50 Years of Luxembourg-Vietnam Relations Sees Two-Way Trade Stronger than Ever

Vietnam and Luxembourg celebrated 50 years of diplomatic relations last month. To mark the occasion, Vietnam Briefing looks at the trading relationship between these two countries.

Vietnam and Luxembourg have a long and productive trading history. With diplomatic relations normalized back in 1973, the two countries have progressively become more and more intertwined in international trade. This has been helped along by the proactive approach to boosting trade ties taken by the two countries.

In fact, the Prime Minister of Luxembourg, Xavier Bettel, was in Vietnam earlier this year and met with Vietnam’s Prime Minister Pham Minh Chinh. The two leaders discussed a range of issues and went on to sign an agreement on a strategic partnership in green finance between the two countries.

Other areas of cooperation include “personnel training, capacity building, institutional building, technology transfer, and financial assistance for agriculture and climate change response, in order to achieve green growth and sustainable and inclusive development,” according to VN Economy.

The Luxembourg Prime Minister is just one in a long line of European Union leaders to visit the Southeast Asian nation as the bloc and one of the world’s fastest-growing economies cleave closer together.

It’s with this in mind, that the Vietnam Briefing provides the following snapshot of trade between these two countries.

Trade rules and regulations: Vietnam and Luxembourg

With Luxembourg part of the European Union, trade between the country and Vietnam is governed by trade agreements negotiated and implemented by the EU as a whole. These include:

EU-Vietnam Free Trade Agreement (EVFTA)

The EVFTA is an ambitious pact set to eliminate almost 99 percent of customs duties between the EU and Vietnam. This agreement is expected to increase Vietnam’s GDP by 4.6 percent and its exports to the EU by 42.7 percent by 2025, according to the Ministry of Planning and Investment (MPI). The European Commission also forecast the EU’s GDP to increase by US$29.5 billion as a result of the agreement.

EU-Vietnam Investment Protection Agreement (EVIPA)

Currently in the works is the EVIPA. This agreement would help to protect European enterprises investing in Vietnam and vice-versa. Luxembourg has already ratified the agreement, however, there are still a number of EU states that need to do so in order for the agreement to go into effect.

Luxembourg FDI in Vietnam

As the relationship between Luxembourg and Vietnam has grown stronger, billions of dollars of foreign direct investment (FDI) from the relatively tiny European enclave has made its way to Vietnam. At the end of 2022, Luxembourg had initiated 61 projects in Vietnam to which it had contributed capital worth just over US$2.6 billion. According to Prime Minister Pham Minh Chinh, Luxembourg is the third-largest European investor in Vietnam.

Luxembourg exports to Vietnam

In the Vietnam-Luxembourg trading relationship, Vietnam comes out on top in terms of trade. Luxembourg’s exports to Vietnam are worth just under half of that of Vietnam’s exports to Luxembourg. This is in line with lower labor costs in Vietnam and its growing role as a key manufacturing center as a result.

Luxembourg exports to Vietnam, 2022

Source: Department of Customs

Vietnam’s exports to Luxembourg

For a nation the size of Luxembourg, with a population of just 640,000, the value of goods it imports from Vietnam is somewhat remarkable. In 2022, Luxembourg imported US$130 million worth of goods from Vietnam or around US$200 worth of goods for each of its citizens. These imports are mostly in apparel, including footwear, and textiles and garments.

Vietnam exports to Luxembourg, 2022

Source: Department of Customs

The future of trade between Luxembourg and Vietnam

As the EVFTA heads into its fourth year in operation, trade between the bloc and Vietnam is expected to grow even stronger, this includes Vietnam’s two-way trade with Luxembourg.

Furthermore, with an already well-established and strong FDI base in Vietnam, and the EVIPA moving forward (albeit slowly), the huge volume of FDI Luxembourg has invested in the Southeast Asian nations, is likely to continue to grow.

That said, market entry into Vietnam can sometimes be challenging and Luxembourg firms would be well advised to consult local professionals like the business advisory experts at Dezan Shira and Associate for support and guidance.

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