Role of EU in Vietnam Economy

DIPLOMATIC ACADEMY OF VIETNAM

INTERNATIONAL ECONOMIC FACULTY

TOPIC 7:

THE ROLE OF THE EUROPEAN UNION

TO VIETNAM’S ECONOMY

GROUP 7 – KT37A

Ha Noi, November 2012

CONTENT

LIST OF ABBREVIATIONS

PREFACE………………………………………………………………………………………....…..…....…..…..….3

CHAPTER 1: RATIONALE……………………………………………………………………………………....6

1. Basic problems……………………………………………………………………………...…....…..…..…..…6

1.1. The general market………………………………………………………………..…....…..…..…..…...6

1.2. Trade………………………………………………………………………………………………....…..…....6

1.3. FDI………………………………………………………………………………………………………………. 6

1.4. ODA…………………………………………………………………………………….....…..…..…....…...6

2. Overview of EU……………………………………………………………………………………………....…..6

2.1. History………………………………………………………………………………………..…..…....…..…6

2.2 The EU in the world economy……………………………………………………………....…..…..…7

3. Vietnam-EU relation background…….………….………….………….………................................8

3.1. Vietnam-EU relation history…………….………….…….………….…….................................8

3.2. Vietnam-EU trade feature…………………………………………………………....…....…..…..…..9

3.3. Some features of EU’s FDI to Vietnam……………………………………………………..…..…10

3.4. Some features of EU’s ODA to Vietnam…………………………………………………......…..10

CHAPTER II: THE ROLE OF EU TO VIET NAM’S ECONOMY……….........................11

1. Trade…………………………………………………………………………………………………..…....…..….11

1.1. Export to EU………………………………………………………………………………….....…..…....11

1.2. Import from EU……………………………………………………………………....…..…..…....…...12

2. EU’s FDI to Viet Nam………………………………………………………………………………………….14

2.1. The situation of the EU’s FDI to Vietnam in recent years……….……….......................14

2.2. FDI from the EU’s role in Vietnam……………….………….………….…............................15

3. EU’s ODA to Viet Nam………………………………………………………………………………………..17

3.1 The situation of the EU’s ODA to Vietnam in recent years..…………...........................17

3.2. The role of EU in the process of providing ODA to Viet Nam…..………….………….....20

4. EU – an important supporter of Vietnam about labor and trade-related assistance...........20

4.1. Labour…………………………………………………………………………………………………………21

4.2. Trade-Related Assistance…………………………………………………………………....…..…....21

CHAPTER III: SOLUTIONS TO PROMOTE THE ROLE OF EU TO VIET NAM’S

ECONOMY………………………………………………………………………………………………………….….22

1. Chances and challenges…………………………………………………………………..…..…..…..….....22

1.1 Chances…………………………………………………………………………………………………….....22

1.2 Challenges……………………………………………………………………………....…..…..…..….....23

2. Orientation of co-operation and some solutions to promote the relationships between Viet

Nam-EU………………………………………………………………………………………………………………..24

2.1. Orientation……………………………………………………………………………………....…..…..…24

2.2. Solutions………………………………………………………………………………………....…..…..…25

C. CONCLUSION…………………………………………………………………………………...…..…..….....28

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LIST OF ABBREVIATIONS

ABBREVIATIONS FULL PHRASE

EU European Union

FDI Foreign Direct Investment

ODA Official Development Assistance

PCA Partnership and Cooperation Agreement

FTA Free Trade Area

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A. PREFACE

Economic globalization – the increasing economic interdependence of national

economies across the world through a rapid increase in cross-border movement of goods,

service, technology, and capital – has become a global trend. In that process, both developed

and developing countries have reaped the benefits of international trade increases,

experiencing acceleration in growth, many of them quite substantial. In 1986, Vietnam

launched an ambitious program called “Doi moi” and accelerated its implementation in 1989.

Under this program the highly controlled economy was thrown wide open and market led-

policies were introduced. More specifically, this included unifying and devaluing the exchange

rate, trade liberalization, increasing interest rates above the rate of inflation, decontrolling the

prices of food and most other commodities, decollectivization of agriculture, abolition of trade

restrictions on inter–provincial trade, diversification of ownership and the abolition of

employment limits on private enterprises. In 2007, the country joined the World Trade

Organization following more than a decade-long negotiation process. As a result of Vietnam

integration into the global economy, we become more interdependent on other economies,

especially world economic power like the European Union (EU).

