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Bangladesh Is Becoming South Asia’s Economic Bull Case

Bilal9

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Vietnam-EU Trade: EVFTA Comes Into Effect

August 3, 2020
Posted by Vietnam Briefing
Written by Dezan Shira & Associates
Reading Time:5 minutes
  • The EVFTA took effect on August 1 paving the way for increased trade between the EU and Vietnam.
  • Analysts hope the trade deal will give a much-needed boost to Vietnam’s economy as it looks to recover from the COVID-19 pandemic.
  • The EVFTA is an ambitious pact eliminating almost 99 percent of customs duties between the EU and Vietnam.
The European Union Vietnam Free Trade Agreement (EVFTA) took effect on August 1 paving the way for increased trade between the EU and Vietnam.

The EVFTA is an ambitious pact providing almost 99 percent of the elimination of custom duties between the EU and Vietnam. As per the Ministry of Planning and Investment (MPI), the FTA is expected to help increase Vietnam’s GDP by 4.6 percent and its exports to the EU by 42.7 percent by 2025. While the European Commission has forecast the EU’s GDP to increase by US$29.5 billion by 2035.

Vietnam’s National Assembly on June 8 ratified the EVFTA and the EU-Vietnam Investment Protection Agreement (EVIPA) following almost 10 years of negotiations.

Analysts hope the trade deal will give a much-needed boost to Vietnam’s industries, such as manufacturing, as it looks to recover from the COVID-19 pandemic.

65 percent of duties on EU exports to Vietnam will be eliminated while the remaining will be gradually phased out over a period of 10 years. 71 percent of duties will be eliminated on Vietnam exports to the EU, with the remaining being eliminated over a period of seven years.

The EVFTA is considered a new generation bilateral agreement – it contains important provisions for intellectual property (IP) rights, investment liberalization, and sustainable development. This includes a commitment to implement the International Labor Organization (ILO) standards and the UN Convention on Climate Change.


Talks between the EU and Vietnam began in October 2010 with negations concluding in December 2015, however, the ratification process was delayed due to specific details on tariffs as well as the EU-Singapore FTA, which came in November 2019.

Vietnam and the EU are long-standing trading partners. At the end of 2018, EU investors had invested more than US$23.9 billion in 2,133 projects in Vietnam. In 2018, European investors added almost US$1.1 billion in Vietnam.

EU investors are active in 18 economic sectors and in 52 out of the 63 provinces in Vietnam. Investment has been the most prominent in manufacturing, electricity and real estate.

The bulk of the EU investment has been concentrated in areas with good infrastructure, such as Hanoi, Quang Ninh, Ho Chi Minh City, Ba Ria-Vung Tau, and Dong Nai. 24 EU member states are invested in Vietnam, with the Netherlands taking the top spot followed by France and the UK.
EVFTA EU-Vietnam FTA
At the regional level, Vietnam is now the EU’s second most important trading partner among all ASEAN members – surpassing regional rivals Indonesia and Thailand, in recent years. The growing trade between the EU and Vietnam also helps to solidify ASEAN’s position as the EU’s third-largest trading partner.

Industries primed for continued expansion
The EVFTA, at its core, aims to liberalize both tariff and non-tariff barriers for key imports on both sides over a period of 10 years.

For Vietnam, the tariff elimination will benefit key export industries, including the manufacturing of smartphones and electronic products, textiles, footwear and agricultural products, such as coffee. These industries are also very labor-intensive. Increasing Vietnam’s export volume to the EU, the FTA will facilitate the expansion of these industries, both in terms of capital and increasing employment.

Textiles
Both Vietnam and the EU have articulated a timeframe by which they have committed to liberalizing all tariffs. Key among these commitments is a seven-year timeline for Vietnam’s textile and footwear products. Exports of the sector reached around US$9 billion in 2018. As a large proportion of Vietnam’s exports to the EU are consumer goods such as clothing, textile, and footwear, the FTA could significantly increase their trade volume.

