After years of negotiations, the European Union – Vietnam Free Trade Agreement (EVFTA) took effect on 1 August 2020, paving the way for increased trade between the EU and Vietnam. The EVFTA is the most comprehensive trade agreement the European Union has signed with a developing country in Asia, and aims to liberalise tariff and non-tariff barriers for key imports on both sides over a period of 10 years.
From Vietnam’s perspective, the EVFTA opens significant opportunities for investors who seek to leverage their resources and take advantage of the benefits of being located in a country with major preferential tariffs and growing exports and imports with the European Union. According to data form the Ministry of Industry and Trade of Vietnam, by 2025 exports to the EU are expected to increase over 40%, while imports from EU are expected to grow over 30%. The EVFTA is a major milestone and opportunity for both Vietnam and the EU to increase cross-border investments and trade, and also contribute to the GDP growth of both parties, modernising their economical, social and trade relationships as well.
In the following article we seek to delve into the specific product lines and goods which will benefit from tariff reductions and preferential duty treatments and delineate the specific commitments from both parties relating to import and export tariffs.
Vietnam is currently EU’s second largest trade partner in ASEAN, and 8th largest partner of EU in Asia. Trade volumes between Vietnam and European Union are increasing in a consistent manner, enabling businesses to leverage the EVFTA to strengthen their trade relationships. The charts below are relevant in emphasising the current trade relations between Vietnam and EU, with quantifiable data on exports and imports.
Vietnam’s major imports from EU
|1||Machinery and mechanical appliances||3431.5||4069.5||3909.9||-3.92%|
|3||Leather and skins||312.6||412.8||402.2||-2.58%|
|7||Milk and dairy products||217.6||192.4||214.9||+11.74%|
|8||Computers and telephone sets||154.8||1843.4||2514.4||+36.4%|
Vietnam’s major exports to EU
|2||Textiles and garments||1440.3||1438.8||1663.1||+13.5%|
|5||Wood and wooden furniture||41.5||37.8||29.4||-22.37%|
|8||Bags, hats, wallets, suitcase, umbrellas||154.8||1843.4||2514.4||+36.4%|
|10||Means of transport and accessories||512.1||248.2||218.8||-11.85%|
*unit: Million USD; source: Vietnam Customs Department
From the date of the EVFTA taking effect on 1 August 2020, the EU will eliminate ca. 85,6% of import tariffs on Vietnamese goods, which is equivalent to 70,3% of the total volume of Vietnam exports to the EU.
On the other hand, within 7 years of the EVFTA coming into force, the EU will remove 99,2% of tariff lines, equivalent to 99,7% of Vietnam’s exports volume to the EU. In regard to the remaining 0,3% of Vietnam’s export revenue (including rice, sweet corn, garlic, sugar products etc), the EU committed to giving Vietnam a tariff quota (TRQ) in which the import duty will be zero.
Under these provisions, we delineate below the tariff elimination commitment from both sides.
EU import tariff elimination commitments for several major product lines exported from Vietnam
Within 5 years from the date of entry into force of the EVFTA, EU will eliminate tariffs for 77,3% of Vietnam’s exports, with the remaining turnover to be eliminated after 7 years.
The EU commitment is enforced under the provision that the Vietnamese textile and garment industry has the ability to meet the requirement of ‘rules of origin’ (from fabric onwards). In order to enjoy preferential tariffs under the Agreement, the garment and textiles must be made from fabrics of Vietnamese origin. In Addition, the EU also accepts flexibility in regard to the inclusion of origin from South Korea.
Eu commits to reduce the tariffs to 0% for 42,1% of Vietnam’s export turnover at the date of the Agreement coming into force.
After 3 years from the date of entry into force the rate of export turnover will be 73,2% and after 7 years the tariff reduction will apply to 100% of exports from Vietnam.
Wood and wood products
From the start date of the Agreement, EU commits that 83% of tariff lines for Vietnamese exports will effectively have a 0% tariff rate, where current tariffs are between 2-10% for wood and 2.7-6% for wood products. The remaining 17% of tariff lines will be taxed 0% in the next 3-7 years.
The EU will eliminate tariffs on 86,5% of Vietnamese exports within 3 years from the date of the agreement, reaching a complete elimination of tariffs in 7 years.
The EU has agreed for and export quota from Vietnam of 80,000 tons of rice per annum, and in particular the EU will fully liberalise broken rice exports, enabling Vietnam to export up to 100,000 tons of broken rice to EU annually.
Eu will eliminate tariffs on coffee exports from Vietnam, on all unroasted and roasted coffee products, with an effective 0% rate, down from 7-11%. In addition, for processed coffee products the tariff elimination is achieved from the date of the agreement, being decreased to 0% from 9-12%.
Honey, fruit and vegetable products
These products benefit from a full tariff elimination for Vietnamese exports into the EU from the date of the agreement commencement.
Vietnam import tariff elimination commitments for several major product lines exported by the EU
Starting with the date of the agreement, Vietnam has eliminated 48,5% of tariff lines on EU goods, equivalent to 64,5% of Vietnam’s imports from the EU. Within 7 years from the effective date of the EVFTA Vietnam will exempt 91,8% of tariff lines, and in 10 years 99,8%.
Certain goods and product lines imported into Vietnam from the European Union are eligible for tariff exemption after a certain period from the EVFTA implementation date. Some of these are listed below:
- Textiles and garments: after 7 years
- Machinery and equipment: after 7 years
- Beef: after 3 years
- Frozen pork meat: after 7 years
- All types of automotive: after 10 years
- Milk and dairy products: after 3-5 years
- Chicken: after 10 years.
Vietnam has also committed to eliminate export duties on goods exported to the EU with a roadmap of up to 10 years, except specific products related to important commodities such as crude oil, coal etc.
The tariff reductions, eliminations and preferential tariffs are directly interlinked and dependent on the Proof of Origin of the specific product line or goods which are traded between EU and Vietnam.
In the EU, with application of chapter 3 of the Uniform Commercial Code, it is possible to claim preferential tariff treatment after importation a product by submitting a valid proof of origin which would be possibility made out or issued after exportation in Vietnam.
However, businesses should be aware that Vietnam does not allow for claiming preferential tariff treatment after importation. Preferential tariff treatment of the EVFTA is to be claimed by the importer at the time of import. The importer has then 30 days to provide the proof of origin to his customs authorities. If a claim for preferential tariff treatment is not made at the time of import, the importer may not be able to be reimbursed later of the excess of duties paid.
In the next article, we will seek to further explain the Proof of Origin provisions under the EVFTA and what should business be aware of when using these.
From investors’ perspective, the EVFTA ensures access to markets across Vietnam and Europe, and also predictability and the rule-of-law in regard to future trading relations between Vietnam and the EU. In case of litigation, the EVFTA creates a framework to resolve disagreements that may appear in the future, which is faster and more efficient in many aspects than the dispute settlement mechanism of WTO.
If you seek to discover more information on the benefits of the EU – Vietnam Free Trade Agreement or other significant trade agreements which Vietnam is part of, please follow our new releases on international trade and commerce and discover how you can leverage these in your business operations.