EU-Vietnam trade pact can deepen economic reform

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A worker transports sacks of coffee beans on a forklift at a processing factory in Vietnam's Central Highlands. An expert says various Vietnamese export products will benefit from a free trade pact with the European Union.

Vietnam and the European Union plan to negotiate and sign a Free Trade Agreement (FTA). However, there are concerns that it could create more pressure on local firms already mired in many difficulties as a result of the economic slowdown. Nguyen Van Nam, former director of the Trade Research Institute, explored the issue further in a conversation with Vietweek.

Vietweek: What are the difficulties we face in negotiating an FTA with the EU?

Nguyen Van Nam: The EU is a partner with goodwill toward Vietnam. It wants to boost economic and trade relations with the country, but has strict requirements. For example, Vietnam must be recognized as a market economy by the world. Vietnam meets only one or two of five criteria set by the EU for a market economy. To meet all the requirements, Vietnam needs to implement more basic renovations.

The EU had recently tried to negotiate an FTA with the regional bloc ASEAN, but failed to do it because of some obstacles. So it is seeking to negotiate FTAs bilaterally with some countries like Singapore, Malaysia and Vietnam.

In principle, we accept negotiations with the EU on the FTA, but we are still studying ways to do it.

If it is signed, the agreement can be very good for Vietnam, as the EU is the second biggest export market for the country. Vietnam's exports to the EU mainly include farm products, textiles and garments, footwear and woodwork products.

It is also a good technology market that Vietnam wants to tap to serve its industrialization process and increase the added value of its products. At present, we are mainly using technology from China.

A free trade pact with the EU will have good impacts for Vietnam in the long term. It will not only increase the competitiveness of enterprises, but also create a market economy in the country.

I don't think we will find it easy to negotiate with the EU. For this Vietnam would have to take its renovation process deeper.

There are people who say the fierce competition with the EU imports when we open the market under the FTA could force Vietnamese enterprises, already reeling from the economic slowdown, go into shock. Can you comment?

In the short term, it could cause difficulties to local firms, as we do not have a real market economy yet. Many items do not meet standards to penetrate overseas markets, while their competitiveness in the domestic market is still weak compared to that of foreign products.

This can be attributed to thin investment, poor management experience, and weak business capacity of local enterprises. So it is important to create a favorable environment for this to improve. To increase their competitiveness, local enterprises should renovate themselves, focusing on building their long-term business strategy.

Why do we need to negotiate the FTA with the EU now, when we have not yet made full use of the trade agreements signed with other countries?

We have not yet made full use of opportunities offered by increased international integration. After we signed the Bilateral Trade Agreement with the US in 2001, and joined the World Trade Organization in 2007, our exports and imports saw sharp growth. But the trade deficit was also very large.

Obviously, trade agreements opened opportunities for Vietnam. But while we have already made use of them to import goods with lower prices, there is plenty of room for growth with exports.

However, the agreements have good impacts, creating pressure to force us to renovate the economy under market mechanisms. Thus, signing more trade agreements can help Vietnam take its renovation process deeper, benefiting local enterprises in the long run.

They can also help Vietnam access high-quality products and technology at lower prices, not to mention attract more foreign investment.

Footwear products, textiles and garments, and farm produce, which are now exported mostly to the EU, will benefit most from the future FTA. The EU market has big potential for Vietnamese exports, as our exports still account for a small portion of EU imports.

However, it could create big pressures on local firms. Those with low competitiveness may face bankruptcy.

Developed countries typically do better in FTA negotiations. How can we deal with this?

FTAs will bring more benefits to developed partners, but also create many advantages of less developed ones. The EU is a large market, so Vietnamese firms can have many opportunities to access it with an FTA.

In the short term, we have not used FTAs to our best advantage. However, they can benefit the economy in the long term.

What prospects do you see for Vietnam's exports to the EU this year?

Vietnam's exports to the EU are mainly of essential items, so they would not be affected too much by the economic crisis in the region. I think Vietnam, in 2012, can maintain last year's exports to the EU. (In 2011, Vietnam's exports to the EU reached $16.5 billion, up 45 percent over the previous year).

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