The Committee on International Trade under the European Parliament (EP) today gave its consent to the EU – Vietnam Free Trade Agreement (EVFTA) by 29 votes, six votes against and five abstentions and recommends that EP Plenary should do the same, stated the EP in a statement.

Illustrative photo.

The agreement is an instrument to protect the environment and further social progress in Vietnam, including in labor rights, the resolution accompanying the consent decision states, said the EP. The trade committee’s demands from Vietnam, including on labor and human rights, as well as on the mechanism ensuring the enforceability of the sustainability clauses, was adopted by 29 votes for, nine against and two abstentions.

Separately, the trade committee also agreed by 26 votes for, seven against and six abstentions to the EU – Vietnam Investment Protection Agreement (EVIPA), providing an investment court system with independent judges to settle disputes between investors and state. The accompanying resolution passed by 27 votes for, seven against and five abstentions.

With the consent of the trade committee, the EP is set to vote on the trade deal and the investment protection agreement at its February session in Strasbourg. Once the Council concludes the trade agreement, it can enter into force. For the EVIPA to enter into force, the member states first need to ratify it.

Vietnam is the EU's second largest trading partner in Southeast Asia after Singapore, with trade in goods worth EUR47.6 billion (US$52.85 billion) a year and EUR3.6 billion (US$4 billion) when it comes to services. EU exports to the country grow by 5-7% annually, yet the EU’s trade deficit with Vietnam was €27 billion (US$30 billion) in 2018.

The main EU imports from Vietnam include telecommunications equipment, clothing and food products. The EU mainly exports goods such as machinery and transport equipment, chemicals and agricultural products to Vietnam.

The EVFTA has been dubbed “the most ambitious” FTA the EU has ever concluded with a developing country, according to the European Commission. It not only includes the almost full elimination of bilateral tariffs, but also a substantial reduction of non-tariff barriers. Moreover, it includes provisions to protect intellectual property, labor, environmental standards, and fair competition, while promoting regulatory coherence. 

It is estimated that the EVFTA will add 0.1 percentage point on average to Vietnam’s real GDP growth each year based solely on its trade impacts, according to HSBC’s report. 

The European Commission estimates that Vietnam’s exports to the EU would grow by around 18% as a result of the agreement, while the EU’s exports to Vietnam are slated to increase by around 29%.

A notable difference between the EVFTA and other FTAs is high requirement for market opening, while the EU and Vietnam markets are highly complementary in the sense that both could export products that would not face direct competition in their respective markets.