Electronics
As Vietnam continues to grow, it will shift its manufacturing sector towards more technologically advanced products, such as smartphones and other electronics. The EVFTA will provide more export revenue from clothing and footwear products, but may not impact the expansion of these industries.

Although Vietnam is yet to have an extensive developed electronic manufacturing industry at present, the FTA provides Vietnam with an unprecedented chance to take a lead in electronic products, and hence expansion of this budding industry could be a smart move for local businesses.

Pharmaceuticals
Vietnam’s pharmaceutical market remains attractive to EU investors. With the FTA in effect, approximately half of EU pharmaceutical imports will be duty-free immediately with the rest exempted from duty after seven years. Foreign pharmaceutical companies will be allowed to establish a company to import pharmaceuticals that have been authorized to be sold in the Vietnamese market. Such entities can sell pharmaceuticals imported by them to Vietnamese distributors or wholesalers. The entities can also build their own warehouses.

While Vietnam’s pharmaceutical market has significantly developed, it still only meets 52 percent of market demand contributed mostly by generic drugs. The new FTA will bring fair and equal access to the market enabling EU investors to further expand their business and thus allowing foreign investors to meet the strong growth of the pharmaceutical sector

Key highlights of the EVFTA

Remanufactured goods
Previously, remanufactured goods were considered ‘used’ by Vietnam and typically not allowed for import. However, the text of the agreement allows remanufactured goods to be imported and will open up trade for high-value products such as medical devices and car parts to serve the after-sales market. Vietnam can still continue to restrict specific used goods under the most favored nation (MFN) conditions.

Repaired goods
The temporary import and export of repaired goods will be duty-free. This will ensure fair and competition conditions particularly for specialized maintenance services such as aircraft.

Made in EU
Vietnam will accept ‘Made in EU’ products for non-agricultural items for the first time reflecting the integration of the EU market. With the exception of pharmaceuticals which are subject to national approvals, this will allow manufacturers to use the EU’s broader internal market.

Fees and formalities
Consular transactions are no longer needed under the FTA while consular authentication will not be required three years the FTA is in effect.

Upcoming challenges
Recent changes in the EU, in particular Brexit, could impact the outcome and importance of the EVFTA. For now, the FTA will take effect for the UK until the end of the year and could be extended for another 24 months as per the UK’s agreement with the EU.

Nevertheless, considering that the UK is one of the biggest markets for Vietnam’s exports, and also one of Vietnam’s biggest investors, trade and investment from the UK is likely to remain in limbo as long the markets are processing the post Brexit fallout. However, Vietnam sees opportunities if Brexit comes into play.

The impact of Brexit on EU trade and investment is, however, another story. While the turmoil of Brexit amplifies an existential crisis that has been manifesting in Europe for some time, there are strong reasons to believe that Vietnam will continue to reap the benefits of European trade in the years to come.

Much of this boils down to the EU’s increasingly stringent standards and quality controls applied to goods coming into the EU. Unlike many of its ASEAN neighbors, Vietnam has been successful in concluding a trade agreement with the EU.

Included within this agreement are numerous provisions that help to converge Vietnamese standards with those of the EU. The importance of the Vietnamese market will only grow as elements of the EVFTA are implemented and corresponding non-tariff barriers are removed.
 

Homo Sapiens

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Will moving out of LDC adverely affect BD's exports and thus growth, given many developed countries have lower custom's duties on LDC nations?
Some economists are saying export will decline by 4-5 billion Dollar. Around 10 percent of total. But BD can avoid it, if it get some benefits like Vietnam is getting in it's export in US and EU. Bangladesh has to pay highest tariff in US to export cloths compared to Vietnam and other apparel exporting countries. Vietnam also has free trade deal with EU. Look at this news-

Bangladesh faces stiffest tariff in US
12:00 AM, April 09, 2018 / LAST MODIFIED: 12:00 AM, April 09, 2018



Star Business Report

Bangladesh pays the highest import duties out of all the 232 exporting nations to the US because of its substantial trade in apparel and footwear -- items that the US generally taxes highly.
Pew Research Centre, a Washington-based think-tank, analysed data from the US International Trade Commission and found that Bangladesh faces the highest import duties.

