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Everybody knows that the ultimate objective of the European is to achieve bilateral free trade agreements between Europe (EU) and ASEAN.
In 2007, the two blocks started negotiations, which ended in failure two years later given the complexity of the differences between the 10 member states. The disparity between finance, economic growth, political environment, or/and social issues among the ASEAN countries are a few obstacles preventing this negotiation from reaching the final step.
After the suspension of negotiations in 2009, the EU decided to conclude bilateral trade agreements with individual ASEAN member states to serve as building blocks towards a future common agreement. Singapore was the first country to achieve the FTA with the EU in 2019, followed by Vietnam with the EU-Vietnam Free Trade Agreement (EVFTA) in August 2020 – which proved and reinforced the country’s major role in the region. Negotiations with Indonesia are ongoing, while negotiations with Malaysia, the Philippines and Thailand have been put on hold for the time being.
The free trade agreement (FTA) between Vietnam and the European Union was ratified by the European Parliament on February 12nd, 2020. On the same day, the EU-Vietnam Investment Protection Agreement (EVIPA) was also approved, marking a historic step in Vietnam-EU trade relations.
While the EU-Vietnam Free Trade Agreement (EVFTA) ensures a balance of benefits for both Vietnam and the EU, considering the differences in development levels between the two sides, the EVIPA aims to protect investors and investments in the EU and Vietnam and ensures they will be given fair treatment. Let’s take a closer look at the EVFTA and its advantages for both sides.
1. Timeline of a historic agreement
Negotiations between the EU with Vietnam on an FTA were launched in 2010. An agreement in principle was reached in August 2015. Following the completion of technical discussions, talks were finalized in December 2015. In February 2016, the full text of the EVFTA agreement was published, together with a working document on human rights and sustainable development of Commission staff.
However, the formal conclusion of the agreement was delayed due to the pending judgment of the Court of Justice of the European Union (CJEU) on jurisdiction for the conclusion of the EU-Singapore free trade agreement.
To take the 2017 CJEU opinion into account, the original agreement was split into EU-Vietnam Free Trade Agreement (EVFTA) and Investment Protection Agreement (IPA) in June 2018.
Both agreements were signed on June, 30th, 2019 in Hanoi. The European Parliament gave its consent to the agreements on 12 February 2020.
Following the conclusion of the final formalities of each party, the EVFTA entered into force on 1 August 2020 after almost a decade.
The agreement includes 17 chapters, two protocols, and several attached memorandums, with main contents including Trade in goods; Services, investment liberalization, and e-commerce; Government procurement; and Intellectual property rights. The most crucial objective in the agreement is to abolish most of the customs duties within 10 years since the time of ratification.
2. The EVFTA eliminates over 99 % of all tariffs in both directions
Taken as a whole, ASEAN is the EU’s third-largest trading partner outside Europe (after the US and China). According to Eurostat, in 2020, Vietnam was the 30th largest partner for EU exports of goods (0.5 %) and the tenth-largest partner for EU imports of goods (2.0 %).
As the EVFTA comes into effect, the EU will eliminate import taxes on nearly 86% of tariff lines from Vietnam and raise the number to 99% after 7 years; while Vietnam immediately removed 48.5% of tariff lines for EU goods in the first year and raised to 91.8% of tariff lines after 7 years.
In greater detail, after 7 years, 91.8% of tariff lines, equivalent to 97.1% of export turnover from the EU, will be eliminated from import tax by Vietnam. After 10 years, this level of elimination will be 98.3% of tariff lines and 99.8% of EU export turnover, respectively. For the remaining 1.7% of the tariff lines, Vietnam will apply a tariff-rate quota under WTO commitments or a special roadmap to remove tariffs.
With the commitment to abolish almost 100% of the import taxes agreed by both parties, there is a great opportunity to increase the export of Vietnamese products such as textiles, footwear, agricultural products, and seafood (such as rice, sugar, honey, vegetables, etc.), wood products and others.
