In August 1st 2020, after many years of intense negotiations, the comprehensive and modern free trade agreements European Union (EU) and Vietnam has finally entered into force. Known as "EVFTA", it could be the most comprehensive agreement the EU has ever concluded with a developing country and the second between the bloc and a Southeast Asian nation.
It is dubbed “comprehensive” as it promises to gradually eliminate almost all tariffs between the two parties over the course of the next decade between the two regions. It is “modern” as it includes binding rules on climate, labour and human rights.
On 8 June 2020, the Vietnamese National Assembly (NA)’s ratification of the EU-Vietnam Free Trade Agreement (EVFTA) during its ongoing ninth session. Vietnamese NA deputies agreed to ratify the EVFTA. The Vietnamese legislature’s final approval of the EVFTA came after eight years of negotiations.
Since the European Parliament (EP) approved the agreement in February, it can enter into force in early August.
For many cross-border trading businesses, the deal represents a welcome opportunity to lower product costs and get goods to market faster.
Ahead of its entry into force, we look at why it matters and how business can leverage all the opportunities.
The EU-Vietnam free trade agreement will gradually eliminate almost all tariffs between the two parties in ten years.
It will protect emblematic European products, and allow Europe to access the Vietnamese public procurement market.
The deal includes binding rules on climate, labour and human rights
A “Win-Win” deal
Both sides are expected to benefit from the deal: Vietnam, one of the fastest-growing countries of the Association of Southeast Asian Nations (ASEAN), is the EU’s second-largest trading partner after Singapore and ahead of Malaysia, with trade in goods between the EU and Vietnam worth € 48 billion a year. For Vietnam’s business, the deal is equally important. The EU is the country’s second most important trading partner among all ASEAN members – surpassing regional rivals Indonesia and Thailand, in recent years.
The tariff elimination will benefit a wide range of exporting, importing, and manufacturing industries in both countries. On the Vietnamese side, businesses making or exporting smartphones and electronic products, textiles, footwear, textiles and clothing, coffee, rice, seafood, and furniture are expected to be able to increase their sales into the EU. EU businesses producing and selling high tech products, including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products, should be able to find it easier to gain market share in Vietnam.
Examples of the benefits from Tariff Elimination
71% of Vietnamese exports to the EU will be duty-free on day one, with the rest catching up in seven years.
65% of EU exports to Vietnam will be immediately duty-free, the rest - including motorcycles, cars, pharmaceuticals, chemicals, wines, chicken and pork - gradually liberalized over ten years.
Almost all EU exports of machinery and appliances will be fully liberalized at entry into force of the FTA.
Some noteworthy EU tariff liberalization for Vietnamese Agri-Food imports
Around half of EU pharmaceutical exports can now enter Vietnam duty-free
All EU textile exports are now liberalized
Car parts will enter Vietnam duty-free by 2027
Close to 70% of EU chemicals exports to Vietnam are now duty-free
Machine and equipment: About 60% of import tariffs into the EU are now eliminated
Cars, car parts and motorcycles will be free from tariff barriers after July 2027.
Alcohol beverages: Wine will be free from import tariffs July 2027, Beer from 2030.
Free tariff rate quotas for Vietnamese rice exports, sweetcorn, garlic, mushrooms
Textiles: The EU agreed to phase out duties within a seven-year timeline for Vietnam’s textile and footwear products. Exports of the sector reached around US$9 billion in 2018. As a large proportion of Vietnam’s exports to the EU are consumer goods such as clothing, textile, and footwear, the FTA could significantly increase their trade volume.
Electronics: The EVFTA provides Vietnam with a chance to take a lead in electronic products.
Pharmaceutical: EU pharmaceutical imports will be duty-free immediately with the rest exempted from duty after seven years. EU pharmaceutical companies will be allowed to establish a company to import pharmaceuticals that have been authorized to be sold in the Vietnamese market. Such entities can sell pharmaceuticals imported by them to Vietnamese distributors or wholesalers. The entities can also build their own warehouses.
Investment: The new FTA will bring a fair and equal access to the market enabling EU investors to further expand their business.
