Unpacking the Key Benefits of EVFTA for European & Vietnamese Companies

In August 2020, European Union concluded the EU-Vietnam Free Trade Agreement (EVFTA) with Vietnam. It is the fourth free trade agreement that the EU signs with an Asian country and, as all previous FTAs, it eliminates customs duties and provides investment protection. Its main objective is to stimulate rapid economic growth between Vietnam and the European Union — a massive combined market with a total population of around 550 million.

As an emerging economy in the ASEAN region, Vietnam’s GDP is growing at a steady annual rate of 5.1% over the last ten years (pre-pandemic figures). It is an export-oriented economy which saw a total export value of USD 281 billion (FOB) and a total import value of USD 261 billion (CIF) in 2020. As for the most exported commodities from Vietnam to the rest of the world, the following breakdown is provided by the national government:

What are the key benefits of the EVFTA?

EVFTA offers many benefits to traders and investors in both Vietnam and the EU. The following are the major highlights of the agreement¹ :

Tariff Removal: As the largest exporter of goods from the ASEAN region into the EU, traders in Vietnam enjoy the following benefits from the EVFTA

1. After the trade deal takes effect, the EU is set to eliminate about 85.6% of import tariffs on Vietnamese goods, equivalent to 70.3% of Vietnam’s revenue from exports to the EU.
2. Within seven years of the deal taking effect, the EU will remove 99.2% of tariffs, equivalent to 99.7% of Vietnam’s revenue from exports to the EU.
3. On the remaining 0.3% of Vietnam’s export revenue, the EU has committed to provide Vietnam with tariff-rate quota, with the import tax rate set at 0% within the quota.

In return, Vietnam has committed to offer the following tariff reductions on exports from EU:

• After the trade deal takes effect, Vietnam is committed to trim 48.5% of tariff lines immediately, representing roughly 64.5% of total import revenue..
• Within seven years of the deal taking effect, 91.8% of the tariff lines will be removed by Vietnam, equivalent to 97.1% of EU export revenue.
• After ten years, 98.3% of the tariff lines will be eliminated (close to 99.8% of total import turnover).
• For the remaining 1.7% of the tariff lines, Vietnam will adopt tariff-rate quota under its WTO commitments or based on a special roadmap to remove tariffs accordingly.

Besides tariff reductions, other chapters and provisions of the EVFTA greatly help to enhance the economic development between the EU member-states and Vietnam and strengthen the on-going partnership and cooperation. For instance:

Rules of Origin (RoO): simplification measures concerning the RoO definition and procedures. Goods that originating in the European Union which are imported into Vietnam (and vice versa) will be entitled to the tariff concession stated in the EVFTA upon the submission of any of the following proof of origin documents:

1. A Certificate of Origin (CoO) which is in accordance with the Protocol.
2. For imports into the EU, a Declaration of Origin prepared in accordance with the Protocol by an approved exporter for any consignment regardless of its value, or by any exporter for consignments where the total value does not exceed € 6000.
3. For imported into Vietnam, a Statement of Origin prepared by exporters and registered in an electronic database in accordance with the relevant legislation of the European Union. Under this provision, the relevant government agency in the EU will need to communicate to Vietnam that such legislation applies to their exporters.

Mutual recognition of standards: In order to safeguard health, safety and the environment of signatory members of the EVFTA,the agreement covers several mutual recognitions of standards to promote trades between the EU and Vietnam, such as: Sanitary and Phytosanitary measures (SPS), Geographical indications (GIs), Labour Standards and Corporate Social Responsibility..

Promoting and protecting investment: With the passing of the EVFTA, the Vietnamese Government has committed to open its economy to investments in the manufacturing industry under several key sectors, such as food products and beverages, fertilizers and nitrogen composites, tires and tubes, gloves and plastic products, ceramics and construction materials. This will greatly help to increase foreign direct investments in Vietnam, especially from the EU member states.

To protect the interests of investors from Vietnam and the EU, a permanent investment dispute resolution mechanism to be established under the EVFTA by creating an independent Investment Tribunal System to handle any commercial disputes.

Intellectual property rights: The EVFTA requires customs authorities to be actively involved in customs seizure of any suspected IP-infringing goods, and to cooperate with the right holders in the investigation, including providing them with relevant information for risk analysis. This provision will further strengthen the protection enjoyed by right holders in Vietnam and the EU.

“Thanks to the EVFTA, economic growth between Vietnam and the European Union is set to skyrocket in the coming years due to slashed tariffs and simplified Rule of Origin requirements."

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While international trade regulations and free trade agreements may appear highly complex and opaque, having a thorough understanding of the details unlocks substantial tangible benefits to those companies operating in different countries and regions.

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¹  Source: EU-Vietnam – Texts of the Agreements (European Commission - https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/vietnam/eu-vietnam-agreement/texts-agreements_en)