A New Chapter for EU-Vietnam Trade

The Vietnam-EU Free Trade Agreement (EVFTA) negotiated between the European Union and Vietnam to promote trade and investment between the two regions can be considered an important economic milestone for Vietnam.

Ratified by the National Assembly on June 8, the EVFTA will take effect approximately one month after Vietnam and the EU notify each other, eliminating tariffs on about 70% of Vietnam's exports to the EU and 65% of European exports to Vietnam. In the past two years, Vietnam has signed two major regional FTAs – the EVFTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which, after just over a year of implementation, has contributed more than $3.9 billion to Vietnam's trade surplus.

This is a major economic achievement. Despite this breakthrough, however, 71% and 77% of businesses in Vietnam are either well aware or have only heard of the CPTPP or EVFTA, according to the latest research by the Vietnam Chamber of Commerce and Industry (VCCI).

Thus, it is clear that there needs to be more understanding of the benefits that the agreements can bring to businesses and trade.

In the post-coronavirus world, as many companies are looking to build resilience in their supply chains, the EVFTA will help affirm Vietnam's value and position.

Strengthening a Trade Path with Profit Potential

The EU has long been Vietnam's second-largest export market. Vietnam's exports to the EU have grown steadily in recent years, totaling $42.5 billion in 2018, corresponding to an annual growth rate of 11%. Export items mainly include telecommunications equipment, electronics, footwear, textiles, and food products such as coffee, rice, and seafood.

In recent years, due to rising production costs in China, Vietnam has gained attention as an attractive alternative production and supply source. In the post-coronavirus context – with many companies looking to build resilience in their supply chains, the EVFTA will help affirm Vietnam's value and position.

Now, having gone through lockdowns, social distancing, and resumed operations, Vietnam has a "golden" opportunity to capture pent-up investment demand, along with the global production shift trend.

Top 3 Things to Note About the EVFTA

Local business owners should pay attention to three important aspects of the newly ratified trade agreement.

1. EVFTA Reduces Tariffs and Simplifies Customs Procedures

Under the terms of the EVFTA, 70% of Vietnam's exports will enter the 27 EU member countries tariff-free. The remaining tariff details will gradually reduce over seven years. Business owners should update the current tariffs applicable to their businesses to take advantage of savings and competitive pricing.

The agreement also simplifies the importation of goods, including customs procedures into the EU. However, businesses should also be aware of customs requirements such as product origin and technical and food safety requirements, as well as the continued application of import and sales value-added tax (VAT).

With the EVFTA, along with markets like South Korea, Japan, and Singapore, Vietnam becomes a member of an exclusive EU-FTA association with preferential access to 27 countries.

2. EVFTA Promotes Supply Chain Diversification

With the EVFTA, along with markets like South Korea, Japan, and Singapore, Vietnam becomes a member of an exclusive EU-FTA association with preferential access to 27 countries.

Moreover, due to special rules of origin, Vietnamese goods from these countries will help businesses qualify for tariff preferences. This will be particularly timely in the context of tariff barriers and supply chain disruptions, providing businesses with opportunities to diversify their supply chains.

These special rules of origin are especially valuable for Vietnamese garment manufacturers, many of which source materials from a single source. With the EVFTA, cotton or fabric from South Korea that undergoes full processing in Vietnam will be labeled as originating from Vietnam, allowing garments to qualify for lower tariffs with the EU.

This flexibility is a plus for Vietnamese businesses, helping to increase supply chain resilience. Vietnamese businesses should be ready for such legal flexibilities as many ASEAN member countries achieve FTA agreements with the EU.

3. Sustainability is Important for Success

Another distinctive aspect of the EVFTA is its strong focus on sustainable trade and a shared vision on labor, corporate social responsibility, and environmental conservation. These values have the potential to significantly enhance the competitiveness of Vietnamese businesses and their brands.