The European Union has inked a wide-ranging free trade agreement (FTA) with Vietnam, its second with a member of the 10-nation Association of Southeast Asian Nations (Asean) after it agreed a similar deal with Singapore earlier this year.

This latest pact comes a decade after FTA talks between the two blocs broke down, which saw the EU opt instead to conduct bilateral negotiations with each state individually.

Signed on Sunday in Hanoi, the EU-Vietnam Free Trade Agreement (EVFTA) will eventually eliminate 99% of tariffs. Upon entry into force, 65% of duties on EU exports to Vietnam will disappear immediately, while the remainder will be phased out gradually over a period of up to 10 years. Meanwhile, 71% of duties on Vietnamese exports to the EU will be eliminated straightaway, with the remainder being phased out over a period of up to seven years.

“Vietnam is already the EU’s second-largest trading partner in Asean, while the EU is Vietnam’s second-largest export market, and the deal will bring the two sides even closer as trading partners,” says Ajay Sharma, regional head of global trade and receivables finance, Asia Pacific at HSBC, who is optimistic about the deal’s impact on trade flows. “The EU-Vietnam FTA follows in the footsteps of the CPTPP and the EU-Japan EPA. Both of those deals have begun to ‘deliver the goods’, so to speak, and the early tariff cuts are having positive impact for members of the deals. For example, in the first quarter of 2019 Vietnamese textile-and-garment exports to Canada increased by 23% year-over-year.”

Currently, the EU’s main exports to Vietnam include electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products, while Vietnam sends electronics, footwear, textiles and clothing, coffee, rice, seafood, and furniture to EU consumers. Big winners are expected to be EU farmers, who will see duties on products such as wine, beef and pasta reduced from as high as 50% to zero. Meanwhile, opening of the EU market to the most sensitive products from Vietnam will be limited to make sure EU producers are not affected, with quotes applied on rice, sweetcorn and garlic, among other products.

“European companies will have better access than organisations from any other country to the Vietnamese public procurement markets and to a broad range of services sectors, including postal and courier services, environmental services, banking and insurance and maritime transport,” says Anahita Thoms, head of law firm Baker McKenzie’s international trade practice. “Furthermore, the EU-Vietnam FTA offers increased protection of intellectual property for EU innovations, artworks and brands as well as protection for 169 traditional European food and drinks products from a specific geographical origin against imitation on the Vietnamese market.”

Negotiations between the EU and Vietnam started in June 2012 and were concluded in  December 2015. However, the formal conclusion of the agreement was delayed by a legal process on the division of competencies between the EU and its member states relating to the conclusion of the EU-Singapore deal.

The Vietnam deal will come into force only once it is ratified, which is not a given. Last September, a group of European lawmakers published an open letter calling on the country to improve its human rights record ahead of any vote on the deal. “Unless Vietnam makes a good faith effort to address pressing human rights issues and demonstrates concrete improvements and commitment to respect all human rights before parliament vote, it will be difficult for us to give our consent to the agreement,” they said.

However, the EU says the agreement contains a “strong, legally binding commitment to sustainable development, including the respect of human rights, labour rights, environmental protection and the fight against climate change”, and expects ratification to come by the end of the year.

The next deal for the EU in Asean will likely be with Indonesia, while negotiations with Thailand, Malaysia and the Philippines are currently on hold.

Source: Global Trade Review

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