Taxation Elimination

The European Union-Vietnam free trade agreement, what’s in it for me?

Dear Marijn, I am an importer of dairy products from Europe. Initially, I focused on butter and buttermilk, but more recently I have started importing dairy spreads and blue-veined cheese as well. I saw an item on the television about a new free trade agreement between the European Union and Vietnam and I was wondering whether this agreement will bring any benefits to me and my business.

To answer your question about the new free trade agreement (FTA) between the European Union and Vietnam, let’s go back a little bit in time. Ever since the Vietnamese government launched its economic reforms in 1986 (commonly referred to as Doi Moi), Vietnam has been on an impressive journey of development and integration into the world economy. In 1995, Vietnam became a member of ASEAN, and the year 2007 was an important milestone for Vietnam as it acceded to the World Trade Organization (WTO). More recently, Vietnam has concluded various trade agreements: sometimes with one other country, such as the economic partnership agreement with Japan in 2008; sometimes with several countries, such as the Trans-Pacific Partnership and the FTA with the European Union.

It is not very surprising that Vietnam is only the first ASEAN country after Singapore to sign an FTA with the European Union. Political and economic ties between the two parties have been strong for many years. To give you an example, Eurostat has estimated that in 2015 the mutual trade between the European Union and Vietnam was worth over EUR38 billion! Vietnam notably exports goods such as garments and textile, telephones, footwear, coffee, seafood and cashew nuts to the European Union. In return, major imports from the European Union into Vietnam include machinery, aircraft, vehicles, dairy products and pharmaceuticals. Furthermore, Vietnam’s Foreign Investment Agency has estimated that the European Union was one of the biggest investors in Vietnam in 2015, with a total of 1,730 investment projects and a total registered capital of USD23 billion.

The two parties concluded their negotiations for the FTA in December 2015. It took the negotiators more than three years and 15 rounds of negotiations to achieve this result. The provisional text of the agreement has been published, lawyers are currently dotting the i’s and crossing the t’s, while translators are preparing the final text of the FTA in all the 23 official languages of the European Union. Considering that the final text will also need to pass the European Commission and the European Parliament, it is expected that the FTA will enter into effect sometime in 2018.

But what is the FTA all about, and what could it mean for your business? Well, the name already kind of gives it away: the free trade agreement is first and foremost about liberalizing trade. This means that gradually, over a total period of 10 years from its entry into force, more than 99 percent of all the import duties will be eliminated. Relevant to your business, the current 10 percent import duty on blue veined cheese shall be eliminated in six equal steps over a period of five years from the entry into force of the FTA. Buttermilk, currently at 3 percent, shall be free from import duties after three years. And both dairy spreads and butter, currently at 15 percent, can be imported freely into Vietnam after five years. If you want to know what you can expect for other products, just have a look at the text of the agreement.

But the FTA is more than just about the elimination of import duties. For example, several sectors that have been (partially) closed for service providers from the European Union, such as banking, insurance, maritime and certain air transport services will be (further) liberalized. There is also a chapter on investment, which covers principles on non-discrimination between domestic and foreign investors, most favorable nation treatment and investment protection. Additionally, the agreement will give more access to public procurement for bidders from the European Union, it will strengthen the protection of intellectual property rights, and it will establish a new tribunal for the settlement of investment disputes.

It may still take some time before the FTA will enter into effect. But, Brexit or not, the FTA certainly promises to bring real opportunities for trade and investment.

Every month, Marijn Sprokkereef answers legal questions from Oi readers. If you have any legal questions you want answered, send them to legal@oivietnam.com.

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