors if it is a 
foreign tenderer when participating in international bid in Vietnam, unless domestic contractors 
have  not  full  capability  to participate  in  any  part  of bidding  package."  At  the  evaluation  of  bids 
when  two  firms  have  submitted  equally  competitive  offers  and  one  of  them  is  domestic,  the 
contract  is  awarded  to  the  domestic  firm.  The  agreement  in  Article  9.4  establishes  the  general 
principles of national treatment and non-discrimination thus removing the possibility of deploying 
such discriminatory practices against qualified EU suppliers. 

In addition, Vietnam also agreed to certain legal obligations in terms of offering market access to 
EU  suppliers  notably  regarding  procurement  by  central  and  sub-central  government  entities 
(annex  1  and  2  respectively)  as  well  as  by  other  public  entities  (as  listed  in  annex  3).  More 
specifically the new market access conditions include all Vietnamese ministries at central level56 
as  well  as  two  key  utility-related  state-owned  enterprises:  the  branches  of  Vietnam  Electricity 
(EVN) in charge of power transport and  electricity distribution and Vietnam Railways (VNR), the 
nationwide railway operator. In addition, EU companies will also be able to bid on equal footing 
with  domestic  companies  for  contracts  to  be  awarded  by  two  of  the  country's  most  important 
universities (Vietnam National University in Hanoi and Vietnam National University in Ho Chi Minh 
City) as well as by municipal departments in Hanoi and Ho Chi Minh City. The latter account for 
50% of procurement conducted at the provincial level57. The product coverage of the new market 
access obligations is relatively extensive in goods (with some exceptions for agricultural products). 
It includes in particular all pharmaceuticals purchased by the Ministry of Health, the Departments 
of Health of Hanoi and Ho Chi Minh City and as by other 34 hospitals. A wide range of services will 
be  also  open  to  tendering  by  EU  firms,  including  computer-related  services.  For  public  works, 
Vietnam agreed to cover basically all construction services and notably dredging services, sectors 
of importance for a number of Member States. Overall, all this offers a wide range of potentially 
important market access opportunities for EU firms in Vietnam.  

However,  given  Vietnam  status  as  a  lower  middle  income  economy  this  liberalisation  will  be 
gradual.  The  agreement  foresees  differentiated  treatment  and  transitional  measures  regarding 
threshold values by each entities as well as offsets. More specifically, the agreement stipulates a 
transitional  period  of  fifteen  years  that  will  apply  across  the  board  with  a  progressive  scaling-
down of thresholds up to a level comparable to those offered by GPA members (except for goods 
and services for sub-central level and Annex III entities). More specifically for central government 
entities the starting threshold for goods and services has been fixed at 1.5 million SDR, which will 
eventually converge to the threshold of 130,000 SDR that most GPA members' adopt58.  

For  sub-central  entities  and  Annex  III  entities  it  was  agreed  an  initial  threshold  for  goods  and 
services of 3 million SDR, which will eventually fall to 1 million SDR (which is still above the highest 

56 For the central government level, Vietnam offers from the entry into force all ministries, the social security office as 
well as two other entities equivalent to ministries. 
57 Delegation of the European Union to Vietnam (2016). 
58 For construction services, the  agreed initial threshold is 40 million SDR with a final convergence with  the  standard 
GPA threshold of 5 million SDR. 

 
 
 
 
                                                           
 
42 

GPA  threshold  for  the  same  categories  at  450,000  SDR)59.  As  a  result,  in  the  first  years  of  the 
agreement the potential market access gains for EU suppliers will be partially offset given that the 
agreed thresholds are relatively high compared to the average in Vietnam's procurement market. 
For example, the initial threshold (1.5 million SDR) for central government entities is about three 
times the average tender size for open tenders, as can be seen in table 1260.  

This means that only the very large contracts for Vietnam's standards will effectively be subject to 
the  non-discrimination  disciplines  that  Vietnam  agreed  to.  Still  given  the  pace  of  the  country's 
investment in infrastructure in areas such as energy, transportation, waste water treatment and 
water supply, for which the value of contracts tends to be large, these new disciplines could still 
end  up  offering  important  business  opportunities  for  EU  firms  in  Vietnam61.  In  15  years  the 
threshold for non-discriminatory treatment of EU firms in Vietnam will fall well below the average 
size of open bid tenders in 2014. This will entail the effective liberalisation of a much larger share 
of the Vietnamese public procurement market.  