Duty-free Vietnamese exports of sensitive agricultural products, such as rice, garlic or eggs, will be limited
Non-tariff barriers – Trade in goods is hindered not only by at the border measures, including customs duties, but also by differences in regulation. The FTA contains provisions to reduce behind the border barriers to trade in respect of technical regulations, sanitary and phytosanitary measures and others. For example, as a result of the agreement, Vietnam will accept on its market EU parts and equipment certified in the EU as complying with the UN Regulations.
Public procurement – The FTA provides EU companies with access to procurement markets in Vietnam, which is not available to them today. Rules to make procurement more transparent and enforceable by traders are also included.
Intellectual Property Rights – The FTA includes comprehensive provisions covering copyright, trademarks, industrial designs, patents and plant varieties. Among other things, the EU pharmaceutical sector will benefit from improved protection of intellectual property rights. Extension of patent protection, up to a limit of two years, will be possible where the effective patent life has been reduced due to unreasonable delays in the process of marketing approval.
Geographical Indications – The EU-Vietnam FTA extends protection to 169 European foods and drinks. Thus, for example, the rules require that the use of geographical indications such as Champagne, Prosciutto di Parma, Rioja wine and Irish whiskey be reserved for imports from the EU regions from which they originate. As will 39 Vietnamese products be protected in the EU.
Environmental protection and labour conditions – In line with other FTAs recently concluded by the EU, the EU-Vietnam FTA includes a chapter on trade and sustainable development – incorporating obligations related to environmental protection, labour policy and climate change. The agreement provides for the establishment of specialised committees on trade and sustainable development to facilitate and monitor the effective implementation thereof – and envisions a number of channels for the involvement of civil society. The terms of environmental and labour protections will not be enforceable through the generally applicable dispute settlement mechanisms established by the agreements. In lieu, the chapters establish the possibility for external review of issues by independent panels of experts (but who will not have the power to issue binding decisions).
State-owned enterprises: In line with recent trade agreements concluded by the EU, the FTA contains a chapter with rules on state-owned enterprises which, inter alia, require such enterprises to act in a non-discriminatory manner in accordance with commercial considerations. In the case of Vietnam, the provisions are especially significant since state-owned enterprises have traditionally been a central feature of the Vietnamese economy.
Remanufactured goods - Previously, remanufactured goods were considered ‘used’ by Vietnam and typically not allowed for import. However, the text of the agreement allows remanufactured goods to be imported and will open up trade for high-value products such as medical devices and car parts to serve the after-sales market. Vietnam can still continue to restrict specifically used goods under the most favoured nation (MFN) conditions.
Repaired goods - The temporary import and export of repaired goods will be duty-free. This will ensure fair and competition conditions particularly for specialized maintenance services such as aircraft.
Made in EU - Vietnam will accept ‘Made in EU’ products for non-agricultural items for the first time reflecting the integration of the EU market. With the exception of pharmaceuticals which are subject to national approvals, this will allow manufacturers to use the EU’s broader internal market.
Fees and formalities - Consular transactions are no longer needed under the FTA while consular authentication will not be required three years the FTA is in effect.
Proofing Compliance with Rules of Origin REX
Recently, the EU clarifies that the REX system will apply as of the entry into force of the agreement. The Registered Exporter system (the REX system) is a system of certification of origin of goods based on a principle of self-certification. The origin of goods is declared by economic operators themselves by means of so-called statements of origin.
To be entitled to make out a statement on origin, an economic operator has to be registered in a database by his competent authorities. The economic operator becomes a "registered exporter".
Qualifying for tariff reductions
Business looking to taking advantage of the recently ratified EVFTA must understand and comply with the rules of origin. Rules of origin can be complex. While sourcing materials from third party states may decrease the overall cost of production, they can compromise competitiveness if entering EU or Vietnamese markets.
Products will benefit from the tariff preferences under the EVFTA rules of origin provided that they can prove that they are “originating”. Products are considered originating under the agreement if they meet one of the following requirements:
Wholly obtained in Vietnam or the EU; and
Products produced in EU or Vietnam incorporating materials which have not been wholly obtained there, provided that such materials have undergone sufficient working or processing within the EU or Vietnam.
