Which sector will benefit the most and which sector will face the most pressure when the EVFTA agreement takes effect?

Question:

If the EVFTA agreement takes effect, which sectors are expected to benefit the most, and which sectors will face the most pressure from this agreement?

Answer:

– According to research by the Ministry of Planning and Investment, if the commitments on tariff reduction and non-tariff barriers are fully implemented, combined with various factors such as trade tensions, the United Kingdom’s exit from the EU (Brexit), and policy changes in other countries, Vietnam’s economic growth is expected to improve in the short, medium, and long term. Calculations indicate that the EVFTA is projected to contribute to an additional GDP growth ranging from 2.18% to 3.25% (for the first 5 years of implementation), 4.57% to 5.30% (for the subsequent 5 years), and 7.07% to 7.72% (for the following 5 years).

– In terms of exports, the EVFTA is expected to boost Vietnam’s export turnover to the EU by approximately 42.7% by 2025 and 44.37% by 2030 compared to a scenario without the agreement.

– When considering specific sectors, the export growth rates to the EU are expected to be significantly high for the following sectors:

1. Agriculture and Aquaculture: The EVFTA is expected to provide a substantial market potential for Vietnamese agricultural and aquaculture exports, especially for rice (projected to increase by an additional 65% by 2025), sugar (8%), pork (4%), forestry products (3%), livestock and poultry (4%), beverages and tobacco (5%), and seafood (2% during the 2020-2030 period).
2. Manufacturing and Processing Industries: For the textile and garment industry, it is forecasted that the export turnover of textile and garment products to the EU market will increase rapidly by approximately 67% by 2025 compared to a scenario without the agreement. In terms of production volume, the EVFTA is expected to have a positive impact on production, with a growth rate of 6% (for the textile sector) and 14% (for the garment sector) by 2030. In the leather and footwear industry, the agreement is expected to significantly boost leather shoe exports to the EU. The export growth rate to the EU market is predicted to double by 2025, and the overall export of leather shoes is expected to increase by approximately 34%, with the industry’s production volume growing by 31.8%.

– Conversely, the commitments in the EVFTA will also create greater competition pressure for some sectors:

1. Pharmaceutical Industry: The tariff commitments related to pharmaceuticals under the EVFTA may not lead to significant changes in the near future in terms of pharmaceutical imports and exports between Vietnam and the EU. However, other commitments related to pharmaceuticals will have a substantial impact on the market and the pharmaceutical industry in Vietnam when the EVFTA takes effect, including (1) facilitating the entry of pharmaceutical products from the EU into Vietnam; (2) strengthening intellectual property protection for pharmaceuticals, which may delay price reductions for certain pharmaceuticals; and (3) increased competition in pharmaceutical procurement for Vietnamese hospitals (among suppliers from the EU). This impact will be more noticeable for specialized and proprietary drugs that Vietnam does not yet produce. For common generic drugs that Vietnam already manufactures, the impact may not be significant.
2. Financial Services, Banking, and Insurance: The EVFTA opens opportunities to promote the liberalization of Vietnam’s financial services, banking, and insurance sectors. The impact of this service sector liberalization is positive in terms of service demand and opportunities for cooperation with EU businesses. By 2025, exports of financial and insurance services from Vietnam are expected to increase by around 21%, while imports are projected to increase by 9.65%. However, the competition pressure is significant, and macroeconomic stability pressure is also higher due to the service sector liberalization making Vietnam more susceptible to external shocks.
3. Logistics Industry: The EVFTA could affect the prospects of the logistics industry in two dimensions: (1) commitments to market access for transport services between Vietnam and the EU and (2) commitments in areas that affect the size and quality of the logistics services market in terms of scale, service quality, and expanding capacity to provide services.

– However, these are also crucial sectors of the economy that Vietnam needs to develop to enhance its capacity to serve domestic manufacturing and business sectors, such as financial services, banking, insurance, logistics, or sectors that improve the quality of life and health of the population, such as the pharmaceutical industry. Therefore, competition pressure in these sectors, while present, is necessary and inevitable to facilitate closer cooperation with foreign investors who bring expertise, capital, technology, and experience to stimulate growth and development to new heights.