Vietnam and EU commit to partnership as EVFTA nears completion

Legislation | | MIC Customs Solutions |

A Joint Committee meeting between the EU and Vietnam suggests implementation of the EVFTA could be getting nearer.

Vietnam and the European Union (EU) have reaffirmed their commitment to a trade relationship as part of the EU-Vietnam Free Trade Agreement (EVFTA) at the launch of a Joint Committee.

Both sides recently met in Hanoi to review regional and international developments and to discuss topics including sustainable development, climate change, security and defence and cooperation in the field of human rights.

Next, prime minister of Vietnam Nguyen Xuan Phuc will travel with his delegation to Sweden and Norway to continue talks concerning a partnership between the European bloc and the Asian nation.

Here, we'll take a closer look at the background to the EVFTA and what exactly it will mean for both sides and for global trade in general.

What is the EVFTA?

Negotiations on an FTA between Vietnam and the EU started in 2012 and went on until 2015, with final texts agreed upon in July 2018.

In 2017, initial plans to present the FTA for ratification were put on hold following a European Court of Justice ruling. After this, the European Commission (EC) decided to split the original text into two parts: an FTA that includes only exclusive EU competencies and can therefore be ratified by the EU alone; and a separate Investment Protection Agreement.

The two texts were adopted by the EC in October 2018 and subsequently submitted to the Council of the EU the following month.

This delayed progress, but the EC remains hopeful the FTA can still be ratified in 2019. Even if this does not happen, it is likely the agreement will be signed off early next year.

The EVFTA is one of the most ambitious free trade deals ever and will result in the near-complete removal of tariff barriers, including the elimination of over 99 per cent of customs duties on exports in both directions.

It will also see the reduction of non-tariff barriers, with Vietnam moving to align more closely with international standards on products like motor vehicles and pharmaceuticals.

Consequently, EU products will not require additional testing for compliance once they reach Vietnam - and Vietnam is also to simplify and standardise customs procedures.

Another benefit is that the Asian nation will remove 65 per cent of import duties on EU exports, with the remainder phased out over ten years.

The FTA also includes a strong and legally-binding commitment to human rights, fair labour, environmental protection and climate change, with an explicit reference to the Paris Agreement.

Why Vietnam and the EU?

An FTA between Vietnam and the EU will link two regions that have been looking for additional markets in the face of growing trade tensions elsewhere.

Both have been affected by the US's protectionism, with Vietnam in particular hit by Washington's decision to pull out of the Trans-Pacific Partnership trade deal.

Indeed, Hanoi signed largely to access US businesses with its textiles and garment in the first place, so has been on the lookout for more trade options.

For its part, the EU has been hit by US tariffs on metals and cars, making member nations here also keen to look elsewhere for trade. A deal with Vietnam means Europe can better access another fast-growing Asian economy.

Vietnam is already the EU's second-largest trading partner in the Association of Southeast Asian Nations (ASEAN), so it is hoped this could be built upon in the years to come.

Meanwhile, Vietnam has been busily signing bilateral trade agreements across the globe as it tries to shift its economy from exporting low-tech manufacturing products and raw materials to developing more complex products such as electronics.

Once the EVFTA comes into force, Vietnam will be able to take advantage of reduced tariffs to attract producers to its shores, as well as to export to partners outside the ASEAN.

Potential impact of EVFTA

According to the EVFTA Report 2018 by the European Chamber of Commerce (EuroCham), 72 per cent of EuroCham members believe the trade deal will make Vietnam more competitive and result in it becoming an Asian hub for European businesses.

Another study by Vietnam's Ministry of Planning and Investment suggested the EVFTA could boost its GDP to the tune of 15 per cent by 2035, making it more significant than the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Of course, it is impossible to predict exactly what will come about as a result of the EVFTA until it properly comes into force. However, it could be that another link between the west and the rapidly-developing Asian region is a real boost for the global economy.

For guidance on and to ensure compliance with the world's more than 400 ratified FTAs, take a look at MIC's Origin Calculation System (MIC OCS). It will ensure you can reap the rewards of free trade without falling foul of any potential pitfalls.