Potential impact of EU-Vietnam FTA

The EU is an economic union consisting of 28 member states and a population of 508 million people, and an aggregate GDP of US$18 trillion, making it the largest unified market all over the world. The EU is one of Vietnam’s leading trade partners, accounting for 19% of Vietnamese exports.

Vietnam-EU’s export turnover was US$20.6 billion in 2015. The EU ranks second among the official development assistance (ODA) donors of Vietnam with more than 40% of non-refundable aid.

“The EU is a very important partner for Vietnam in every field of the economy, with strong impact on the country’s development. The EVFTA has become more important to the development of Vietnam after the US’ withdrawal from the TPP,” emphasised Truong Dinh Tuyen, former Minister of Trade.

EVFTA negotiations were closed in 2015, the document has been translated into 23 languages and are going to be signed in 2018. Upon entering into force, it will impact the development of modern market institutions and Vietnam’s international integration via the multiple commitments to open up the market to ensure the freedom of movement for goods, services, as well as investment and factors of production, promoting transparency and stability.

The FTA will also impact Vietnam’s growth through investment and export expansion. Following a 7/10 roadmap, the EU will remove all import taxes on Vietnamese goods within seven years, while Vietnam will do so in return within 10 years.

This arrangement means the EU will remove taxes faster, and many of Vietnam’s flagship export products will be able to enter the EU completely exempt of tariffs after the EVFTA comes into effect or a short time later. These advantages will create new motivation for Vietnamese exports to the EU.

According to a report of economist Pham Thi Lan Huong, a researcher of the European Trade Policy and Investment Support Project (EU-MUTRAP), presented at the workshop consultation on the potential impact of the EVFTA held on November 2, 2017, Vietnam’s export turnover towards the EU will gain approximately US$33 billion by 2020, US$42 billion by 2025, and US$47 billion by 2030.

Specifically, 50% of the tariff lines on aquatic products will be removed right after the FTA comes online. 0% tax will be applied to rice imports (within a quota of around 20,000 to 30,000 tonnes per year). Goods like coffee, pepper, cashew nut, honey, fresh vegetables, fruits and their processed products or juice will see tariff exemption instantly, while they are imposed rather high tariffs at the moment (up to 17-20% for some products).

Apparel and footwear are two of Vietnam’s major export goods to the EU, with annual turnover of US$3.5 and 4 billion, respectively. These product categories will see tariffs cut by 42.5% and 37%, respectively, after the enforcement of the FTA. Wood and wood products, computers, electronic products, and components will also see tariff cuts.

Vietnamese businesses could bid to provide goods, services, and to be involved in construction projects in EU member states. This is an opportunity for them to approach the EU markets.

However, firms must follow the original rules applied to each specific product in the FTA, while conducting export or import activities, as well as understand EU regulations and frequently update on information to enjoy the best tax incentives.