In recent years, the ties between Vietnam and EU have been closer than ever. The

relationship between the two sides has been developing in both depth and width, cemented by

a bilateral cooperation agreement. Due to its being one of the largest importers and foreign

investors in Vietnam, EU undoubtedly plays a key role in the Vietnam’s economy. Therefore,

the importance of EU to Vietnam’s economy should be taken into consideration in every

economic and even social policy. How we can fully utilize this close relation, maximize the

good impacts and prevent detrimental influences becomes a matter of concern to both the

government and the people. Thus, there is a need for research into the current situation,

challenges and prospects for the impacts of EU on Vietnam economy.

“The role of EU to Vietnam’s economy” is a broad topic. Our group intends to give a

clear and simple approach to this issue. In this essay, we make use of many research methods

such as comparison, synthesis, analysis, statistics and reliable references including the macro-

economic and micro-economic theories, facts of economic development, and information from

books and journals by distinguished intellectuals to support our theories, arguments and

evidences. The essay has four chapters, 29 pages (including introduction, conclusion and

reference list):

Chapter I: Rationale. In the first chapter, we provide readers the rationale from which to help

the readers get an overview of the topic being researched.

Chapter II: The role of EU to Vietnam’s economy. This is the most important chapter which

covers almost all the main points in our topics. In this chapter, we will look into the importance

of EU in every aspect of Vietnam economy.

Chapter III: Solutions to promote EU’s role to Vietnam’s economy. In this last chapter, we

will take a further look into this issue, analyze the prospects and challenges of EU’s impacts on

Vietnam economy and offer some possible solutions.

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In our study, we would like to express our stance on this topic as well as carry out our

evaluations based on related researches. However, due to limited knowledge and time, it is

unavoidable that our essay may contain some errors. We hope to receive further constructive

feedback to improve our essay.

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CHAPTER 1: RATIONALE

1. Basic problems

1.1. The general market

The general market is the market in which the standard legal system applies to all

Member countries to ensure the free circulation of people, goods, services and capital.

1.2. Trade

Trade is an activity which exchanges wealth, goods, services, knowledge, money …

between two or more partners, and can get a certain value (in cash through price) or by other

goods and services such as in the form of barter trade. In this process, the seller is to provide

wealth, goods and services to the buyer, in exchange for the buyer will pay the seller a certain

equivalent value.

1.3. FDI

Foreign direct investment (FDI) is direct investment into production in a country by a

company in another country, either by buying a company in the target country or by expanding

operations of an existing business in that country. Foreign direct investment is done for many

reasons including to take advantage of cheaper wages,and/or for special investment privileges

such as tax exemptions offered by the country as an incentive to gain tariff-free access to the

markets of the country or the region.

1.4. ODA

ODA is official financing or other forms of assistance, includes non-refundable aid,

refundable aid or preferential credit given by governments, intergovernmental organizations,

non-governmental organizations, organizations of the UN system, international financial

institutions to less developed countries and developing countries countries to promote and

implement development.

2. Overview of EU

2.1. History

The European Union (EU) was created by the Maastricht Treaty on November 1st 1993.

EU is a geo-political entity covering a large portion of the European continent. It is founded

upon numerous treaties and has undergone expansions that have taken it from 6 member

states to 27, a majority of states in Europe.1

Austria (1995)

Belgium (1952)

Bulgaria (2007)

Cyprus (2004)

Czech Republic (2004)

Denmark (1973)

Germany (1952)

Greece (1981)

Hungary (2004)

Ireland (1973)

Italy (1952)

Latvia (2004)

Netherlands (1952)

Poland (2004)

Portugal (1986)

Romania (2007)

Slovakia (2004)

Slovenia (2004)

1 http://europeanhistory.about.com/od/governmentandlaw/a/europeanunionhist.htm

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Estonia (2004)

Finland (1995)

France (1952)

Lithuania (2004)

Luxembourg (1952)

Malta (2004)

Spain (1986)

Sweden (1995)

United Kingdom (1973)

The principle was at the heart of the European Coal and Steel Community (ECSC) in

the Treaty of Paris (1951), following the “Schuman Declaration” and the later the Treaties of

Rome establishing the European Economic Community (EEC) and the European Atomic

Energy Community (EAEC). Both the ECSC and EEC were later incorporated into the

European Union while the EAEC maintains a distinct legal identity despite sharing members

and institutions.

2.2 The EU in the world economy

Ever since its creation, the EU’s economic weight has made it an influential player in

the global economy. The EU-27 accounts for 19% of global trade. It is also one of the largest

hosts and sources of foreign direct investments. Internal coordination of foreign economic

policies has meant that it could at least partially translate its economic weight into influence in