Bilateral trade agreements supporting FDI growth

In recent years, Vietnam has been very active in negotiating and signing bilateral and multilateral Free Trade Agreements (FTAs). To date, Vietnam has officially participated in and signed 15 effective FTAs and is currently negotiating 02 FTAs. Notable among them are the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union - Vietnam Free Trade Agreement (EVFTA), which are considered new generation FTAs. This creates both new opportunities and challenges for attracting foreign direct investment (FDI) in Vietnam. This article discusses impact of CPTPP and EVFTA on FDI flows.

1. Overview of CPTPP and EVFTA

CPTPP Agreement: consists of 7 articles and 1 annex regulating the relationship with the TPP Agreement signed by 12 countries including Australia, Brunei Darussalam, Canada, Chile, the United States, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, on February 6, 2016 in New Zealand; as well as handling other issues related to the validity, withdrawal from or accession to the CPTPP Agreement.

Basically, the CPTPP Agreement maintains the content of the TPP Agreement (including 30 chapters and 9 annexes), but allows member countries to temporarily suspend 20 groups of obligations to ensure the balance of rights and obligations of member countries in the context of the United States' withdrawal from the TPP Agreement.
 

Impact of CPTPP and EVFTA on FDI flows

EVFTA: is a comprehensive, high-quality agreement, balancing the benefits for both Vietnam and the EU, and in line with the regulations of the World Trade Organization (WTO). The agreement consists of 17 chapters, 2 protocols and a number of accompanying memorandums of understanding with the main contents being: trade in goods, rules of origin, customs and trade facilitation, food safety measures, technical barriers to trade, trade in services, investment, trade defense, competition, state-owned enterprises, government procurement, intellectual property, trade and sustainable development, cooperation and capacity building, legal and institutional issues.

2. Attracting FDI capital to Vietnam in the context of implementing CPTPP and EVFTA

2.1. Attracting FDI capital into Vietnam under the conditions of implementing CPTPP

From 2017 to 2020, newly granted FDI capital from regional economic partnerships influencing FDI tends to be less optimistic, but not worrying, because in the context of global FDI investment decreasing, the trend of Bilateral trade agreements supporting FDI growth increasing and the complicated development of the Covid-19 pandemic, accompanied by huge losses in terms of people and property.

In 2021, FDI capital attraction from CPTPP countries reached nearly 15 million USD, an increase of 28% compared to 2020, showing that FDI capital attraction from foreign investors in the CPTPP bloc promises to grow rapidly in the coming time to 2025. Optimistic signals from investors show that the focus comes from emerging regional economic partnerships influencing FDI in the Mexican and Canadian markets.

Before signing the CPTPP, Mexico had not invested FDI in the Vietnamese market. In 2018, Mexico had its first project with a value of 0.01 million USD. After Vietnam officially implemented CPTPP, Mexico had 2 investment projects with a value of 0.11 million USD. In 2020, Mexico invested in the form of capital contribution to buy shares with 2 rounds and the value of capital contribution to buy shares was 0.02 million USD. In 2021, Mexico invested in 1 new project with a value of 0.022 million USD. Although this is a very small number compared to traditional investors such as Japan, Singapore or New Zealand, ..., it has initially shown that the implementation of CPTPP has an impact on attracting FDI capital to Vietnam.

2.2. Attracting FDI capital to Vietnam under the conditions of implementing EVFTA

The EVFTA Agreement officially took effect between Vietnam and 27 new EU member countries from August 1, 2020. Among the 27 EU member countries investing in Vietnam, the Netherlands always leads in terms of registered capital. The above table shows that FDI from the Netherlands increased sharply in 2021 (from 565.3 million USD in 2019 to 1,122.32 million USD in 2021, equivalent to 98.53%), while Vietnam's overall FDI attraction in 2021 is still declining. Thus, EVFTA has shown to have an impact on the Netherlands' decision to increase FDI investment in Vietnam. In addition, French FDI projects in professional activities and high-tech science account for a large proportion. This shows that EVFTA affects FDI attraction focusing on high-tech and quality sectors.

Thus, Vietnam needs specific solutions to approach and penetrate the market, as well as attract FDI, trade facilitation and customs reforms from EU countries.
 

Bilateral trade agreements supporting FDI growth

3. Some solutions to attract FDI capital in the context of implementing CPTPP and EVFTA

The Government and management agencies need to step up the work of reviewing compatibility and preparing for the development of legal regulations in accordance with institutional commitments in CPTPP and EVFTA. Ministries and sectors are responsible for drafting documents and regulations to internalize CPTPP and EVFTA commitments for effective implementation.
Second, perfecting infrastructure, economic stability and growth.
Third, focusing on selectively attracting FDI capital.
Fourth, improving the quality of human resources.
Fifth, developing supporting industries.
Sixth, improving the effectiveness of investment promotion.

To "integrate" into the supply chain of FDI enterprises, Vietnam needs to have qualified enterprises to participate in the production stages of foreign investors. There needs to be a plan for the development of sectors, agriculture, supporting industries, and identification of key export sectors.

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>>>Read more: Future FDI trends and forecasts for Vietnam 2025

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