While raw materials from EU or Vietnam and goods produced in EU or Vietnam using European or Vietnamese inputs easily fall into the wholly obtained category, many goods contain materials or components imported from countries not party to a trade agreement. These goods must prove that the inputs that have been inputted have and have undergone specific levels of alteration within Vietnamese borders to tap into the benefits of the EVFTA.
Many goods have set procedures – outlined in Protocol 1 of the EVFTA text – that must be completed within the EU Vietnam for the good in question to be considered originating.
In addition to these procedures, certain areas of working are specifically noted for their inability to qualify as goods for originating status. These exemptions include the following:
preserving operations to ensure that the products remain in good condition during transport and storage;
breaking-up and assembly of packages;
washing, cleaning; removal of dust, oxide, oil, paint or other coverings;
ironing or pressing of textiles and textile articles;
simple painting and polishing operations;
husking and partial or total milling of rice;
operations to color or flavor sugar or form sugar lumps;
peeling, stoning, and shelling of fruits, nuts, and vegetables;
sharpening, simple grinding or simple cutting;
sifting, screening, sorting, classifying, grading, matching (including the making-up of sets of articles);
simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards, and all other simple packaging operations;
affixing or printing marks, labels, logos, and others like distinguishing signs on products or their packaging;
simple mixing of products, whether or not of different kinds; mixing of sugar with any material;
simple addition of water or dilution or dehydration or denaturation of products;
simple assembly of parts of articles to constitute a complete article or disassembly of products into parts; and
slaughter of animals
Compliance with EVFTA
Under the EVFTA, all firms exporting goods from the EU to Vietnam or Vietnam to the EU have to comply with the rules of the agreement. A Certificate of origin or a statement of origin must be provided.
In addition to the application forms listed above, it may be necessary to produce any of the following supporting information:
direct evidence of the manufacturing or other processes carried out by the exporter or supplier to obtain the goods concerned, contained for example, in his accounts or internal book-keeping
documents proving the originating status of materials used, issued or made out in a party, where these documents are used in accordance with domestic law
documents proving the working or processing of materials in a party, issued or made out in a party, where these documents are used in accordance with domestic law
proof of origin proving the originating status of materials used, issued or made out in a party in accordance with this protocol
Note: Certificates of origin may be issued retroactively for goods that have already been exported under limited circumstances such as technical errors or limited information on the ultimate destination of a product.
Made out by any exporter for consignments the total value of which is to be determined in the national legislation of Vietnam and will not exceed US$6,600 (EUR 6000).
Exporters that have been approved by the Vietnamese government may forgo the issuance of a certificate of origin once their approval status has been relayed to relevant EU authorities. Instead, an Origin Declaration will be required upon export.
Note: Producers in the EU exporting to Vietnam may forgo all requirements above if they file electronic origin documentation with a database in the EU after their participation in this database has been notified to Vietnamese authorities.
Register for our webinar to learn how to SAVE MONEY with EU-Vietnam FTA
Vietnam Briefing: https://www.vietnam-briefing.com/news/evfta-eu-vietnam-trade-relations.html/ Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Hanoi and Ho Chi Minh City. Readers may write to email@example.com for more support on doing business in Vietnam.
Vietnam’s Ministry of Industry and Trade issued Circular No. 11/2020/TT-BTC implementing the rules of origin in the EVFTA. Vietnam’s goods exported to the EU market will be granted the certificate of origin (C/O) form EUR 1 to enjoy preferential tariffs under the EVFTA. The circular will take effect on August 1, 2020.
Join the Advanced Plan
About Customs Manager Our mission is to create the world's largest community of empowered Customs managers and Global Trade Professionals. We achieve this through professional legislative monitoring, ongoing training & education, and providing first-class support. In this way, we strengthen the overall customs & global trade (C>) profession by creating up-to-date, well-trained, and supported customs managers ready to grow global trade effectively, efficiently and compliantly. www.customsmanager.org