It may have taken two and a half years of negotiations, but the European Union and Vietnam have settled a free trade agreement that will remove nearly all tariffs on goods traded between the two nations.
Following a phone call between EU Trade Commissioner Cecilia Malmström and Vietnamese Minister of Industry and Trade Vu Huy Hoang Tuesday, both sides agreed on all issues of substance, according to the European Commission, and reached a mutually beneficial deal.
“This finely balanced agreement will boost trade with one of Asia’s most dynamic economies. It sets a new, better and modern model for Free Trade Agreements between the EU and developing countries, and establishes a good standard for the trade relationship between the EU and South East Asia as a whole,” Malmström said.
The agreement is the first of its kind the EU has negotiated with a developing nation.
Beyond eliminating tariffs on goods, Vietnam will also remove nearly all of its export duties, liberalize trade in financial services, telecommunications, transport and postal and courier services. In terms of investment, Vietnam will open its market to the EU by easing limitations on manufacturing in both the food and non-food sectors.
The parties have also agreed to achieve a level of transparency equal to trade agreements the EU has in place with developed nations and maintain sustainability and labor standards.
“Our deal will also make sure that trade does not happen at the cost of the environment or of people’s rights,” Malmström said. The EU and Vietnam have committed to ensure the respect of workers’ rights and to support a sustainable management of natural resources.”
In 2014, the EU was Vietnam’s second trading partner after China, representing 10 percent of its trade. The EU imported 22.1 billion euro ($24.1 billion) worth of goods from Vietnam last year, and Vietnam took in 6.2 billion euro ($6.75 billion) worth of EU goods.
Vietnam’s key exports to the EU include electronic products, footwear, textiles, clothing and coffee, while the EU sends Vietnam more high-tech products like electrical machinery and equipment, aircraft, vehicles and pharmaceutical products.
“Vietnam is a growing economy and once this agreement is up and running, it will provide significant new opportunities for companies on both sides, by increasing market access for goods and services,” Malmström said. “Over 31 million jobs in Europe depend on exports, so having easier access to a growing and fast developing market like Vietnam, with its 90 million consumers, is great news. And Vietnam’s exporters will now get much easier access to the EU for their products, giving an important boost to the Vietnamese economy.”
The EU is looking to establish firm footing in free trade with the Association of South East Asian Nations (ASEAN), and the agreement with Vietnam will be the second the EU settled in the region after the Singapore FTA in 2014.
“The EU-Vietnam FTA helps confirm the notion that perhaps the next China (for apparel) really is Vietnam. With this FTA having a strict rule of origin for Vietnamese (or South Korean) fabrics, the welcome light is firmly on for textile mills to set up shop,” said Rick Helfenbein, president of consumer goods supply chain firm Luen Thai USA, which has production capabilities in Vietnam. “With or without TPP [the Trans-Pacific Partnership], Vietnam (already No. 2 behind China) is fast becoming the newest dominant force for apparel.”
Technical discussions to finalize the agreement’s legal text will now take place, but the European Commission expects the process to be finalized within a few months and “certainly” before the end of the year.