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Vietnam-EU FTA will impact India, say exporters and trade experts

Vietnam-EU FTA will impact India, say exporters and trade experts

Vietnam-EU FTA will impact India, say exporters and trade experts
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By Rituparna Bhuyan  Jun 11, 2020 6:15:14 AM IST (Updated)

The free trade pact signed between emerging South East Asian powerhouse Vietnam and the 27-member Belgium-headquartered custom block, the European Union (EU), doesn't bode well for India, exporters and trade experts told CNBC-TV18.

The free trade pact signed between emerging South East Asian powerhouse Vietnam and the 27-member Belgium-headquartered custom block, the European Union (EU), doesn't bode well for India, exporters and trade experts told CNBC-TV18.

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The FTA was ratified on June 8 and will ensure zero duty trade on 99 percent of products Reuters reported.
This is the first FTA that has been signed after the outbreak of the global COVID-19 pandemic that has resulted in a disruption of supply chains. For the EU, this is the second FTA in South East Asia after Singapore. The free trade pact will be operational from July this year.
Indian exporters maintain that they have been already losing market share to Vietnam in the EU market, which accounts for close to one-fifth of Indian outbound shipments.
“In many segments, India is closely competing with Vietnam. Since Vietnam has signed an FTA, we will have to be careful in those segments over a period of time. India has been losing market share (in exports) to Vietnam and therefore if we talk about footwear, leather goods, furniture marine goods, tea and coffee, these are the sectors where we will have impact.
“In the marine sector, Vietnam will be getting duty preference and pay 6 percent duty. In apparel sector India will need to pay 9 percent duty (in the EU), while Vietnam will not pay any duty. I am sure Vietnam will be able to get more market access in EU as compared to India,” said Ajay Sahai, director general and CEO of Federation of Indian Export Organisations (FIEO), an umbrella body of Indian exporters.
Vietnam has emerged as a preferred destination of many foreign companies wanting to invest in Asia. According to a report released by Japanese investment bank Nomura last year, out of 56 companies that relocated out of China between April 2018 and August 2019, 26 decided to set up their new base in Vietnam.
“So once there is an FTA between EU and Vietnam, European producers can invest in that country  and from there they can export further into other markets in Asia Pacific including a market like China because China and Vietnam are  going to be part of a major FTA through the forthcoming RCEP ,” said Amitendu Palit, senior research fellow at the Institute Of South Asian Studies, National University Of Singapore.
“If production shifts out of China it makes imminent sense for those businesses to go into Vietnam because though Vietnam thy can re-export back to China. They can also access the European Market through the FTA that has been signed and they can also access the rest of the RCEP FTA territory and also exclusively the ASEAN market,” he added.
So where does that leave India, where trade policy makers have been discussing plans to woo companies relocating out of China.
“Investors will look for incentives and incentives that need to be offered have to be financial or fiscal in nature because India won’t be able to match Vietnam on the level of ground efficiency as far as cost of production is concerned as well as in terms of the network that it has in terms of giving access to demand markets across the region and for the world,” Palit added.
According to Palit, India’s global trade interests would have been widely secured if the country did not walk out from the RCEP mega trade deal, which in its original form had 16 nations, including India.
“India made a huge mistake by not staying committed to the RCEP FTA. I know that RCEP is primarily looked at as an FTA with China. But today if you look at the countries with whom India is trying to build a friendship alliance looking to relocate supply chains out of China, all these nations like Japan, Korea, Vietnam, Australia, New Zealand are part of the RCEP. Had India remained with RCEP, it would not have had to search for common rules of origin which would have facilitated these supply chain movements. It would have had the same set of rules with respect to standards, investments and non tariff barriers,” said Palit.
“In other words India would have been part of a bigger family and within that bigger family it could have curved out a niche for a smaller family,” he added.
Palit maintains that India needs to start forging bilateral trade deals at the earliest. His prescription to secure India’s interests in a post-COVID-19 world comes at a time when duty free trade pact negotiations between the country and the EU, Australia and New Zealand are yet to find any traction.
“Today, what India needs to do is to enter into reciprocal arrangements which are going to have to be crafted in bilateral fashion but unfortunately all these bilateral agreements may not be consistent,” said Palit.
“India has to live with the hope that the lure of its domestic market will be big enough and large enough for a large number of investors to overcome these imperfections and ad-hoc unsynchronised ways of policy connections that India has with the rest of the world,” concluded Palit.
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