The bilateral trade deal, officially known as the European Union-Vietnam Free Trade Agreement, gained overwhelming support in the Vietnam’s parliament on Monday. The EU and Vietnam signed the deal in Hanoi last year, and it was already ratified by the European Parliament in February. The agreement is expected to officially come into force next month.
During the session, the deputies also ratified another document that is set to attract more foreign investors to Vietnam. When the EU-Vietnam Investment Protection Agreement takes effect sometime in July or August this year, it will give EU companies equal treatment with local businesses while competing for public contracts in Vietnam.
According to the terms of the trade pact, as much as 49 percent of tariffs on EU exports to Vietnam will be lifted as soon as it takes effect, while the rest will be phased out over the next 10 years. In turn, Brussels will eliminate 85 percent of its tariffs on Vietnamese goods, gradually cutting the rest over the next seven years.
Trade between the EU and Vietnam reached $56.45 billion last year. The implementation of the agreement may boost Vietnam’s gross domestic product by over two percent, while exports may increase 12 percent, according to the World Bank estimates.
“Such benefits are particularly urgent to lock in positive economic gains as the country responds to the Covid-19 pandemic,” the World Bank said.
Vietnam has not been seriously affected by the large number of coronavirus cases, despite having a long border with China, which was the first country to be hit by the outbreak. However, the pandemic has hit the Vietnamese economy hard, and has also revealed how much the country is dependent on supplies from its neighbor. While factories are ready to open, they face shortages of materials they usually source from China.
“Covid-19 has given Vietnam a hard lesson about being dependent on China,” former adviser to several of Vietnam’s prime ministers Pham Chi Lan has been reported as saying. The economist added that the free trade agreement comes “at the right time” because it’s essential the world diversifies its supply chains.
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