Lawyer in Vietnam Dr. Oliver Massmann – MARKET ACCESS COMPARISON: WTO – TRANS-PACIFIC PARTNERSHIP – EU-VIETNAM FREE TRADE AGREEMENT – ASEAN ECONOMIC COMMUNITY – WHICH AGREEMENT OFFERS THE BEST MARKET ACCESS FOR FOREIGN INVESTORS AND SERVICE PROVIDERS? THE ANSWERS:

Lawyer in Vietnam Dr. Oliver Massmann – MARKET ACCESS COMPARISON: WTO – TRANS-PACIFIC PARTNERSHIP – EU-VIETNAM FREE TRADE AGREEMENT – ASEAN ECONOMIC COMMUNITY – WHICH AGREEMENT OFFERS THE BEST MARKET ACCESS FOR FOREIGN INVESTORS AND SERVICE PROVIDERS? THE ANSWERS:

Vietnam’s Economic Development

Vietnam’s economic development over the past decade has been characterized by resilience and change. The country has maintained its growth trajectory and remains an important location for foreign investors. Despite global challenges such as the US-China trade conflict, the COVID-19 pandemic, and geopolitical uncertainties, Vietnam continues to exhibit robust growth averaging approximately 6% annually through 2024. The country has strengthened its institutional framework, improved infrastructure, and advanced digital transformation, positioning itself as a key hub in global supply chains.

Dynamic Economic Outlook

Vietnam’s GDP growth reflects a stable macroeconomic environment, driven by strong industrial production, rising domestic consumption, and strategic participation in global trade agreements. GDP growth is expected to reach approximately 6% in 2024, following an increase of 5.05% in 2023, supported by resilient exports and increasing foreign direct investment (FDI). Inflation remains under control, and the government’s commitment to market liberalization and a green transition policy is strengthening investor confidence. Key sectors such as renewable energy, high-tech manufacturing, semiconductors, and digital services are emerging as new growth engines, supported by government initiatives to promote human capital and sustainable development.

Vietnam is also experiencing a steady increase in FDI, with record outflows in 2023 and early 2024 as global companies diversify their supply chains away from China. Sectors such as electronics, semiconductors, and e-commerce logistics are particularly attractive, supported by competitive labor costs and a young, tech-savvy population. At the same time, the government is intensifying efforts to improve administrative efficiency, strengthen the legal framework for intellectual property rights, and accelerate public investment in transportation networks to promote trade.

Key Trade Agreements Shaping Market Access

Vietnam’s trade policy continues to evolve, building on landmark agreements to expand its global reach. These agreements not only promote export growth but also require the modernization of Vietnam’s legal and regulatory system, alignment with international standards, and promotion of transparency. Key agreements include:

• ASEAN Economic Community (AEC): As part of ASEAN’s efforts to create a single market and manufacturing base, Vietnam benefits from the elimination of tariffs in Southeast Asia. The AEC represents a combined GDP of over $3.6 trillion and a population of over 670 million. Initiatives to reduce non-tariff barriers, improve customs procedures, and promote digital connectivity continue.
• EU-Vietnam Free Trade Agreement (EVFTA): In force since 2020, the EVFTA eliminated over 99% of tariffs within ten years. Vietnamese exports, particularly textiles, footwear, and agricultural products, have grown significantly in the EU, while European investors gained broader access to manufacturing, renewable energy, and high-tech sectors. The agreement also includes strong provisions on sustainable development, labor rights, and environmental protection, setting a benchmark for Vietnam’s future trade negotiations.
• Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): In force for Vietnam since 2019, it covers 11 economies accounting for 13% of global GDP. It provides preferential access to key markets such as Canada, Japan, and Australia and sets high standards in labor, the environment, and digital trade. New members such as the United Kingdom, which joined in 2023, expand the scope and economic significance of the agreement. To protect foreign investments against the Vietnamese government, the CPTPP introduces the Investor-State Dispute Settlement (ISDS) mechanism. Investors can initiate international arbitration proceedings against the host country in investment-related disputes. The proceedings are public, and the decisions are directly enforceable in Vietnam and abroad – a level of legal certainty previously unavailable in Vietnam.
• Regional Comprehensive Economic Partnership (RCEP): In force since 2022, RCEP forms the world’s largest trading bloc, integrating ASEAN with China, Japan, Korea, Australia, and New Zealand. Vietnam benefits from harmonized rules of origin, simplified customs procedures, and expanded supply chain networks. The agreement strengthens Vietnam’s position as a regional manufacturing hub and supports its ambitions to become a key player in Asia-Pacific trade.

Market Access Comparison: Vietnam and Key Trade Agreements

Foreign investors should evaluate the sectoral commitments in the WTO, AEC, EVFTA, and CPTPP agreements. These differ in their approach to market liberalization and can significantly impact investment strategies:

1. Negative vs. Positive Lists: The WTO, AEC, and EVFTA follow a positive list approach, where only listed sectors are open to foreign investment. The CPTPP, in contrast, uses a negative list approach, where all sectors are open unless explicitly restricted. This offers investors greater security and flexibility and promotes a more competitive environment.
2. Distribution Services: Under the EVFTA and CPTPP, Vietnam has gradually relaxed restrictions on retail establishments, abolished the Economic Needs Test (ENT) for retail outlets under 500 sq m, and committed to completely abolishing ENT within five years. This reform is particularly important for international retailers and e-commerce platforms seeking to expand their operations in Vietnam’s growing consumer market.

1. Energy market: The EVFTA allows foreign participation with restrictions in electricity generation, while the CPTPP offers broader commitments – with the exception of sensitive areas such as power transmission and nuclear energy. New government initiatives to promote renewable energy such as wind and solar projects are creating additional opportunities despite regulatory challenges.

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4. Financial Services: CPTPP member states are subject to fewer restrictions on cross-border banking and insurance than under WTO commitments, where foreign ownership limits remain higher. This has attracted interest from global financial institutions seeking to offer new products in Vietnam’s rapidly growing capital market.

Insurance Sector:

Banking services:

Investment Services:

5. Transport services:

6. Telecommunications: Foreign ownership limits in non-infrastructure services will increase from 65% (WTO) to up to 100% within five years of the CPTPP’s entry into force. This liberalization promotes the expansion of 5G networks and cloud services.

7. Government Procurement & Intellectual Property: Both the EVFTA and the CPTPP contain progressive regulations on public procurement and IP protection, which provide foreign investors with better access to government projects and underscore Vietnam’s commitment to international standards.

For questions or further information, please contact Dr. Oliver Massmann at [email protected]. Dr. Oliver Massmann is Managing Director of Duane Morris Vietnam LLC.