To know if your so-called HS code is concerned by the measures, you can take a look at your tariff reduction category:
If your HS code falls in the “A” category, your goods are officially tax-free from August 2020. As for the category “B”, those goods will be tax-free in the coming three to fifteen years. The range goes from “B3” to “B15”, while the number stands for the duration until the tariff is totally removed. Every January, an annual reduction will take effect until it reaches zero. Please find below a few examples of progressive tariff reductions.
3. The EVFTA contributes to the expansion of both sides’ export markets
According to a study conducted by the Ministry of Planning and Investment, the EVFTA Agreement will help Vietnam’s export turnover to the EU to increase by about +20% by 2020, +42.7% in 2025, and +44.37% in 2030. At the same time, the import turnover from the EU will also increase but at a lower rate than exports, namely around +15.28% in 2020; +33.06% in 2025, and +36.7% in 2030. In addition, EVFTA will contribute to Vietnam’s GDP increase by an average of 2.18-3.25% (in 2020-2023); 4.57-5.30% (2024-2028) and 7.07-7.72% (2029-2033).
In short, the implementation of the EVFTA agreement encourages the removal of tariffs, investment promotion, promotion of mutual recognition of standards, improvement of rules of origin and certification of origin; and brings numerous opportunities for Vietnam to open up its export market, attract investors, and participate deeper into the global value chain.
Some European companies might even consider using Vietnam from a manufacturing perspective as an alternative to China, with the possibility to import raw materials in Vietnam, transform or assemble products and serve local markets in the region.
On the other side, the commitments on services, investment liberalization, and e-commerce; government procurement; as well as some specific regulations on market opening will also create opportunities for EU businesses, products, and services to have more favorable access to a market of nearly 100 million people.
In return, Vietnamese consumers also have access to high-quality products and services exported from the EU in the near future, such as pharmaceuticals, healthcare, infrastructure construction, and public transport.
4. The EVIPA aims to protect investors and ensures they will be given fair treatment
Following the EVFTA agreement, an Investment Protection Agreement (IPA) is also taken into account, with the aim to protect investors and investments in a host country. It ensures that they will be accorded fair treatment and will not be discriminated against. In the meanwhile, the EVIPA is still subject to EU members’ ratification and might come into force in the coming two years.
The EVIPA guarantees that EU companies can submit bids for public contracts to Vietnamese authorities and state-owned companies. It also grants access to the Vietnamese service markets, where EU companies could operate on more favorable terms in the services sector (post, banking, insurance, environment…).
Besides that, the agreement contains intellectual property protection and investment liberalization provisions that protect 169 EU Geographical Indications (GIs) in the Vietnamese market and 39 Vietnamese GIs in the EU market. In other words, the GIs must identify a product as originating in a given place and give a clear link between the product and its original place of production. Products such as “Champagne” or “Gorgonzola” are the most known examples for Europeans – or “Moc Chau” Tea and “Buon Ma Thuot” coffee for Vietnamese people.
Considering Vietnam‘s efforts to better comply with international regulations, the country also committed itself to accede to The Hague Agreement concerning the International Registration of Industrial Design and to extend the term of protection for designs to 15 years. Two more items in the intellectual property protection part are also taken into account by the country:
Vietnam’s commitment to developing patent registration procedures using the Patent Law Treaty (PLT) as a reference;
Vietnam applied to the World Intellectual Property Organization (WIPO) recommendation on the protection of well-known trademarks.
5. Final thoughts
To sum up, the implementation of the EVFTA allows not only tariffs reduction, but also removes regulatory barriers and eases all aspects of the import/export process. This way, Vietnam commits to better comply with international standards and recognizes European conformity standards.
The EVFTA and upcoming EVIPA will create stable and long-term frameworks for Vietnam and the European Union, in order to maximize the potential of both sides’ comprehensive cooperative partnership. Furthermore, the agreement affirms the strategic development of the bilateral relationship, demonstrates the importance of each side’s positions in the foreign policy, the development and integration strategies, and also contributes to deepening and knitting relationships and long-term interests. It upholds peace, stability, and development of the two sides for the future!