The Vietnam – EU Free Trade Agreement (EVFTA) was kicked off and negotiated in the context of the growing bilateral relationship between Vietnam and the EU, especially in the field of economy and trade. The EVFTA took effect from June 8, 2020 and is a boost for Vietnam’s exports. The agreement helps in diversifying the export markets and products. Commitments to fair, equal, safe and adequate treatment and protection for investments will also contribute to building a transparent environment between the two sides. This also helps Vietnam in attracting more investors from EU and other countries.
The EU is currently one of Vietnam’s major trading partners with two-way turnover in 2019 reaching 56.45 billion USD. Among this, exports constituted 41.5 billion USD and imports from the EU constituted 14.9 billion USD worth goods.
The main features in the FTA that are beneficial to businesses:
Trade in goods: The EU shall eliminate import taxes on approximately 85.6 percent of tariff lines, which is equivalent to 70.3 percent of Vietnam’s export turnover to the EU. After seven years from the date on which the FTA came into force, the EU shall abolish import taxes on 99.2 percent of tariff lines, which is equivalent to 99.7 percent of Vietnam’s export turnover. For the remaining 0.3% of export turnover, the EU gave commitment to give a tariff quota to Vietnam under which the import tax is 0%.
Thus, in a short period, nearly all tariffs on Vietnam’s exports to the EU shall be eliminated. This is by far, the highest commitment given by any region or country to Vietnam. This uniquely benefits Vietnam as the EU is currently one of Vietnam’s two largest export markets.
Vietnam gave commitment to eliminating tariffs on EU exports as soon as the agreement took effect. This eliminated 48.5 percent of tariff lines (accounting for 64.5 percent of import turnover). Over a period of seven years from enacting the agreement, Vietnam shall eliminate import tax on 91.8 percent of tariff lines which is equivalent to 97.1 percent of EU export turnover. Following that, over a period of ten years, approximately 98.3 percent of the tariff lines shall be eliminated (accounting for 99.8 percent of import turnover). For the remaining 1.7 percent of the EU’s tariff lines, Vietnam shall implement a roadmap to eliminate import taxes for more than ten years or apply tariff quotas in accordance with WTO commitments.
In addition, Vietnamese enterprises will also benefit by importing goods and materials of good quality at reasonable prices from the EU. Machinery, equipment, and advanced technology from EU region helps in improving productivity and the quality of domestic products.
Regarding trade in services and investment, Vietnam and the EU have committed to creating an open and favorable environment for investment between both sides. Vietnam’s commitments in this regard go beyond the scope of WTO and are equivalent to the EU’s highest commitments in the region’s recent FTAs.
In the EVFTA, the two sides developed a specific schedule of approach. In case the future domestic policy is more liberal than this agreement, changes in this policy shall not affect the basic commitments agreed at the time of the taking effect of this agreement.
Some key features the agreement on some service sectors are as follows:
Insurance services: Vietnam shall allow cross-border reinsurance and voluntary health insurance services under Vietnamese law. The request to establish a branch of a reinsurance company must be made after the transition period.
Telecommunications services: For value-added telecommunications services without network infrastructure, EU countries are allowed to set up 100% foreign-owned enterprises after the transition period.
Transport services: In the EVFTA agreement, for, international shipping service providers in the EU are allowed to operate consolidating and redistribution services of empty containers on the Quy Nhon – Cai Mep route. After 5 years, this service shall be implemented on all routes.
Distribution services: Vietnam agrees to waive the requirement of an economic needs test after five years from the date on which the agreement took effect. However, Vietnam retains the right to implement distribution system planning on a non-discriminatory basis. Vietnam also agreed to be non-discriminatory in the production, import and distribution of alcohol, allowing EU businesses to continue operating under applicable licenses while only requiring a single license to carry out import, distribution, wholesale, and retail.
E-commerce: In order to develop e-commerce between Vietnam and the EU, the two sides commit not to impose import tax on electronic transactions.
The agreement went into effect during the time of the Covid-19 global outbreak, which severely impacted the production and import-export situation in Vietnam and the EU countries. Nonetheless, with the incentives and other favorable conditions established under the agreement, the decline of the economy should offset. Further, the EVFTA brings more market opportunities and helps businesses regain momentum in the post-pandemic era.