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European Commission

Karel De Gucht

European Commissioner for Trade

Speech: EU-Vietnam Trade Negotiations: Renovation and Openness

Ho Chi Minh National Academy of Politics and Public Administration /Hanoi, Vietnam

7 March 2013

Professors, Students, Ladies and gentlemen,

More open economies and more open societies are the reality of today’s world.

Faster and radically innovative communications technologies.

Cheaper and more efficient transportation mechanisms.

More integrated and complex business practices.

All of these are working to make our age the most connected and the most integrated of all time.

Those who will prosper in the coming decades will be those who embrace openness, taking advantage of its opportunities and avoiding its pitfalls.

The recent history of Vietnam, your country, is an example of all that can be achieved by opening up. Through the policy of Doi Moi Vietnam has moved from rigidity and control to openness and flexibility – allowing room first for domestic private enterprise, then for foreign investors and gradually for a greater role of market forces in the economy.

The result of Doi Moi has indeed been a renovation.

Openness has led to growth – at an average rate of 6.5% between 2007 and 2011. This has meant huge declines in poverty and the rise of Vietnam up the ranks of global economies.

Today yours is a middle-income country with, for the first time, a significant trade surplus.

It attracts more and more foreign direct investment: The second highest after Singapore in the ASEAN region, relative to GDP. And this investment is spurring further growth – more than half of exports are carried out by foreign invested companies.

To give a more specific example, the connections of this school to international partners – including to important counterparts in Europe – is a very concrete demonstration of the positive effects of openness.

But as we have all learned over the last 5 years, the future can never be taken for granted. Turbulence can be just around the corner.

So after 27 years of Doi Moi, now is not the time to rest on laurels but rather the time to earn them once again.

For Vietnam’s spectacular success to continue, more reform will be needed.

And closer ties with the European Union can help Vietnam move forward on that path.

The foundation of our relations is the partnership and cooperation agreement that we signed last year. It lays down the foundation for deep cooperation – on development, economic relations and political dialogue, including through our strengthened discussions on human rights, an issue that is very important for the European Union.

What we have been working on since July last year is the next step: The negotiation of a comprehensive, 21st Century free trade agreement.

If we are successful, this agreement will help move Vietnam forward on the path of openness in a broad range of ways.

It will first of all require us both to eliminate tariffs on substantially all of our trade, providing our companies with new market access but also increasing competition at home, making our economies stronger and more resilient.

But more importantly for Vietnam’s reform efforts, this agreement will go far beyond tariffs.

It will cover foreign direct investment, disciplines on state-owned enterprises, public procurement, trade in raw materials, sustainable development and, perhaps most importantly, the regulatory framework – which will allow Vietnam to build on the reforms it made when it joined the WTO on issues like transparency and public consultation – all of which will make the system more effective and in tune with real economic needs.

There is great potential here. But of course with all reforms come challenges of implementation – challenges that can be more acute in the context of a developing economy, even one that has been as successful as Vietnam.

That is why the EU is prepared to provide a program of Aid for Trade parallel to the agreement, to help with the process of removing difficult bottlenecks and improving infrastructure in the broad sense – from education to standards and infrastructure like roads and bridges. Total European development assistance to Vietnam now stretches to over 750 million euro per year. A considerable portion of future funding will be dedicated to helping implementation of any deal we reach.

Beyond the rules aspect of the agreement is the more fundamental point – closer economic relations with the European Union are themselves a driver of development and economic openness.

Now, I know that many of you will be asking whether Europe can still be such a strong partner given all that you read in the press about our economy.

The truth is that the euro, a young currency just over ten years old and a radical experiment in economic integration, has been facing the toughest crisis of its existence. We have learned that the original structures we created to manage this new union were not up to the task of dealing with the sort of problems we faced after the 2008 global financial crisis.

But allow me to reassure you: We have made decisive progress towards fixing those structural problems. In the face of a clear need to change, Europe has responded with action. Our Member States are reforming their economies and public finances, and the Union is reinforcing the structures of cooperation needed to make the European economy work.

And these reforms are delivering results. Markets are calm. In the countries that have had the toughest ride up to now there are positive signs: current account balances are improving, deficits are down, exports are up. Ireland looks likely to be the first country to leave a bailout programme later this year.

Now, we have, of course, a way still to go. Having restored stability, we now have to restore growth. But we are on our way to delivering that too – not least because of the structural reforms that have been made and the fact that stability itself boosts confidence.

But Vietnam will not need to wait for Europe’s full recovery to benefit from closer economic ties with us.

Because – crisis or no crisis – the European Union is still the world's largest economy, with a GDP of 15 trillion euro and 500 million affluent consumers. We are the largest foreign investor and the largest host of foreign direct investment. We are the world’s largest exporter and its largest importer – as well as the largest importer of products from developing countries specifically. Even in 2012 – a year when the European economy contracted slightly – imports from our trading partners actually grew.

And those imports have a unique characteristic. One of the impacts of the scale of the European Single Market is that we import products at every stage of the value chain, from primary goods like basic foodstuffs to the highest technology equipment and the most advanced services.

That means having more access to our market will not only help Vietnam’s farmers, or your highly competitive textiles, clothing and footwear industries, but also the most advanced parts of the consumer goods sector and all the high-tech industries and services providers of the future.

Already our trade relations come to 18 billion euro a year, but this is just a fraction of the EU’s total trade, meaning that we are now only scratching the surface of this relationship. What we need is a partnership for the long-term.

And that is what this agreement can provide. A stable framework for our relations to grow.

It is true that many Vietnamese companies can already export to Europe at lower tariff rates under our preference system for developing countries. But this system is not enough to foster the partnership we want. For one thing, more than half of Vietnam’s exports are subject to tariffs. For another, change is built into the nature of the system – preferences are only designed to give developing industries a head start. Once they become more competitive they preferences decline – as has been the case with the footwear industry.

And finally, the preference system only goes one way. It will not help Vietnam reform its economy or continue on the path of Doi Moi.

Let me also say this: This agreement is not only about openness for Vietnam, it is also part of Europe’s own drive to use international trade and investment to boost growth at home. It is part of our recovery strategy.

But it is not the only agreement that Europe is pursuing. Far from it. We are building a vast network of similar deals that should eventually cover two thirds of all our trade. We are talking to Vietnam’s ASEAN partners, to India, to Japan, to our partners in Latin America and to the United States and Canada. We already have deals with many more countries – including South Korea, Mexico and Chile.

Vietnam is also moving ahead with a wide range of new agreements, through broader ASEAN negotiations and through the Transpacific Partnership.

This has two impacts for our own talks. The first is that the status quo is not an option. We need to move forward in order to avoid falling behind.

The second is that we must keep an eye on the progress being made in Europe’s negotiations with Vietnam’s ASEAN partners. It is in both of our interest to foster regional integration and regional value chains. The best way to do this is to make sure that all of these bilateral EU-ASEAN agreements are as compatible and as coherent as possible. So far the only concluded agreement is with Singapore. While Vietnam and Singapore are different economies it is important that we see that text as a template for our own work.

I am very pleased to say that the negotiations between Vietnam and the European Union have so far proceeded very smoothly. But there is a long road ahead and before we reach a conclusion some difficult decisions and significant changes will have to be made.

The students of this school, as young people and as potential leaders of Vietnam have the keenest interest in the outcome of these negotiations. The same is true of your counterparts in universities across Europe.

It is your generation who will feel the benefits of closer relations and a more open economy and society.

I hope that you will watch closely what we negotiators are doing and make sure that we stay on the right path. The path to openness, to growth and to prosperity.

Thank you very much for your attention.

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