The EU-Vietnam Free Trade Agreement (EVFTA) is moving closer to coming into force after being signed by the two sides on Sunday (30 June).
The move was expected after the EU-Vietnam trade and investment agreements were approved by the Council of Ministers last week. They have now been signed by EU Commissioner for Trade Cecilia Malmström, and Minister of Industry and Trade of Vietnam, Tran Tuan Anh.
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The agreement, which is still subject to parliamentary approval, 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 which 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 eventually eliminate virtually all tariffs on goods traded between the two sides.
Once in force, EVFTA will eliminate over 99% of customs duties on goods traded between the two sides.
In a joint statement yesterday, Malmström and Tuan Anh said the agreements mark a milestone in the “strong partnership” between Vietnam and the European Union.
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By GlobalData“As the most ambitious free trade deal between the EU and an emerging economy to date, the agreements are based on the joint commitment of the two sides to open, fair, and rules-based trade liberalisation and economic integration. The agreements also further reinforce the EU’s engagement with the Southeast Asian region, which contributes to the strengthening of cooperation between ASEAN and the EU, aiming towards closer trade and investment relations between the two regions.”
Textiles and clothing
For textiles and clothing, EU import duties on these products 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 expected to expand Vietnam’s textile and apparel exports to the EU market even further.
The country is already the EU’s second-largest trading partner within the Association of Southeast Asian Nations. In 2017, the EU imported EUR3.34bn worth of clothing from Vietnam, accounting for 9% of total clothing imports and up 5.7% on the previous year. Between 2014 and 2017, clothing shipments into the EU from Vietnam have jumped 42%.
According to the re:source by just-style strategic sourcing tool, apparel exports from Vietnam to the EU were subject to an average tariff rate of 9.4% for knitted apparel (HS chapter 61) and 9.2% for woven apparel (HS chapter 62) last year.
Vietnam is also a beneficiary of EU’s GSP programme, which offers preferential duty rates for a limited number of tariff lines.
However, there are also concerns over capacity and labour in Vietnam’s apparel and textile industry once the EVFTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade pact, of which Vietnam is also a signatory, come into force. As reported on just-style last month, 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.
Ratification process
The Federation of the European Sporting Goods Industry (FESI) is now calling on the newly elected European Parliament to quickly begin the ratification process.
“The sporting goods industry sources athletic footwear and active apparel as well as equipment in Vietnam. The successful ratification of this FTA will allow our sector to expand and develop production in Vietnam while maintaining high value-added activities and skill-intensive employment such as design, distribution, innovation and marketing in the EU”, explains Frank Dassler, FESI president.
“After seven years of engagement to make this agreement real, I am happy to see that we are almost there. We now strongly encourage the new Parliament to start the ratification process of the FTA.”
Once the European Parliament has given its consent, the trade agreement can be officially concluded by the Council and enter into force, thus bringing “unprecedented benefits” for European and Vietnamese companies, consumers and workers on both sides, FESI says.
Next steps
Following the signatures, the agreements will now be presented on the Vietnamese side to the National Assembly for ratification and on the EU side to the European Parliament for its consent. Once the European Parliament has given its consent, the trade agreement can be officially concluded by the Council and enter into force. The investment protection agreement will take longer as it will need to be ratified by member states.
