Vietnam-Europe FTA

The free trade agreement between Vietnam and the EU is on its way.

On February the 1st 2016, the text of the EU-Vietnam Free Trade Agreement was published, following the announcement of the conclusion of the negotiations. The Commission will present a proposal to the Council of Ministers in order to reach an approval of the agreement and ratification by the European Parliament. The agreement should enter into force in early 2018.

An article in in May 2016 mentions some very interesting issues:

It asks whether the EU FTA and TPP trade agreements truly make Vietnam the alternative solution to the higher labour cost challenges in China. Since 2007, Vietnam’s economy has grown by an average of 5.9%, and exports now comprise roughly two-thirds of the country’s GDP.

The announcement of a free trade agreement (FTA) with the European Union from last year gives the country another big opportunity. At the core of this agreement is the elimination of virtually all tariffs (99%) on both sides. Vietnam is set to eradicate 65% of its import tariffs on EU exports once the agreement has been signed, with an end goal of eliminating remaining duties over the next ten years, thus paving the way for more simplified rules of trade.

However, while the parameters of the EU FTA and TPP agreements with Vietnam seek to eliminate virtually all tariffs, rules of origin still require suppliers to certify the true nationality of each component that goes into a product.

In this context, the article then explores two major issues:

  • the business opportunities in the market are very time critical
  • there are many open questions when it comes to the rules of origin

While the agreements are not yet in effect, the market is extremely crowded and difficult to enter if you do not already have a presence in Vietnam. Since textiles and garments are Vietnam’s second major export, sectors such as apparel will be very challenging to break into if you have not already established a foothold.

The rules of origin for garments require the use of fabrics produced in Vietnam, with the only exception for fabrics produced in South Korea, another FTA partner of the EU. However, many details remain unclear.

For H-OI clear tasks derive from the developments: we need to make sure to understand all consequences the agreement brings as early as possible. The Vietnam office has already started to participate in seminars and workshops concerning the elimination of tariffs and the rule of origin.

Established in the early 90s, the H-OI Vietnam office was the first presence of an international buying agency in the country. This enables us to secure all options and benefits of the FTA for our customers. As the article says: whoever gets on the floor first, wins.

Some general information on trade between Vietnam and the EU:

  • EU exports to Vietnam are dominated by high-tech products including electrical machinery and equipment, aircraft, vehicles and pharmaceutical products. Vietnam’s key export items to the EU include telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, seafood and furniture.
  • The EU has a negative balance of trade in goods with Vietnam. In 2014, EU-Vietnam trade in goods was worth over €28.3 billion, with €22.1 billion in imports from Vietnam into the EU, €6.2 billion in exports from the EU to Vietnam.
  • The EU is one of the largest foreign investors in Vietnam. In 2015, EU investors placed a total of $1.3 billion in foreign direct investment and thus became Vietnam’s third largest foreign investor partner.