A Free Trade Agreement (FTA) between Vietnam and EU will boost economic reform and support development in Vietnam, David O'Sullivan, chief operating officer of the European External Action Service said at a Mar 2 press conference in HCM City.

More free trade and trade liberalisation are important for both economies, he stressed.

Against the backdrop of persistent macroeconomic challenges that Vietnam has been facing currently, it is important to keep the market open, he said.

The FTA can help both sides avoid trade protectionism, especially when Vietnam continues to increase exports in the coming years while waiting for an increase in domestic consumption.

Sullivan said he will press for progress in the negotiation of a mutually beneficial EU-Vietnam FTA, which would also act as a catalyst for Vietnam 's economic liberalisation strategy.

The EU is already an important trading and investment partner of Vietnam , but there is more potential to be realised. Towards this, "we would like to see negotiations progress for a comprehensive free trade agreement between the EU and Vietnam .

"We have been discussing with Vietnamese authorities for a number of years and we are now ready to move forward. We hope negotiations for the FTA between Vietnam and EU will be announced at the EU-ASEAN business summit taking place in Phnom Penh on April 1," he said.

Typically, the negotiation can take about 2-3 years. They will cover a full range of topics related to trade and investment relations.

With the ASEAN region in general and Vietnam in particular marked for dynamic economic growth, the EU is keen to strike a win-win cooperation deal with Vietnam , Sullivan said.

He said Vietnam is a country with enormous potential and significant economic achievements in recent times, and it can do better in the coming years.

"The EU's economic crisis does not restrict import-export, or reduce investment, but it has increased trade and engagement with the world, particular with ASEAN – a major source of economic growth – We want more trade and investment," he said.

While cheaper labor costs in Vietnam is a very important element for investment decisions, there are many other influencing factors such as corruption and investment guarantees.

" Vietnam needs to work on all elements if they wish to be an attractive destination to investors. What Vietnam wants to do is move up the value chain, so they need to use the labour cost advantage in the beginning to build up their capacity and added value to make their economy more competitive," Sullivan said.

Besides, Vietnam still faces challenges including high inflation and increasing exports of low cost items, which can damage the economy, he added./.