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15 Feb 2016

International Economy

The EU-VN FTA: Another FTA to Elevate Vietnam’s Economy (Current Issue No. 2703)

On December 2, 2015, Vietnam and the European Union (EU) entered into the EU-Vietnam Free Trade Agreement (EU-VN FTA), which is expected to come into effect late in 2017 or early 2018. Under this agreement, the two parties are committed to widening and deepening trade liberalization, and that the EU will invest more in Vietnam's capital-and technology-intensive manufacturing sectors. As a result, Vietnam should become an important trade partner with the EU and an attractive investment destination for international investors, especially those from the EU. It is reasonable to expect that the EU-VN FTA will be an FTA that will help enhance Vietnam's future competitiveness.
Over the short-term, this FTA may not affect Thailand's export sector and investment much because our export structure differs from that of Vietnam. Moreover, our foreign direct investment (FDI) already tends to go into our capital-and technology-intensive industries, while FDI into Vietnam typically goes into their labor-intensive industries. Over the long-term, however, if Vietnam is able to upgrade its manufacturing capabilities and labor skills to accommodate sophisticated production processes following the enforcement of the EU-VN FTA and Trans-Pacific Partnership (TPP), that may not only undermine Thailand's status as an important investment destination within the region, but also represent a challenge to the Thai export sector and our attempts to upgrade manufacturing here.

To maintain our near-term competitiveness, Thai businesses may need to make greater inroads into neighboring states that are entitled to GSP tariff privileges, e.g., Myanmar, Cambodia and Vietnam, to link with their supply chains that are growing steadily amid their industrial advancement. In addition, we should create a stronger brand identity since this is important towards adding value to our products and differentiating us from peers. Next, relevant Thai authorities should accelerate inducements to upgrade our manufacturing facilities and labor skills to accommodate new technologies and innovations, aimed at attracting more FDI into our capital-and technology-intensive industries while awaiting progress on FTA negotiations with the EU and TPP.

International Economy