EU-Vietnam Free Trade Agreement signed to take effect from 2018

The FTA is considered one of the most comprehensive and ambitious trade and investment agreements. The Minister of Industry and Trade of Vietnam, H.E. Vu Huy Hoang and the European Commissioner for Trade, H.E. Cecilia Malmström signed the Vietnam-EU Free Trade Agreement (FTA) on 02 December 2015, after nearly 3 years with 14 rounds of negotiations.

It is the second agreement in the ASEAN region after Singapore and it will intensify the bilateral relations between Vietnam and the EU. Both parties will finalize the ratification process as soon as possible for the FTA to take effect from the beginning of 2018.

The agreement has separate chapters on Trade of Goods, Rules of Origin, Customs and Trade Facilitation, Sanitary and Phytosanitary measures and Technical Barriers to Trade, Trade in Services, Investment, Trade Remedies, competition, State-Owned Enterprises, Government Procurement, Intellectual Property, sustainable Development, Cooperation and Capacity Building, Legal and Institutional Issues.

Nearly all customs duties – over 99% of the tariffs will be eliminated. The small remaining number is mainly due to the transition period. Vietnam will liberalize 65% of import duties on EU exports to Vietnam at entry into force and the remaining duties will be eliminated due to the next ten years; EU duties will be eliminated over a seven year period. The EU will eliminate duties for some sensitive products in the textile and footwear sector. The EU has offered access to Vietnamese exports via tariff rate quotas (TRQs), because some sensitive agricultural products will not be fully liberalized. Furthermore, the agreement will contain an annex with provisions to address non-tariff barriers in the automotive sector. Vietnamese exports of textile, clothing and footwear to the EU are expected to more than double in 2020 as a result of the FTA.

The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%. The macro economy will be stable and inflation rate is controlled. Vietnam’s business activities will be booming in the next few years once the EU- Vietnam FTA officially comes into force and Government’s policies as well as institutional reforms start showing their positive effects.

Vietnam’s GDP is expected to increase by 0.5% annually, increase in exports is 4-6% per year. If this trend continues until 2020, Vietnam’s exports to EU will increase by USD 16 billion. Until 2025, the FTA is estimated to generate an additional 7-8% of GDP above the trend growth rate.

The FTA will help to increase quality of investment flows from EU, accelerate the process of sharing expertise and transfer of green technology and the creation of more employment activities.