EVFTA opens doors for Finnish groups

17:00 | 15/08/2019
With the EU-Vietnam Free Trade Agreement having been inked in late June, Vietnam is expected to swell its multi-faceted ties with the European Union. Timo Vuori, executive vice president of the Finland Chamber of Commerce, provides analysis on how the agreement can open up a promising market in Vietnam for Finnish companies.
evfta opens doors for finnish groups
Timo Vuori

The European Union and Vietnam signed both a trade agreement (EVFTA) and an investment protection agreement on June 30, and the EVFTA is the most comprehensive agreement the EU has so far negotiated with a developing country. Vietnam’s export-driven economy is one of the fastest growing in the world, therefore, this agreement is a big step forward.

With this agreement, Vietnam will open the market to about 96 million potential consumers. It will also open up markets for Finnish companies and offer new business opportunities.

There is now a unique opportunity to increase trade between Vietnam and Finland. For example, Finnish trade with South Korea has grown nearly 40 per cent after the EU-South Korea FTA was provisionally applied in 2011 and entered into force at the end of 2015.

The EVFTA will reduce technical barriers to trade, in particular for small- and medium-sized enterprises (SMEs). As the market opens, there will also be demand for Finnish technology in areas such as healthcare. At the same time, Vietnam is moving towards a more competitive and greener economy. Finnish clean-tech expertise often consists of a combination of goods and services.

As a result of the agreement, the exemption of goods important for renewable energy, the principle of non-discrimination, and the removal of the requirement of locality will facilitate Finnish exports.

These include gear and friction gear, alternating current motors, and static transformers. For companies in these sectors, the agreement brings big savings. There will also be savings in facilitating product testing that complicates the operations of SMEs.

Industrial duties will end

The EVFTA removes customs duties on all industrial products. As soon as the agreement enters into force, Vietnam will remove 65 per cent of its import tariffs for the EU. After a transitional period of 10 years, trade will be 99 per cent duty free. The final duties on machinery and equipment items of importance to Finland will be eliminated within a transition period of three to seven years. Many of Finland’s export products currently have high duties of up to 25 per cent, which has made it difficult for many Finnish companies to enter the Vietnamese market.

Finland exports to Vietnam various mechanical machinery and equipment, paper and board products, wood products, and furs. They accounted for just over 70 per cent of total exports to Vietnam in 2018. Some of these products have been subject to high duties, which will be eliminated by the agreement.

The paperwork and time-consuming processes involved in the export and import of goods are particularly costly for SMEs. The agreement will improve co-operation and transparency of practices between the parties. Vietnam is committed to simplifying and standardising document requirements and utilising electronic tools.

Customs clearance can begin before the goods arrive. Payments must be related to the customs clearance event, must not exceed the amount of service received, and payment information should also be publicly available.

The agreement offers new opportunities for expanding and increasing exports through elimination of customs duties. For example, the export of food and agricultural products to Vietnam have been limited from Finland. The most important export product is milk powder. After the transition periods, Vietnam will remove duties on many foods, such as meat and dairy products.

For imports, the agreement removes duties such as 17 per cent on imports of high-end sports footwear into Finland. Groceries and coffee are the most imported products in Finland, and their duties will also be completely abolished.

The EVFTA also improves market access for Finnish companies in business, the environment, insurance, courier services, and maritime services. Examples of environmental areas covered by the agreement are sanitation and sewerage services, as well as nature and landscape conservation. Barriers to market entry will also be reduced in the maintenance and repair services of machinery and equipment important to Finland.

In education services, Vietnam is opening its doors to cross-border adult education and language education for the first time. The agreement creates new opportunities for, for example, operators offering online courses.

evfta opens doors for finnish groups
Finland is waiting for opportunities from Vietnam via the EVFTA

Funding opportunities

The EVFTA will also improve market access for investment. ­Finland, among other European contries, can establish extensive subsidiaries or production facilities in industrial sectors. The right of establishment applies, inter alia, to products in the chemical, mechanical and forestry industries, and also to paper products. As regards to the production of machinery, Vietnam has removed some previous restrictions.

The agreement also promotes corporate social responsibility, the fight against climate change, and the protection of biodiversity, forests, and fisheries. It creates mechanisms for civil society to follow up on the commitments made. Sustainability commitments provide a good basis for clean-tech co-operation with Vietnam and help to address growing consumer concerns about ethical issues in consumer products, food, and services.

Now it is time for companies to become active. During my recent visit to Vietnam with a ministerial business delegation, many Finnish companies have already contacted Finnish chambers in order to ask for more information about the potential and business opportunities in Vietnam. During that visit, a memorandum of understanding between the chambers of commerce in each country was signed.

Finnish business sees Vietnam as a very attractive market and, ­therefore, more Finnish companies will definitely set up trade relations with Vietnamese counterparts in the near future.

Finland’s support to Vietnam

As part of its bilateral relations with Vietnam, Finland is planning to channel €3.6 million ($4 million) of its development co-­operation appropriations to support Vietnam over the next year. Support will be directed to water and meteorology projects, as well as projects funded through mixed credits and to private sector ­instruments, such as Business with Impact and ­Finnpartnership.

Between now and 2022, several capacity-building projects, carried out jointly by public authorities in Vietnam, will receive funding through the Institutional Cooperation Instrument (ICI). The Geological Survey of Finland, the Finnish Environment Institute, and the Finnish Meteorological Institute, together with their Vietnamese partners, are implementing projects relating to the mitigation of climate change and adaptation to it.

The Finnish Food Authority and the Natural Resources Institute of Finland, meanwhile, will continue their long-term ­partnership related to cold water fisheries. These ICI projects aim not only to reach development targets but also to support ­diversification of relations between Finland and Vietnam, and commercial co-­operation between the two.

In addition to ICI ties, Finland is supporting Vietnam through concessional credits, focusing on the strengthening of public infrastructure. In 2018, Finnish companies contributed €56.5 million ($63 million) to projects based on concessional credits. In addition, Finland is planning to participate in projects under the Public Sector Investment Facility for developing countries.

Towards 2021, Finland will support the Vietnamese innovation system by funding the recruitment of an adviser to the Asian Development Bank. Through the Local Cooperation Fund, Finland will also support anti-corruption activities and development of the business environment.

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