“Nearly all Bangladeshi imports were subject to US duty and the tariffs on them were 15.2 percent of the total value of the country's shipments to the US -- the highest such average rate among the 232 countries, territories and other jurisdictions in the ITC database.”

Bangladesh exported about $5.7 billion worth of goods to the US last year, 95 percent of which were apparel, footwear, headgear and related items.

And apparel exports are subjected to the stiffest tariff by the US, Bangladesh's single largest export destination. About 20 percent of Bangladesh's export receipts come from the US.

The average American tariff for knitwear or crocheted clothing is 18.7 percent and 15.8 percent for non-knitted clothing -- the two highest average rates out of 98 broad import categories. Footwear is close behind with the average tariff rate of 11.9 percent.

Other countries with similar profiles are Cambodia (duties equal to 14.1 percent of the total value of imports from there), Sri Lanka (11.9 percent), Pakistan (8.9 percent) and Vietnam (7.2 percent).

The disclosure underscores the need for the country to diversify its export basket. Garment accounts for more than 80 percent of Bangladesh's overseas shipments.

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, said the US's protectionist attitude towards clothing is beneficial for none.

“The higher duty neither benefits the US consumers nor ensures consumption of American-manufactured clothes,” he said.
The high tariffs have done little in keeping jobs making shoes or clothes in the US, but it has instead mounted pressure on Bangladeshi garment makers to lower prices for the aim of boosting the retailers' profitability.

Furthermore, Bangladesh has been struck off from the Generalised System of Preferences scheme that allows duty-free exports to the US from the least-developed nations since June 2013.

 

Beast

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Bangladesh is doing a fantastic job in foreign policy and economic policy. It willing to shelve the rohingya problem with Myanmar and concentrate on economy development. Now it see the fruits of it

If Bangladesh decide to indulge in nationalistic fight with Myanmar over rohingya issues. A lot of economy development opportunity will be lost. Bangladesh must build up it's asset before embarking on its foreign strategy. It must be repeat the mistake of India who allow nationalism to blow over its head who step into a series of misjudge decision that ruin it's economy progress.

Bid your time. The moment to shine will come in future.
 

Destranator

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Bangladesh is doing a fantastic job in foreign policy and economic policy. It willing to shelve the rohingya problem with Myanmar and concentrate on economy development. Now it see the fruits of it

If Bangladesh decide to indulge in nationalistic fight with Myanmar over rohingya issues. A lot of economy development opportunity will be lost. Bangladesh must build up it's asset before embarking on its foreign strategy. It must be repeat the mistake of India who allow nationalism to blow over its head who step into a series of misjudge decision that ruin it's economy progress.

Bid your time. The moment to shine will come in future.
China should help Bangladesh return Rohingyas home. This would greatly reduce the liklihood of any conflict.
 

Beast

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China should help Bangladesh return Rohingyas home. This would greatly reduce the liklihood of any conflict.
We have help but myanmar military junta did delay due to covid-19 outbreak and now this mess in Myanmar, any send back is impossible at this moment.
 

Destranator

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We have help but myanmar military junta did delay due to covid-19 outbreak and now this mess in Myanmar, any send back is impossible at this moment.
Now that the West is angry at Burma, China is in a good position to discipline them now, not only on Rohingya issue but also on oppression of other ethnic groups like the ethnic Chinese and for failing to resist growing Indian influence.
 

Beast

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Now that the West is angry at Burma, China is in a good position to discipline them now, not only on Rohingya issue but also on oppression of other ethnic groups like the ethnic Chinese and for failing to resist growing Indian influence.
Discipline? We are no world police like western hypocrite who think all their double standard democracy guideline are world benchmark. But we can advise myanmar junta to hold an early re election to smoothen the intense situation.
 

Destranator

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Discipline? We are no world police like western hypocrite who think all their double standard democracy guideline are world benchmark. But we can advise myanmar junta to hold an early re election to smoothen the intense situation.
I see your point but Myanmar is a rogue state needing special treatment. Just advising them is useless.
 

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