What is EVFTA?
The EU-Vietnam Free Trade Agreement (EVFTA) is a new generation FTA between Vietnam and 28 European Union member states.
It is a comprehensive and high-quality agreement which ensures balanced benefits for both Vietnam and the EU, with consideration for the differences in development levels between the two sides.
Upon entering into force, the EVFTA is expected to be a huge boost to Vietnam's exports, helping to diversify markets and exports, particularly agricultural and aquatic products as well as Vietnamese products with competitive advantages.
What does it cover?
The EVFTA is a win-win trade deal with balanced benefits for both Vietnam and the EU which complies with the provisions of the World Trade Organisation (WTO).
The agreement includes 17 chapters, two protocols and several attached memorandums, with main contents covering the following aspects.
Trade in goods
Services, investment liberalisation and e-commerce
Intellectual property rights
The EVFTA also covers other aspects including rules of origin, customs and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, sustainable development, cooperation and capacity building, and legal-institutional issues.
How much will tariffs be eliminated?
The elimination of tariff barriers will be at the highest level, which will benefit exports of both sides.
After the trade deal takes effect, the EU will eliminate about 85.6% of import tariffs on Vietnamese goods, equivalent to 70.3% of Vietnam’s revenue from exports to the EU.
Within seven years of the deal taking effect, EU will remove 99.2% of tariffs, equivalent to 99.7% of Vietnam’s revenue from exports to the EU.
Regarding the remaining 0.3% of Vietnam’s export revenue, EU pledged to provide Vietnam with tariff-rate quota, with the import tax rate set at 0% within the quota.
For EU exports, Vietnam committed to truncate 48.5% of tariff lines immediately after the agreement comes into force (accounting for 64.5% of import revenue). After seven years, 91.8% of the tariff lines, equivalent to 97.1% of EU export revenue, will be removed by Vietnam.
After 10 years, about 98.3% of the tariff lines (accounting for 99.8% of import turnover) will be cut. For the remaining 1.7% of the tariff lines, Vietnam will apply tariff-rate quota under WTO commitments or a special roadmap to remove tariffs.
Why is the deal important?
The level of commitment in the EVFTA is the highest level that Vietnam has reached among signed FTAs so far. This is of great importance to Vietnam as only 42% of Vietnam’s exports to the EU enjoy a 0% tax rate under the Generalised Scheme of Preferences (GSP).
In 2018, the EU was the second largest export market of Vietnam
The strong commitments on market opening in the EVFTA will certainly promote Vietnam - EU trade relations, helping to further expand the market for Vietnamese exports.
With the commitments to abolish nearly 100% of import duties as agreed by the two sides, there are huge opportunities to increase the export of Vietnamese products such as garments and textiles, footwear, agricultural and seafood products (including rice, sugar, honey, and vegetables), wood products, and others.
According to the Vietnam Ministry of Planning and Investment, the EVFTA will help raise Vietnam's revenue from exports to the EU by about 20% by 2020; 42.7% by 2025 and 44.37% by 2030. In addition, Vietnam’s imports from the EU will also increase but at a lower rate than exports, at about 15.28% by 2020; 33.06% by 2025 and 36.7% by 2030.
The EVFTA is also expected to raise Vietnam's GDP by an average of 2.18-3.25% per year in the 2019-2023 period; 4.57-5,30% in the 2024-2028 period and 7.07-7.72% in the 2029-2033 period.
Moreover, commitments on services, investment, government procurement as well as specific regulations on market opening and technical measures in some specific areas will also create opportunities for EU enterprises, products and services to have better access to the Vietnamese market of nearly 100 million people. Meanwhile, Vietnamese consumers will have easier access to high quality products and services from the EU in the areas of pharmaceuticals, health care, infrastructure construction, and public transportation, among others.
Commitments on state governance will also ensure a stable and open business and legal environment for investors of both sides.
Through the EVFTA and the Investment Protection Agreement (IPA), EU investors will have opportunities to gain access to markets that have signed FTAs with Vietnam with more preferential treatment. The agreements also help to promote relations between the EU and each ASEAN country and the ASEAN bloc at large, creating a foundation towards negotiating an FTA between the EU and ASEAN in the future.
A Timeline of the EVFTA
The Prime Minister of Vietnam and the President of the European Commission agreed to start negotiations on the EVFTA.
The Vietnamese Minister of Industry and Trade and the European Commissioner for Trade officially announced the negotiations on EVFTA.
Negotiations on the agreement concluded and legal review began to prepare for the signing of the agreement.
The legal review process for the EVFTA at technical level completed.
The EU requested Vietnam to split the investment protection content and the mechanism of investor-state dispute settlement (ISDS) from the EVFTA to form a separate agreement due to the arisement of new issues related to the EU competence to ratify FTAs. Under this proposal, EVFTA will be split into two separate agreements, including the EVFTA and IPA.
Vietnam and EU officially agreed to separate EVFTA into two agreements including EVFTA and IPA, completed the entire legal review process of EVFTA and agreed on all contents of the IPA.
The legal review of the IPA completed.
October 17, 2018
The European Commission officially adopted the EVFTA and IPA.
June 25, 2019
The European Council approved the signing of the agreements.
June 30, 2019
The EVFTA and IPA were officially signed in Hanoi.
The two deals will be submitted to the European Parliament (EP) for consent. The EVFTA is expected to be approved by the EP later this year or in early 2020. Meanwhile, it will take at least two years for the IPA to be ratified by the EP and member parliaments.