In July 2018, Vietnam and the European Union agreed on and finished the legal review of the EU-Vietnam Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement (IPA). The EVFTA will be translated into 22 official EU languages and the commission will send the translated versions to the Council and the European Parliament for approval. Once approved, it is expected to come into effect in 2019.
As for IPA, which is separate from the FTA, is concluded for the purpose to protect all investors and their investments in Vietnam and the European Union. EVFTA and IPA aim to attract investments for Vietnam and all EU state members and increase their competitiveness through this stable and long-term cooperation.
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Considered as the most extensive scope of the agreement with the commitment from Vietnam, EVFTA is believed to open up a far-reaching and brand new era in trade relations for Vietnam and the European Union’s 28 members. The new trade relations will also affect other countries involved in a positive way.
In this article, you will read about everything you need to know regarding the EU-Vietnam Free Trade Agreement, and the opportunities available for investors in all countries involved.
Trade Relationship between Vietnam and European Union
Ever since Vietnam and EU have established their formal diplomatic relations in 1996, the two parties have continuously grown and strengthened their bilateral trade and investment links. The EU has been the second biggest market abroad for Vietnamese goods for many years. Vietnam’s exports of commodities to the EU, on average, contribute to approximately 19% of its total exports to global markets. Furthermore, this figure has seen tremendous growth for the past 10 years, averaging at 13-15% per year and even reaching 25% in some particular years.
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The EU is the largest investor in Vietnam and the EU’s exports to Vietnam are mainly high-tech products such as aircraft, electrical equipment and machinery, pharmaceutical products, automobiles and other vehicles. On the other hand, Vietnam’s exports to the EU consist of electronic products, telephone sets, textiles, footwear, rice, seafood, coffee, and furniture.
Tax Elimination and Expected Growth
As for now in ASEAN region, Vietnam is ranked the European Union’s second largest trading partner, following Singapore. In 2017, Vietnam and EU had a bilateral trade amounting to US$ 55.1 billion. Statistics have shown that the growth of Vietnam’s exports to the EU will rise about 30-40% in the next decade, especially for goods such as seafood, agricultural products, textiles and wooden products. In addition to that, Vietnam has the potential to become a critical connection for investments and trades of European countries in the ASEAN region.
The EVFTA is expected to eliminate a maximum of 99% of customs duties on imported goods from EU. In other words, many imported goods will enjoy a 0% import tax from the effective EVFTA. Thus, this will absolutely bring many opportunities for investors and traders in both Vietnam and the European Union’s countries. It is forecast that the EVFTA will boost the GDP in Vietnam by at least US$3.2 billion by 2020, US$ 6.7 billion by 2025 and US$7.2 billion by 2030.
Benefits from Investing in Vietnam for EU Investors
The import and export structure between EU and Vietnam is always seen as complementary to each other but not directly competitive in nature – thus the benefits of this agreement to investors of European Union who would like to invest or expand their business in Vietnam are enormous.
Once the EVFTA is in force, it will provide tons of opportunities to the EU investors with the following benefits:
- Elimination of up to 99% import tax
- Protection for investors via geographical indications
- Reduction of bureaucracy and repeating red tapes, and lowering of trade barriers
- Open up of public procurement markets and services
- Low-risk and safe trades with Vietnam through the enforced agreement
Other Agreements between Vietnam and Other Countries
In addition to the agreements with the EU, as one of the members of ASEAN, Vietnam has also signed trade agreements with China, Australia, South Korea, India, New Zealand, Japan, Russia and Chile. Here’s a list of all 14 of Vietnam’s free trade agreements.
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This article was originally published in April 2019.