Following the difficulties experienced by the EU Commission in its efforts to reach an ASEAN-wide free trade deal, they have intensified their efforts on bilateral agreements. As a result of this, they announced early August that an agreement was reached with Vietnam on such a free trade deal.
The agreement will be a "new generation FTA." (The FTA with Korea was introduced as the first new generation FTA.) Apart from practicalities such as no active involvement of the Authorities in issuing proof of origin (through a self-certification scheme), these agreements tend to have a broad focus on topics such as labor rights, economic development etc. Apart from this, little detail is available to date.
The "agreement in principle," as reached on August 4, 2015, is said to include the elimination of nearly all (99%) tariffs by the EU for products originating from Vietnam. Most likely the effective reduction will be based on so called "staging categories," which means that depending on the category of products duties will be fully lifted at entry into force of the agreement (said to be 85% of products), or will be reduced throughout the years, whereby the number of years might vary (up to maximum 7 years for imports into the EU) depending on the sensitivity of the products (e.g. product from the textile apparel and footwear sector are considered sensitive and therefore a longer staging period is expected for these products ).
Vietnam currently enjoys trade preferences with the EU under the Generalised System of Preferences (GSP). Upon the implementation of the bilateral agreement, the GSP will no longer be available for Vietnam on its exports to the EU. Therefore, it is expected that in the definition of staging categories current GSP benefits will be considered (i.e. at least matched).
Vietnam, on their side, will liberalise 65% of import duties on EU exports to Vietnam at entry into force (e.g. EU originating textile fabric exports will be fully liberalised upon entry into force), with the remainder of duties being gradually eliminated over a 10-year period.
Furthermore, under the EU GSP, Vietnam is currently enjoying the benefits of regional cumulation (as a member of ‘group 1’, together with Brunei, Darussalam, Cambodia, Indonesia , Laos, Malaysia, Myanmar and the Philippines) and inter-regional cumulation with the countries in group III (Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka). Essentially, these cumulation benefits currently allow Vietnam exporters to use materials from these countries as if it these were of Vietnamese origin and therefore make it easier for Vietnamese products to qualify as "originating." It is expected that Vietnam would want to keep these cumulation benefits under the new FTA with the EU. However, no details in this respect have been disclosed yet.
The negotiating teams will now need to settle (remaining) technical issues and finalise the legal text, which needs to be approved by the Council and the European Parliament. Despite the fact that parties are positive on signing the Agreement by the end of this year, the agreement is not expected to enter into force before late 2017 or early 2018.
We will provide more information on the FTA when it is available. In the meantime, you may contact:
Claudia Buysing Damste
Tel: +31 (0)88 792 38 11
Nu To Van
Tel: +66 (0) 2344 1353