The EU-Vietnam FTA is expected to come into force into 2018

The EU-Vietnam FTA is expected to come into force into 2018

The upcoming EU free trade agreement with Vietnam is expected to boost European growth and job creation in the retail sector, as well as the development of Vietnam, according to EU trade negotiators, experts and business leaders.

Speaking at an event by the Mission of Vietnam to the EU and BusinessEurope on 14 September in Brussels, chief negotiators and ambassadors from both sides were joined by leading EU trade association representatives in urging for the speedy ratification and entry into force of the agreement.

"The EU retail sector has a double interest in Vietnam as it is our second largest source of fast-moving consumer goods after China and because of growing interest for investment in retail stores in Vietnam," says Pierre Gröning, trade policy director at the Foreign Trade Association (FTA). "For retail, the FTA with Vietnam is more important than TTIP [with the US], CETA [with Canada] and the Japan agreement combined."

The EU-Vietnam FTA was concluded on 2 December 2015 and is expected to come into force into 2018. It is the EU's FTA second with a Southeast Asian country (after Singapore) and is the most ambitious and comprehensive FTA that the EU has ever concluded with a middle income country, says the Mission of Vietnam. The agreement will eliminate 99.8% of duties on European products gradually over a ten year period. 

EU retailers currently import 8% of fast-moving consumer goods from Vietnam, a figure still well behind the 50% imported from China but growing fast and set to get a boost from the elimination of tariffs under the FTA, which would lower costs for importers and European consumers, says the Mission of Vietnam to the EU.

Among key export items, garments and textiles witnessed an increased turnover of US$15.5bn, up 4.2% year-on-year in the first eight months of 2016, and footwear ($8.6 billion, up 8.1%). Even without the FTA, EU clothing imports from Vietnam increased by 3.2% in 2015. Given the sensitivity of the sector, the full elimination of the tariffs will be staged over seven years. Rules of origin conditions for garments will require the use of fabrics produced in Vietnam, with the only exception being of fabrics produced in South Korea, another FTA partner of the EU.

According to the Mission of Vietnam to the EU, the Vietnamese market is also increasingly attractive to European producers and retailers. The FTA will give tariff-free access to a market of 90m consumers, with a middle class expected to reach 30m by 2020, to European products including cars and motorbikes, pharmaceuticals and alcoholic beverages. Goods produced in Vietnam will have duty-free access to the 630m plus strong Asian Economic Community and with the impending Trans-Pacific Partnership to the largest free trade area in the world.

"Vietnam is a very attractive destination for investment," said Vietnamese vice-minister for Trade and Industry, Tran Quoc Khanh. "Anything produced in Vietnam enjoys tariff-free export to most of world."

The agreement is also expected to boost Vietnam's development with per capita income rocketing from $100 in 1986 to US$2,100 in 2015. "Development has been driven by economic growth and economic growth has been driven by exports," adds Bruno Angelet, EU Ambassador to Vietnam. "We [the EU] pushed for a move from development aid to trade and Vietnam responded."

The FTA is the first comprehensive trade agreement the EU concludes with a developing country, and includes a strong chapter on sustainability.