Vietnams relatively weak textile sector means the EU will erase many duties immediately

Vietnam's relatively weak textile sector means the EU will erase many duties immediately

Recently released details of the European Union's trade agreement with Vietnam show how the deal could boost garment sourcing by EU brands in this key emerging south-east Asian player.

The full text of the agreement was released on 1 February, and attention will now turn to the ratification process, which will happen in the European Parliament and the Vietnamese National Assembly.

With Vietnam effectively remaining a one party-communist state, ratification can be assumed in the Association of Southeast Asian Nations (ASEAN) country. And with the agreement on the Trans-Pacific Partnership (TPP) offering the EU's North American competitors access to Vietnamese markets, pressure will be felt by MEPs to ratify swiftly for the EU, maybe this year. The deal would come into force two months after both sides ratify its terms.

The EU is removing duties on Vietnamese exports, which in some cases remain quite high, the release texts confirm. These cover a wide range of Vietnamese-made clothing and accessories – woven and knitted – from immediate abolition to phasing out tariffs over six years.

For instance, over the six years following the ratification of a deal the EU would phase out 12% duties on knitted cotton overcoats, car coats, capes, cloaks, anoraks (including ski jackets), windcheaters and wind-jackets. In other cases, a four year phase out schedule would be imposed upon ratification – for instance 12% duties on manmade fibre overcoats, car coats, capes and cloaks.

And in other lines, the EU is more relaxed, allowing for immediate abolition of duties once the deal comes into force, including 12% tariffs on knitted man-made fibre anoraks (including ski jackets), windcheaters and wind-jackets; and  12% duties on women's or girls' knitted blouses and shirts.

Also, a significant number of tariff lines for fabrics would also see EU duties being scrapped – in many cases upon the deal coming into force. Examples here include terry towelling (6.3%); woven fabrics with elastomeric yarn (7.5%); lace (8%); and tulle (6.5% and 8%). Vietnam's relatively weak textile sector probably accounts for the EU's ease at erasing duties so quickly for these upstream lines.

Lower trade barriers for inputs

For the same reason, Vietnam has been keen to lower its trade barriers for inputs, helping make up for its lack of local backward linkages.

Under the agreement, some tariffs would be removed immediately, as soon as the deal is ratified. The documents show this includes 12% duties on Vietnam imports of EU-made textiles made from artificial yarn, dyed, printed and bleached, plus woven fabrics obtained from strip, and needleloom felt and stitch-bonded fibre fabrics, for instance. Also 3% duties on EU-made artificial filament tow from synthetic and man-made fibres will be scrapped at the same time, along with 5% and 12% duties on processed artificial staple fibres for spinning, knitting yarn.

Commenting on the text, EU trade Commissioner Cecilia Malmström said that once ratified, "the agreement will unlock a market with huge potential for EU firms. Vietnam is a fast-growing economy of more than 90 million consumers with a growing middle class and a young and dynamic workforce."

Rules of origin

Meanwhile details have also been released on determining the origin of clothing and textile products, so that they can qualify to benefit from the agreement's trade advantages. It includes complex guidance on assessing the origin of mixed fabrics. For example, the chapter on origin says a "synthetic yarn which does not satisfy the origin rules, or woollen yarn which does not satisfy the origin rules, or a combination of the two, may be used, provided that their total weight does not exceed 10% of the weight of the fabric." Processes listed as not triggering a declaration of origin for a product include ironing or pressing of clothes and textile articles.

The EU has also released details on more general agreements on reducing trade and investment restrictions. This includes chapters on reducing technical barriers to trade; trade in services; e-commerce; customs and trade facilitation; government procurement; and trade remedies.

Commenting on an investment protection chapter within the deal, Malmström added: "The agreement will also help trigger a new wave of high quality investment in both directions, supported by our new investment dispute resolution system with an appeal mechanism."

Click on the following links for further details:

 Vietnamese duties to be phased out

EU duties to be phased out

Explanation of duty phase-out schedules

Explaining the determination of origin

Investment provisions