Boost your trade with Vietnam

What tariff benefits does your company enjoy from the EU-Vietnam FTA?

“We now look forward to the early signature of the agreements and to the possible ratification of the trade agreement.”

- Commissioner for Trade Cecilia Malmström and Vietnam’s Minister for Industry and Trade, Tran Tuan Anh

On 19 October 2018, the EU and Vietnam reconfirmed commitment to trade and investment agreements. After the conclusion of the legal work this summer, they are looking forward to the early signature of the agreements and to the possible ratification of the trade agreement.

Main TARIFF benefits

In general, almost all custom duties of both sides will be cut over a transitional period. As soon as the EU-Vietnam Free Trade Agreement (EVFTA) enters into force, 65% of EU exports to Vietnam will become duty-free while the remaining trade (with a few products excepted) will be progressively liberalised in 10 years. Meanwhile, EU will liberalise 71% of Vietnamese exports from day one and 99% will become duty-free after 7 years.
 
       
Figure 1. Tariff benefits for key EU exports products

For some specific sectors, eliminating customs duties does not result in automatic access to the market of the trade partner if the EU goods do not comply with relevant Vietnam’s rules. These non-tariff barriers will also be reduced as one of the main benefits of the agreement, which will not be addressed in this article.

The EVFTA will make a significant contribution to promoting the relationship between the EU and Vietnam in terms of bilateral trade. From the perspective of Vietnam, the current benefit of preferential access enjoyed through the Generalised Scheme of Preferences (GSP) is limited, since Vietnam had access only for products unilaterally defined by the EU and the EU may change the conditions at any time. As for the EU, although having granted the GSP to developing countries, it has no preferential access to Vietnam. Therefore, the implementation will provide both economics with mutual benefits.

EU exports

In contrast with the GSP which was granted by the EU to developing countries, the EVFTA will provide the EU with preferential access to Vietnam.

However, EU exports cannot practically benefit from the agreement to a full extent immediately after its entry into force. Unlike textile fabric, which will be fully liberalised at the entry into force of the agreement, most EU export products which are being allowed to enter Vietnam duty free will have a transition period of 3 to 10 years. The tariff schedule of Vietnam can be found here. Such long transition periods were set forth so that Vietnam, as a developing country, is allowed to adequately adapt to the increased competitive pressures from the EU.

Vietnamese exports

Under the GSP, only less than half of Vietnamese exports to the EU currently enjoy a zero-percent tax rate but this will increase after the implementation of the EVFTA. Pursuant to the standard GSP agreement, Vietnam will lose its status as a GSP beneficiary country since the EVFTA provides better tariff preferences.[1] In this case, Vietnamese operators then have two years, from the date of application of the EVFTA, to adapt to the change of their status.[2]

Thanks to the EVFTA, Vietnam will be allowed to maintain its free access to the EU market in the future, even if its economic situation no longer justifies the preferential treatment reserved under the GSP. Furthermore, Vietnam can benefit from both of these two deals during the post-GSP-two-year period. In particular, companies may choose the lower preferential rate between those provided under GSP and EVFTA (an example is shown below).


Figure 2. Yearly tax rate of two Vietnamese exports to the EU pursuant to the GSP and EVFTA[3]

However, this two-year adaptation period is still limited compared with the longer liberalisation phase provided by the EVFTA. According to this new deal, a maximum period of 7 years applies to some products which are sensitive for EU producers, particularly in the sectors of textile apparel and footwear. There is an uncertainty whether a better preferential rate may be enjoyed after the two-year adaptation of GSP. The tariff schedule of the EU can be found here. It is said the EVFTA would be one of the most ambitious trade agreement which aims to set a model  of promoting trades between EU and developing countries. Before the agreements enter into enforce, there is still time to make adjustments on your trading strategy to benefit from these deals to a largest extent.

For more information contact Joost Vrancken Peeters +31620210657 or jvp@kneppelhout.nl, Anting Zhang +31634011860 or az@kneppelhout.nl.

[1] Article 4(1)(b), Regulation (EU) No. 978/2012.
[2] Paragraph 2, recital 9, Regulation (EU) No. 978/2012.
[3] The data on the base rate and GSP rate can be accessed through http://madb.europa.eu/madb/euTariffs.htm; the information on the EVFTA staging is provided in the ANNEX 2-A of the agreement.