Decisive reforms needed for Việt Nam to see full benefits of EVFTA, WB report22/05/2020
Việt Nam needs to fill major legal gaps and address key issues to reap the full benefits of the European Union Vietnam Free Trade Agreement (EVFTA).
This statement is a key part of the World Bank’s report entitled “Vietnam: Deepening International Integration and Implementing the EVFTA”, released on Wednesday.
The report explores the issues of globalisation and the integration of Việt Nam into the global economy, particularly through implementation of the EVFTA, which is expected to be ratified by Việt Nam’s National Assembly in its ongoing 9th session.
The report said that by simply enjoying the tariff reduction as agreed, EVFTA could boost Việt Nam’s GDP and exports by 2.4 per cent and 12 per cent, respectively, by 2030, while lifting an additional 100,000-800,000 people out of poverty by 2030. Such benefits are particularly urgent to lock in positive economic gains as the country responds to the COVID-19 pandemic.
The report argues that Việt Nam could benefit even more from the next-generation trade deals such as EVFTA and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) if the country is able to map out a comprehensive agenda of economic and institutional reforms to facilitate compliance with non-tariff agreements.
The report estimates that such reforms would result in a “productivity kick”, increasing GDP by 6.8 per cent, relative to the baseline scenario, by 2030. The report highlights the need for Việt Nam to increase capacity to handle certain key issues, including rules of origin, animal and plant sanitary standards, and investor-state dispute settlement.
Ousmane Dione, World Bank Country Director for Việt Nam, said if the country can act in a decisive manner to close legal gaps and improve implementation capacity, it can capitalise on a trade deal whose direct benefits are estimated to be the largest in the country’s history.
“With COVID-19 acting as a reset button and EVFTA as an accelerator, now is the perfect time to embrace deeper domestic reforms,” Dione said.
The report cites the rules of origin requirement as one of the key challenges for Việt Nam to overcome. Even if a product is produced in Việt Nam, EU importers might not determine it as such due to the high dependence on imported materials.
“In key export manufacturing industries, a majority of inputs are sourced from foreign countries (for instance, 62 per cent in electronics and 53 per cent in the automotive sector). Việt Nam is needed to have greater efforts to improve linkages between domestic suppliers and foreign enterprises as lead firms in major global value chains,” the report noted.
At the same time, rigorous European food safety standards make it imperative for Việt Nam to improve the clarity and consistency of its sanitary measures. By one estimate, the cost of full compliance with existing non-tariff measures in Việt Nam will be equivalent to a 16.6 per cent tariff (compared to a regional average of 5.4 per cent).
The introduction of the EVFTA is expected to bring more investors into Việt Nam both from Europe and from the rest of the world. As the flow of foreign investment increases, so does the number of commercial grievances. The report calls for accelerated development of a Systemic Investment Response Mechanism to settle disputes between investors and the state.
The report also makes the case for prioritising key sectors that make up the bulk of Vietnamese exports to the European market for COVID-19 economic recovery efforts, to maximise the benefits of the trade deal.
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