Vietnam-EU Trade Surplus Underlines Growing Trade, Relations

During the first six months of 2022, Vietnam enjoyed a significant trade surplus with the EU, at US$15.5 billion – a strong indicator of Vietnam’s economic recovery post-pandemic, and growing Vietnam-EU bilateral trade. Vietnam Briefing analyses growing Vietnam-EU trade relations and the top-performing industries between the two partners.

Vietnam and the EU have engaged in increasing bilateral trade for more than three decades. Both sides have been trusted partners in many areas, including economic development, trade, green economy, and peacekeeping.

Vietnam is the EU’s 15^th trade-in goods partner and the EU’s most prominent trading partner in ASEAN as of 2020, besides Singapore. The country is also the 11^th biggest exporter to the EU, with a share of 1.8 percent in the overall EU’s imports value.

Source: Eurostat

Vietnam and the EU have signed multiple agreements on promoting trade, and security.

In terms of security, in October 2019, Vietnam and the EU signed a Framework Participation Agreement (FPA) to tighten bilateral security and defense policies. Meanwhile, the Investment Protection Agreement (IPA) was approved by the EU in 2020 and will enter into force as soon as all member states ratify it. As of February 2022, 12 EU Member States have ratified the IPA.

In August 2021, the EU-Vietnam Free Trade Agreement (EVFTA) came into force, which boasts a new-generation free trade agreement (FTA) between Vietnam and the EU. The EVFTA has further facilitated increased trade between participants.

In the first six months of 2022, Vietnam enjoyed a US$15.5 billion trade surplus with the EU, up nearly 40 percent year on year. This is a positive sign of recovering bilateral trade after the pandemic played down Vietnam’s exports to the EU in 2019 and 2020, as can be seen below.

Source: Eurostat

Vietnam-EU trade surplus as of June 2022

By June 2022, Vietnam’s export value to the EU was US$23.6 billion while imports from the EU were worth US$8.1 billion, constituting a trade surplus of US$15.5 billion. This was 39 percent higher than the value during the same period in 2021.

The trade surplus of Vietnam to the EU has been on a steady rise for two decades, starting from a low of US$1.3 billion in 2002, and up 21 times by 2021 to US$27.9 billion. The surplus value over the years can be observed below.

Vietnam-EU trade surplus over the last few years

In Q1 and Q2 of 2022, Vietnam witnessed improvements in the export value of goods to the EU, compared to the same period in 2021.

Vietnam’s most traded goods with the EU include telecommunication equipment, footwear, electronics, textiles, and furniture.

Source: Eurostat

It is clear that the EU witnessed a trade deficit with Vietnam on multiple commodities/goods. One of the very few goods that showed more balanced trade was the category of rotating pland and parts thereof.

The implementation of EVFTA has generated an impetus for the export of many goods to the EU from Vietnam, including seafood, rice, and cashews.

Under the EVFTA, most of the 220 tariff lines on Vietnam’s seafood, with tariffs of up to 22 percent, were reduced to zero percent. The remaining tariff lines will be phased out over the course of three to seven years.

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As per the Vietnam Association of Seafood Exporters and Producers (VASEP), seafood exports to the EU have witnessed a startling leap in both value and quantity. In the first five months of 2022, tuna exports to Germany soared to US$10.5 million, up by 100 percent year on year. Meanwhile, Vietnam’s shrimp export to the EU as of 15^th June 2022 reached US$338 million, up 51 percent year on year.

Cashew is another good to witness strong growth in export value. As of April 2022, Vietnam’s cashew exports to the EU was up 21 percent in value and up 22 percent in quantity, at 49,000 tons, compared to the prior month. The jump in export value has been attributed to the 0 percent tariff on Vietnam’s cashew, as regulated by the EVFTA, compared to a 7-12 percent tariff before the EVFTA.

Under the EVFTA, broken rice enjoys trade liberalization when entering the EU market, bringing up the maximum imported quantity to 100,000 tons, in parallel with the commitment to reduce the tariff line on broken rice to zero percent in three to five years from the date EVFTA became valid. This will put Vietnam’s rice producers at a competitive advantage in the EU market.

The Netherlands, Germany, and Italy are the top three traders with Vietnam among the EU member states.

Source: Eurostat and GSO

A point to note is that these EU member states also saw the most significant trade deficits with Vietnam. Yet Finland is the only EU Member State that had a trade surplus with Vietnam in 2021, at US$ 31.6 million.

What does Vietnam’s trade surplus with the EU imply?

Trade between Vietnam and the EU is forecast to reach new highs as the EU steadily fulfills the commitment to bring down tariff lines for various Vietnamese goods and commodities during the next three to seven years. Investors across industries should make the best of the tariff advantage under the EVFTA to scale up their business operations and exports from Vietnam to the EU.

Potential remains for many sectors, including coffee and cashew exports to the EU. Currently, 80 percent of cashew and coffee exported is raw as Vietnamese producers have yet to make processed cashew and coffee products that best suit EU tastes. Most importantly, the focus is on the telecommunications and electronic industries as the EU’s demand for semiconductors and components soar amid the global input shortage.

However, uncertainties remain for EU-Vietnam trade as the euro has depreciated recently. Mr. Tran Thanh Hai, Deputy Director of the Department of Import-Export (Ministry of Industry and Trade), expressed his concern about the impact on the profit of businesses in the short term by the depreciation of the euro, especially businesses that engage in contracts with payment in euros. That is, for exporters, the same amount of euros earns less in VND, thus affecting profits.

In addition, the depreciation of euros will drive up inflation in European countries, which will undermine the buying power of consumers and lead to limited spending on non-essential goods. 

Analysts expect that while the EU may temper inflation, the Russia-Ukraine crisis will make it significantly challenging.

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