Trade Resources Industry Views Vietnam and EU Have Agreed in Principle on a Trade and Investment Agreement

Vietnam and EU Have Agreed in Principle on a Trade and Investment Agreement

Vietnam and EU have agreed in principle on a trade and investment agreement, the most ambitious and comprehensive free trade agreement (FTA) that the EU has ever concluded with a developing country, the European Commission said on its website.

The agreement on the substance of the deal, for which negotiations started in October 2012, came through during a meeting between EU Trade Commissioner Cecilia Malmstrm and Vietnamese Minister of Industry and Trade Vu Huy Hoang.

Although the final legal texts will be ironed out by negotiators after the summer break, the agreement is on main ten points that will be included in the FTA. These are: elimination of customs duties, reducing non-tariff barriers to European exports, protecting European Geographical Indications (GI), allowing EU companies to bid for Vietnamese public contracts, creating a level playing field for EU companies and innovative products, opening the Vietnamese market for EU services operators, promoting and protecting investment, establishing an efficient mechanism to resolve future disagreements, safeguarding social and environmental protection standards, and promoting democracy and respect for human rights.

The agreement, once finalised and operational, will allow EU exporters and investors to access a fast-growing Vietnamese market of 90 million people, and help them to consolidate their presence. It will also be a further building block towards the EU's ultimate objective of an ambitious and comprehensive region-to-region EU-Asean FTA.

As per the understanding reached, the EU-Vietnam FTA will eliminate nearly all tariffs, i.e. on over 99 per cent of items, except for a small number of tariff lines for which the EU and Vietnam agreed on partial liberalisation through zero-duty Tariff Rate Quotas (TRQs).

Vietnam will liberalise 65 per cent of import duties on EU exports to Vietnam at entry into force, with the remainder of duties being gradually eliminated over a 10-year period. On the other hand, EU duties will be eliminated over a 7-year period.

All EU textile fabric exports to Vietnam will be liberalised at entry into force of the FTA.

The EU will also eliminate duties with longer staging periods (up to 7 years) for some sensitive products, especially in the textile apparel and footwear sectors. The elimination of duties, however, will not be an open door for Chinese products to flood the EU market: to benefit from the preferential access, the strict rules of origin for garments will require the use of fabrics produced in Vietnam, with the only exception being of fabrics produced in South Korea, another FTA partner of the EU.

Besides eliminating tariffs, Vietnam will also remove almost all its export duties in its bilateral trade with the EU, and has agreed not to increase a few that will exceptionally remain in force.

“This is a far-reaching, fully symmetrical tariff elimination that has never before been achieved with a developing country, but with adequate transition periods to allow Vietnam to adapt,” the European Commission said.

For the first time in an FTA, Vietnam accepted the marking of origin 'Made in EU' for non-agricultural goods, with the exception of pharmaceuticals. EU member state-specific markings of origin will continue to be accepted as well. But, this provision will allow manufacturers to reflect the increasing EU market integration.

All these provisions, together with others addressing, for example, import and export licensing, customs procedures, will facilitate access of European goods to the Vietnamese market and boost their competitiveness vis-à-vis other suppliers, the Commission said.

Once the legal text is finalised by the EU and Vietnam negotiators, the agreement will need to be approved by the European Council and the European Parliament. The agreement will contain a legally binding link to the Partnership and Cooperation Agreement (PCA) that governs the overall relationship between the EU and Vietnam.

EU exports to Vietnam are dominated by high tech products including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products. Vietnam's key export items to the EU include telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, seafood, and furniture.

The EU has a negative balance of trade in goods with Vietnam. In 2014, EU-Vietnam trade in goods was worth over €28.3 billion, with €22.1 billion in imports from Vietnam into the EU, €6.2 billion in exports from the EU to Vietnam.

The EU is one of the largest foreign investors in Vietnam. In 2013, EU investors committed a total $656 million in Foreign Direct Investment (FDI) and thus remained Vietnam's sixth largest foreign investor partner.

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Vietnam, EU Chalk out Trade Deal
Topics: Textile