As far as offsets are concerned, the agreement grants Vietnam a transitional period of eighteen 
years  to  complete  exhaustion  of  the  existing  offset  schemes62.  The  maximum  offset  ratio 
permitted during the first ten years of the implementation of the FTA will be 40% and then 30% 
during  the  next  remaining  eight  years.  For  pharmaceuticals,  after  a  transitional  period  of  three 
years during which EU suppliers would not be granted legally secured market access, Vietnam can 
still maintain set-asides for 65% of procurement contracts for seven years, then 60% for the next 
five  years  and  a  final  set-aside  rate  of  50%.  The  final  guaranteed  market  access  (50%)  will  be 
largely above the current market share of EU pharma producers in Vietnam (30%). 

To increase legal certainty for EU firms participating in public markets in Vietnam the agreement 
also includes a clause to extend the time to file a pre-award complaint in case of disputes from 9 
days (as foreseen in Vietnam’s domestic law) to 10 days. Moreover, for pre-award complaints the 
agreement's  Article  9.19  (on  domestic  review)  requires  that  Vietnam  maintains,  establishes  or 
designates  an  impartial  administrative  or  judicial  authority  that  is  independent  of  its  procuring 
entities to hear such complaints63. 

59  In  addition  given  the  low  amount  of  procurement  contracts  for  the  purchase  of  single  pharmaceutical  products, 
Vietnam agreed on a much lower final threshold for these contracts. For construction services, the starting threshold is 
40 million SDR with a final convergence with the highest GPA thresholds for this category, 15 million SDR. 
60  Although  these  averages  undoubtedly  mask  a  highly  skewed  distribution  of  tender  amounts,  the  available 
information unfortunately does not allow us to indicate the likely scale of contestable open bid contracts.  
61 The national treatment and  non-discrimination for larger contracts might drive very substantial procurement  gains 
even if the number of additional tenders won is comparatively small. 
62 This is in line with the GPA prohibition of offsets. 
63  Under  Vietnam’s  current  regime,  the  complaint  can  be  reviewed  by  the  same  people  whose  action  is  being 
challenged. 

 
 
 
 
                                                           
 
43 

Finally,  the  agreement  also  puts  in  place  some  important  institutional  provisions  that  include  a 
specialised committee on government procurement (Articles 17.2 and 9.23) and a commitment to 
promote  cooperation  for  improved  mutual  understanding  of  the  two  parties'  government 
procurement systems (Article 9.21).  

The leverage that the commitments undertaken by Vietnam will give to EU suppliers is likely to be 
concentrated where they are able to outbid Vietnamese competitors, while being at an advantage 
vis-a-vis other foreign suppliers due to the national treatment they will enjoy. Such opportunities 
are likely to grow over time as thresholds fall and offsets expire.  

5.2.    Global value chain integration 

The ASEAN block has been over the years at the forefront of the cross-border fragmentation of 
production. This led to the creation of cost efficient regional production chains grounded on the 
comparative  advantages  of  each  participating  economy,  which  today  underpin  its  highly 
competitive  position  in  global  trade.  Vietnam  is  a  relative  newcomer  to  this  process  and  until 
recently its exports were largely confined to primary products. However, since 2005 the change in 
the country's export profile has evolved hand in hand with the growing participation in regional 
production sharing. An important driver has been the rise of real wages in China that has changed 
relative  prices  in  the  region.  Vietnam,  given  its  central  geographical  position  and  rapidly 
improvement in infrastructure, has progressively turned into an attractive destination for labour-
intensive light manufacturing within Asia. In mobile telephone products, for example, the country 
has  emerged  since  2010  as  a  mini-assembly  hub  based  on  the  sourcing  inputs  from  China  and 
other  industrialized  East  Asian  economies  for  transformation  into  final  products  destined  for 
exports.  

