EU-Vietnam FTA: India’s labour-intensive export sectors to feel the heat, China may gain

Pandemic-hit Indian exporters, especially in labour-intensive sectors, are expecting their fortune to plummet further, as key competitor Vietnam has clinched a free trade agreement (FTA) with the EU.

The pact will raise competition between the Asian rivals for the lucrative EU market in a range of products such as garments, footwear, marine products, plastics, rubber, leather and coffee (See the chart). Importantly, Vietnam will get duty-free access to the EU for 71% of its goods from day one and 99% after seven years but Indian supplies will continue to attract up to 9.6% duty (the maximum, among the products from labour-intensive sectors, is on garments).

Moreover, trade analysts expect a further jump in investments by China and others in Vietnam to take advantage of its duty-free access to the EU, at the cost of India. As such, according to a Nomura report last year, as many as 26 of 56 companies that relocated out of China between April 2018 and August 2019, set up shop in Vietnam.

While India shipped out such products worth $12.2 billion to the EU in 2019, Vietnam exported $13.5 billion — a substantial portion of their total goods exports of $55.7 billion and $41.5 billion, respectively, to the bloc. Of course, with the UK out of the EU now, the bloc’s share in supplies for both the countries will drop.

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Banikinkar Pattanayak