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FTA would allow Euro trade ties to flourish

European Union foreign direct investment in Vietnam is expected to jump if a free trade agreement becomes a reality.

Vietnam and the European Union (EU) last year agreed to conduct the negotiations for a free trade agreement (FTA). This is a new milestone in the relations between the two parties since the signature of the first framework agreement in 1995.

Hans Farnhammer, head of Economic Cooperation and Governance Division at Delegation of the EU to Vietnam, said EU’s investors were awaiting the FTA to increase investments to Vietnam to target ASEAN and other countries like Japan, China and India.

“Vietnam will be a hub for investors to set up production facilities to penetrate into ASEAN and other Asian markets,” said Farnhammer.

Automotive, electronics and high technology, machinery, processed foods, pharmaceuticals, financial, telecom, maritime, and distribution were the key sectors that EU’s investors would be interested in Vietnam.

Till early March 2011, the EU has had 1,079 direct investment projects operating in Vietnam with a registered capital of $16.1 billion. Of which manufacturing sector has 433 projects with a capital of $3.5 billion, the remaining projects belong to service sectors.

“I believe EU investments to Vietnam will increase due to the EU-Vietnam FTA,” said Nguyen Van Toan, vice chairman at Vietnam Association of Foreign Invested Enterprises.

He said EU’s investment to Vietnam was not proportional with its enterprises’ technologies and financial capacity.

In the past years, EU’s investors mainly focused investments in EU member countries, said Toan.

But EU member countries are eyeing ASEAN, including Vietnam as a potential market. The evidence is that EU had an option for conducting negotiations of FTA with ASEAN. However, due to non-economic reasons, EU had to stop it and shifted to a new approach that is to negotiate FTA with each ASEAN country, in which Singapore and Vietnam are its first selection.

Although the two parties have not set out a framework for negotiations, analysts said EU investors would not only benefit from tax reduction and exemption when exporting production to Vietnam, but also benefit from other FTAs that Vietnam signed with other countries and associations like ASEAN Free Trade Agreement, ASEAN-China Free Trade Agreement, ASEAN-Korea Free Trade Agreement, ASEAN-Japan Free Trade Agreement and Vietnam-Japan Comprehensive Economic Partnership Agreement.

Toan said EU’s investors would make Vietnam a hub for ASEAN because of the country’s political and social stability. Furthermore, Vietnam had a favourable geographical position with a system of sea ports and a road network that had been being upgrade to connect with other countries in the region.

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