Vietnam and the EU Reach Agreement in Principle on FTA

By Edward Barbour-Lacey, Dezan Shira & Associates

Posted: 10th August 2015 09:34

HCMC – On Tuesday, Vietnam and the European Union reached an agreement in principle on a free trade agreement (FTA) that would remove most tariffs on goods, among other benefits. This is the first such agreement that the EU has concluded with a developing country, such as Vietnam.

The newly announced agreement puts an end to the two and a half years of negotiation between the European nations and Vietnam. According to EU Trade Commissioner Malmström, the FTA will:

“Provide significant new opportunities for companies on both sides, by increasing market access for goods and services. Over 31 million jobs in Europe depend on exports, so having easier access to a growing and fast developing market like Vietnam, with its 90 million consumers, is great news. And Vietnam’s exporters will now get much easier access to the EU for their products, giving an important boost to the Vietnamese economy”.

The Commissioner also hailed the deal as setting the standard for trade relationships with the whole of Southeast Asia.
The EU is already a vital trade partner of Vietnam, representing a significant proportion of the Southeast Asian country’s global trade. In 2014, the EU was Vietnam’s 2nd largest export destination – making up 18 percent of Vietnam’s total global exports. The EU is also the sixth largest foreign investor into Vietnam. Key trade statistics for 2014 include:


Key Vietnam export items include: electronics, textiles, footwear, coffee, rice, seafood, and furniture. Key EU exports include: electrical machinery, aircraft, vehicles, and pharmaceutical products.

Specifics of the FTA

The new FTA is a comprehensive agreement that covers a range of areas, and is expected to include the following:

Among the specific changes Vietnam will make as part of the agreement are the following:
 


Among the changes that the EU will make are:
 


While a large number of products will see greatly improved trade conditions as a result of the trade deal, it is useful to look at a specific product, Scotch whisky, in order to see the significant ramifications of the deal. Without the FTA, this type of alcoholic product, once exported to Vietnam, would be subject to a 45 percent import tariff. However, under the deal, these tariffs will be steadily phased out. Scotch is already a growing export product to Vietnam, seeing growth of nine percent in 2014; this growth is expected to rapidly continue as a result of the FTA.

Work still remains to be done before the FTA is fully completed; this includes settling the remaining technical issues and finalizing the legal text of the agreement. Those involved with the process expect that the deal will be finalized within the next few months or by no later than the end of this year.

The Vietnam-EU FTA is not the only trade agreement negotiation that Vietnam is hoping to wrap up in the near future; another key agreement on the table is the Trans-Pacific Partnership (TPP), a United States led trade deal. Upon completion, the TPP trade area would comprise a region with US$28 trillion in economic output, making up around 39 percent of the world’s total output.  If the TPP is successfully implemented, tariffs will be removed on almost US$2 trillion in goods and services exchanged between the signatory countries. Thus, Vietnam is well placed to see an exponential growth in its global trade in the coming years.

Edward Barbour-Lacey is originally from the United Kingdom, yet also grew up in the United States. He completed his undergraduate education at Washington College in the U.S. where he majored in Sociology before going on to complete a Master’s degree in International Relations from the University of Denver. After working in the non-profit and political sectors, he moved to Shanghai, China, to complete his MBA at Hult International Business School. Edward continues to work throughout Asia on a variety of business and political issues. He is responsible for the Vietnam Briefing and Asia Briefing Magazines, as well as contributing to Asia Briefing Ltd.'s online platforms.

This article was first published on Dezan Shira & Associates

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.

For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.


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