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January 21, 2020

EU-Vietnam free trade deal clears another hurdle

The European Parliament's trade committee has today (21 January) given the green light to the EU-Vietnam free trade agreement (EVFTA), paving the way for the full Parliament to cast its final vote in February.

By Beth Wright

The European Parliament’s trade committee has today (21 January) given the green light to the EU-Vietnam free trade agreement (EVFTA), paving the way for the full Parliament to cast its final vote in February.

The Committee on International Trade (INTA) gave its consent to the trade pact by 29 votes, six votes against and five abstentions. It recommends the upcoming European Parliament Plenary should also approve the deal when it meets next month. 

The agreement is split into two separate pacts: a free trade agreement, which only requires the Council’s approval and the European Parliament’s consent before it can enter into force; and an investment protection agreement that will replace 21 bilateral investment treaties between Vietnam and EU member states and must go through national ratification procedures in all member states before it can enter into force. 

Finalised in December 2015 after several rounds of negotiation that began in 2012, the trade deal is the most ambitious ever concluded between the EU and a developing country and will remove virtually all tariffs between the two parties. The agreement is also an instrument to protect the environment and further social progress in Vietnam, including in labour rights, the resolution accompanying the consent decision states. 

“With the consent to this trade deal with Vietnam, the trade committee is giving a positive signal to the ASEAN region and the rest of the world at a time when trade tensions are rising,” says rapporteur Geert Bourgeois. “Besides its geopolitical and economic importance, I am convinced that this agreement will accelerate the reform process within Vietnam. The ratification will strengthen further progress on labour and environmental standards and the respect for human rights.”

Next steps

The European Parliament vote on the trade deal and the investment protection agreement at its February session in Strasbourg. Once Council concludes the trade agreement, it can enter into force. The investment protection agreement will take longer as it will need to be ratified by all EU member states.

Vietnam is the EU’s second-largest trading partner in the Association of Southeast Asian Nations (ASEAN) after Singapore, with trade in goods worth EUR47.6bn a year and EUR3.6bn when it comes to services. The main EU imports from Vietnam include telecommunications equipment, clothing and food products. 

Neil Narriman, president of the Federation of the European Sporting Goods Industry (FESI) says the FTA ratification “will not only advance the expansion of the sporting goods sector but will also create new job opportunities and push for the improvement of labour rights in Vietnam.

The group adds: “Over 4.5m people are currently employed by the garment and textile sector in Vietnam and the economic growth generated by this FTA would not only produce new jobs but also foster the positive reform process carried out by the Vietnamese government since the 1980s.”

For textiles and clothing, EU duties on imports from Vietnam will be eliminated over an eight-year phase-out period once the agreement comes into force. Garments produced in Vietnam from fabrics made in South Korea or other ASEAN countries with which the EU has a free trade agreement will also qualify for duty-free treatment.

The EVFTA is also expected to expand Vietnam’s textile and apparel exports to the EU. In 2018, the EU imported US$3.97bn worth of clothing from Vietnam, a rise of 5.4% on the previous year. Clothing accounts for 9.2% of total EU imports from Vietnam – or 3.9% of extra-EU imports (which excludes trade between EU member states).

Vietnam is also a beneficiary of the EU’s GSP programme, which offers preferential duty rates for a limited number of tariff lines. 

However, there have been concerns over capacity and labour in Vietnam’s apparel and textile industry once the EVFTA comes into force alongside the existing Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade pact, of which Vietnam is also a signatory. As previously reported on just-style, Vietnam is seeking to boost fabric production so that its domestic garment makers can prosper from the “yarn-forward” rules of origin under the CPTPP trade deal.

Added to this, there is extra pressure to find capacity in the country as US brands and retailers shift sourcing away from China to Vietnam over US tariff fears.

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