Mutual benefits
With 17 chapters, two protocols and several accompanying documents covering trade in goods, trade in services, investment, trade defence, competition, state-owned enterprises, government procurement, intellectual property, trade and sustainable development, and legal and institutional matters, the EVFTA is considered a comprehensive and high-quality agreement which comes in line with the regulations of the World Trade Organisation and takes into account the difference in development levels between the two sides. The deal is expected to bring a wide range of benefits to the citizens and businesses of both sides.
The first benefit is a further expanding market and export opportunities for the goods of each side’s strengths. For Vietnam, the EU will eliminate 85.6% of the tariff lines, equivalent to 70.3% of Vietnam’s exports to this market, as soon as the agreement enters into force. Over the next seven years, the EU will eliminate duties on 99.7% of Vietnam’s exports while the remaining 0.3% will enjoy zero tariffs within the quotas set for them.
Specifically, the EU pledges to eliminate 42.5% of the tariff lines immediately after the EVFTA is in effect while the rest will be phased out over the next 3-7 years. 83% of the tariffs on timber and timber products will also be removed while the remainder will be phased out over a period of 3-5 years. For rice, exports within the set quota will enjoy a tax rate of 0%. Under the EVFTA, the EU allocates a quota of 80,000 tonnes of rice for Vietnam, including 20,000 tonnes of unmilled rice, 30,000 tonnes of milled rice and 30,000 tonnes of fragrant rice.
With this agreement, tariffs on nearly 100% of Vietnam’s exports to the EU will be eliminated within a short period of time. To date, this is the greatest commitment that a partner has made to Vietnam among the free trade agreements that the country has signed. This benefit is particularly significant as the EU is one of Vietnam’s two largest export markets.
On the other side, Vietnam also pledges to eliminate tariffs on 64.5% of EU exports, which will increase to 97.1% after seven years and 99.8% after 10 years. For the remaining EU exports, Vietnam will apply the import elimination roadmap of longer than 10 years or apply the limited zero-duty quotas.
In addition, other commitments on services, investment, government procurement as well as specific regulations on market opening and technical measures in specific areas will also provide EU businesses, products and services with easier access to the Vietnamese market of nearly 100 million people.
Great opportunity
Vietnam and the EU’s commitments on trade in services and investment all seek to create an open and favourable investment climate for both sides’ enterprises, in which the EU’s commitments to Vietnam are similar to the highest levels of commitments in the EU’s recent trade agreements. Vietnam also commits to open its doors to EU investment in a number of manufacturing industries, such as food and beverage, fertilisers, ceramics, and building materials.
Furthermore, under the EVIPA, Vietnam and the EU both pledge to provide national treatment and the most favoured nation treatment to investors of the other side as well as fair and equitable treatment, full protection and security. The two sides also allow the free movement of capital and profit abroad, pledge to not expropriate or nationalise investors’ assets without appropriate compensation, and pledge to compensate the losses of the other side’s investors in the same way as domestic or third-party investors as a result of war and riots.
As such, commitments on state governance will ensure an open and stable business and legal environment for both sides’ investors and those from the EU in particular. With the EVFTA and EVIPA, EU investors will also have the opportunity to access the markets of countries which have signed trade agreements with Vietnam with more preferential treatment. The agreement is also expected to boost the relationship between the EU and ASEAN so that a trade agreement between the two blocs could be discussed in the future.
Like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EVFTA is a new-generation free trade agreement with the greatest extent of integration and commitments covering not only trade but also other areas such as labour, state-owned enterprises, public procurement and dispute settlement.
The EVFTA’s degree of openness is also much greater than many other free trade agreements that Vietnam has signed previously, with the elimination of almost all tariffs and opening the door widely for goods, services, investment, government procurement, intellectual property, competition and so on. The roadmap to implement the EVFTA’s commitments is also relatively short, about 5-10 years. For Vietnam, the implementation of the EVFTA is an important step to diversify its trade-investment partners as well as export markets in order to not rely on a single region.
Along with the CPTPP, the EVFTA will create a comprehensive and stable free trade relationship network between Vietnam and major trading partners in the world. More importantly, although the EU is currently one of Vietnam’s largest export markets, its share in the region remains modest. Therefor if more than 99% of tariffs are eliminated, Vietnamese enterprises will have more opportunities to compete in terms of price when exporting to this important market.
The level of commitments in the EVFTA can be considered the highest that Vietnam has achieved among its free trade agreements. This is even more significant when only 42% of Vietnamese exports to the EU are currently enjoying zero tariffs under the Generalised System of Preferences (GSP). High tariffs are still being imposed on sectors as such garments, footwear and agricultural produce, which are expected to benefit the most from the EVFTA.
According to the Ministry of Planning and Investment, the EVFTA will help Vietnamese exports to the EU increase by 20% in 2020, 42.7% in 2025 and 44.37% in 2030 in comparison with a no-deal. EU exports to Vietnam are also expected to increase 15.28% in 2020, 33.06% in 2025 and 36.7% in 2030.
The EVFTA is projected to raise Vietnam’s economic output by 2.18-3.25% during the 2019-2023 period, 4.57-5.3% during the 2024-2028 period and 7.07-7.72% during the 2029-2033 period.
