On July 28, 2026, Vietnam and the EU formally signed the Memorandum of Understanding on Carbon Border Adjustment Mechanism (CBAM) Cooperation in Hanoi, becoming the first Southeast Asian country to reach a bilateral agreement with the EU on carbon border regulation. This move not only sets a decarbonization timeline for Vietnam's high-carbon export industries but may also reshape the competitive landscape of the entire Southeast Asian manufacturing sector.

Core of Agreement: From Export Control to Low-Carbon Transition

Under the MoU, Vietnam will gradually implement carbon accounting and carbon pricing mechanisms for high-carbon products exported to the EU, including steel, aluminum, cement, fertilizers, and electricity, with a transition period until 2028 and full compliance with EU CBAM standards from 2030. In return, the EU will provide a total of €1.2 billion in technical assistance and green credit to help Vietnamese enterprises upgrade environmental equipment and build carbon monitoring systems.

Vietnam's Minister of Industry and Trade, Nguyen Hong Dien, stated at the signing ceremony: “This is a key step for Vietnam’s manufacturing sector towards global green standards. We will accelerate the transition to green production methods while maintaining export competitiveness.”

Regional Impact: Acceleration of Industrial Divergence in Southeast Asia

Vietnam Leads, Neighbors Under Pressure

As one of ASEAN’s largest exporters, approximately 18% of Vietnam’s trade volume with the EU is directly affected by CBAM. Previously, Thailand, Indonesia, Malaysia and other Southeast Asian countries were still observing whether to join the EU carbon border mechanism. Vietnam’s early signing may force other countries in the region to follow suit, or face disadvantages in export market access.

Chairman of the Federation of Thai Industries, Kobsak Wongpanich, said: “Vietnam’s choice has sounded an alarm for ASEAN. In the next five years, if similar carbon cooperation cannot be achieved, Thai industries such as steel and petrochemicals may lose EU market share.”

Green Manufacturing Spurs New Industry Chains

To cope with carbon costs, Vietnam has planned to build two low-carbon industrial parks in southern Dong Nai Province and Ba Ria-Vung Tau Province, giving priority to introducing photovoltaic, energy storage, carbon capture and other supporting industries. Meanwhile, the EU has pledged to establish a “Eurasia Green Technology Transfer Center” in Ho Chi Minh City to help Vietnamese SMEs complete carbon footprint accounting and green certification.

World Bank Chief Economist for Southeast Asia, Andrew Mason, noted: “The carbon border mechanism is transforming from a trade barrier into a lever for industrial upgrading. Vietnam is turning challenges into opportunities, attracting high-end manufacturing transfers such as automotive batteries and low-carbon buildings.”

Industry Analysis: Cross-Border Trade Landscape May Be Reshaped

  • Steel Industry: Short-Term Cost Rise, Long-Term Consolidation Accelerated – Vietnam Steel Association estimates that during the CBAM transition period, steel enterprises’ cost per ton will increase by $12-15, but this may force companies to phase out outdated capacity and focus on producing high-value-added specialty steel.
  • Agriculture and Food: Indirect Impact Cannot Be Ignored – Although agricultural products are not yet included in CBAM, carbon costs in fertilizer, cold chain logistics may indirectly raise export prices. Vietnam’s advantageous products such as cashews and coffee need to prepare carbon labeling in advance.
  • Energy Transition: Coal Dependence May Become Biggest Concern – Vietnam still relies primarily on coal power. CBAM’s accounting for electricity imports may increase electricity costs for industrial parks. The EU has pledged to assist Vietnam in developing offshore wind and floating solar projects.

Outlook: New Coordinates for Green Industry in Southeast Asia

This carbon cooperation between Vietnam and the EU marks a shift for Southeast Asian manufacturing from low-cost competition to dual-dimensional competition of “low-carbon + cost.” For cross-border investors, the following trends need special attention:

  • Northern Vietnam’s electronics manufacturing cluster (Bac Ninh, Hai Phong) may face green pressure due to insufficient clean energy support;
  • Indonesia’s nickel ore and lithium battery industry chain, if not included in carbon cooperation, may lose access to the EU new energy vehicle market;
  • Thailand’s Eastern Economic Corridor (EEC) biochemical and circular economy projects may become new capital hotspots.

As ASEAN Secretary-General Kao Kim Hourn commented on social media: “A new green coat is wrapping around Southeast Asia’s industrial body. Those who wear it early will run faster in the global transformation.”

As of press time, Malaysia and Cambodia have indicated that they are in preliminary carbon dialogues with the EU. The green transformation of Southeast Asia’s entire industry has already begun.