The  EU-Vietnam  FTA  represents  an  opportunity  to  promote  EU-Vietnam  value  chain  integration 
via  increased  FDI  activity  and  expanded  bilateral  trade  in  intermediate  goods  and  services 
between the EU and Vietnam. For the EU, this will improve access into a growing assembly hub in 
the ASEAN and wider Asia region. For Vietnam, it will promote a closer economic relationship with 
a major industrial hub and major investor in Asia, ultimately to the benefit of its standing in the 
intra-ASEAN value chains. EU firms are expected to lead this process as many will recognise that 
the conditions are there to set up activities in Vietnam to integrate into their supply chains. This 
could play an important role in their strategy to serve the buoyant wider Asian market. Also firms 
from  other  countries  will  be  prompted  to  use  production  activities  in  Vietnam  as  a  means  to 
create a platform to gain access to the EU market given the preferential access given by the FTA64. 
Vietnamese firms are likely to take the opportunity to plug into value chains organized by EU or 
third-country firms. 

64  This  has  happened  in  similar  situations.  For  example,  Vietnam’s  prospective  TPP-based  access  to  the  US  apparel 
market  prompted  relocation  of  Chinese  textiles  mills  to  Vietnam  to  enable  clothing  production  to  qualify  under  the 
TPP’s preferential rules of origin as exports “originating” from Vietnam into the United States (Fung, 2015). 

 
 
 
 
                                                           
 
44 

Overall,  the  agreement  provides  opportunities  for  firms  based  in  Vietnam  to  take  up  a  greater 
involvement  in  production  sharing  within  the  region,  particularly  in  labour-intensive  tasks.  The 
preferential access to the EU market will give them an advantage over other locations. To some 
extent, the  results  from the  CGE analysis  in section 4  already  capture  this.  However,  eventually 
the agreement will also lead to the emergence of production sharing in new products and sectors, 
which is more difficult to anticipate. The increase in trade may eventually by far exceed what can 
be estimated with a CGE model. Ultimately, the main value chain-related developments that the 
agreement may deliver will be determined by firms' strategic decisions in Vietnam and in the EU 
in  light  of  the  changes  to the  business  environment.  This  is  difficult  to  second  guess  accurately 
based on readings of existing data. The latter can only go so far as to suggest the extent of existing 
capabilities  and  preparedness  of  firms  in  some  locations  to  take  on  new  additional  roles  in 
production sharing.  

For Vietnamese firms, given their stage of technological development, the most probable benefits 
are linked to the possibility of plugging into value chains organized by EU firms. Therefore, their 
sectoral interests will dovetail with the interests of EU firms. In sectors like "leather products" and 
"textiles and clothing"  the main beneficiaries may well be  SME suppliers of  EU-sponsored value 
chains.  However  this  is  conditioned  on  access  to  the  EU  market  where  rules  of  origin  in  the 
agreement  will  play  an  important  role  in  shaping  the  value  chain  activity  in  the  country.  In  the 
textiles and clothing sector the double transformation requirement will give a strong incentive for 
the development of the production of fabrics.  

Some Vietnamese firms may also use their improved access to the EU market to benefit from the 
ongoing  re-composition  of  Asian  value  chains  in  other  (less  traditional)  sectors.  For  example 
Vietnam’s  adoption  of  international  standards  that  the  agreement  promotes  will  enable 
Vietnamese  firms  to  enter  the  production  of  pharmaceutical  inputs,  improving  their  chances  to 
outcompete some China-based producers, which are already increasingly under pressure due to 
rising labour costs. This may lead to substituting Chinese for Vietnamese pharmaceutical inputs as 
intermediate  consumption  in  EU  value-chains.  Furthermore,  a  deeper  participation  in  EU  value 
chains  through  production  of  raw  materials  would  give  Vietnam  incentives  to  accelerate  its 
compliance  with  international  standards  in  order  to  win  these  mandates  in  competition  with 
other Southeast Asian economies.  

To what extent and how quickly Vietnamese firms will manage to acquire new GVC roles depend 
on  firms’  strategic  decisions.  These  could  result  in  large  scaling  up  of  trade  (as  in  the  case  of 
mobile  phones  as  these  were  devolved  from  China).  But  such  discontinuous  jumps  in  levels  of 
trade cannot be anticipated based on existing trends in the data. 

 
 
 
 
 
 
 
 
45 

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THE ECONOMIC IMPACT OF THE EU - VIETNAM FREE TRADE AGREEMENT

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ISBN 978-92-79-98773-1 

doi:10.2781/204879 

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