EU - Vietnam Free Trade Agreement enters into force 1 August 2020

EU - Vietnam Free Trade Agreement enters into force 1 August 2020

On 30 June 2020 the EU published a notice announcing that the Free Trade Agreement between the EU and Vietnam (EVFTA) will enter into force on 1 August 2020.

The EVFTA is described as the most ambitious trade agreement the EU has ever concluded with a developing country, eliminating 99% of custom duties.

Tariff elimination  

Vietnam is the EU’s second largest trading partner in the Southeast Asia region (ASEAN).

Once the EVFTA enters into force, 49% of tariffs on EU exports to Vietnam will become duty-free, while the remaining exports will gradually become liberalised over a period of 10 years (a few products excepted). Amongst the products that will be duty-free from day one are exports of almost all machinery and appliances, chemicals, all textiles and half of EU’s pharmaceutical exports. Once the agreement enters into force it will eliminate 85% of tariffs on import, with the remaining removed over 7 years. Examples of imports that will benefit from the agreement are textile, apparel and footwear, which currently constitute the main import products from Vietnam. These products will either be duty-free immediately or after 3 years, whilst sensitive items will be liberalised after 7 years. Although many products that are imported from Vietnam already benefit from the General Scheme of Preferences (GSP), the preferential treatment under the FTA is often more beneficial. The GSP will continue to apply for two years after the EVFTA enters into force, where after only the EVFTA will apply.

In addition to tariff eliminations, the trade agreement also addresses non-tariff barriers to trade, and ensures that technical regulations, conformity assessments and procedures are not discriminatory or become unnecessary trade obstacles. In particular, Vietnam has agreed to include suppliers’ declaration of conformity as an option for showing conformity.

Benefitting from the preferential tariffs - Rules of Origin (“RoO”)

Certain requirements have to be met in order for products to benefit from the trade agreement. Products must be considered as originating in the EU or Vietnam, which is determined in accordance with the RoO in the trade agreement. In certain cases, products containing material obtained in other countries may be still be considered as originating in the EU or Vietnam, provided that they undergo sufficient work in the EU or Vietnam. The rules of origin also permit bilateral cumulation between the EU and Vietnam, and cumulation with South Korea for fabrics. This allows garments produced in Vietnam with fabrics from South Korea or the EU to still be considered as originating in Vietnam and benefit from the agreement. It also provides for cumulation with other ASEAN trade partner countries for certain fishery products. Singapore is the only other ASEAN country with an EU FTA already in force.

Secondly, goods must be accompanied by a certificate of origin. Following the EU’s announcement on 11 June, the REX system will be the only method for EU exporters to certify the origin of goods under the EVFTA. REX is the database used to register exporters and allows them to certify the origin of goods to be exported. The trade agreement permits self-certification for exporters registered in REX as well as any exporter for shipments with a value not exceeding €6.000. As for imports, Vietnam exporters will need to certify the origin of goods through an EUR.1 certificate obtained by the relevant authorities or through a statement of origin made by an approved exporter. In  addition, an origin statement can be issued by any exporter for shipments with a value not exceeding € 6000. Finally, there may be product-specific requirements which have to be fulfilled.

Brexit

As a result of Brexit, the UK has left the EU and will no longer benefit from EU trade agreements. There is currently a transition period until 31 December 2020 during which EU trade agreements continue to apply to the UK as if it were a Member State. Following the expiry of the transition period, the EVFTA will cease to apply to the UK, and UK input will no longer be considered as originating in the EU. Vietnamese goods imported to the UK will continue to benefit from the preferential tariff treatment under the UK’s Generalised Scheme of Preferences until a UK-Vietnam trade agreement enters into force.

Final remarks

Following the impact of the covid-19 pandemic on global trade, the EVFTA is expected to provide a boost to the bilateral trade and offer enhanced and new opportunities for European and Vietnamese companies. In addition to promoting EU-Vietnam value chain integration, the EVFTA will provide companies with improved access to the ASEAN region’s cost-efficient regional production chains. Companies involved in trade with Vietnam should therefore assess the impact and benefits available under the EVFTA. Companies that already benefit from the GSP should particularly assess the impact of the EVFTA once the GSP ceases to apply to imports from Vietnam.

Please contact Kneppelhout’s international trade team for questions on how your company can use the benefits of  EU-Vietnam Free Trade Agreement.