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The EU-Vietnam Free Trade Agreement (EVFTA) negotiated between the European Union and Vietnam to boost trade and investment between the two regions is a significant economic milestone for the Southeast Asian country.
Ratified by Vietnam’s National Assembly on June 8, the EVFTA will enter into force approximately one month after reciprocal notification by Vietnam and the EU, immediately eliminating tariffs on roughly 70 percent of Vietnamese exports to the EU and 65 percent of European exports to Vietnam.
In the last two years, Vietnam has concluded two large regional FTAs — the EVFTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which after just more than a year of implementation, has contributed more than $3.9 billion to Vietnam’s trade surplus.
This is a major economic achievement. Despite this breakthrough, however, 71 percent and 77 percent of enterprises in Vietnam do not know of, or have only just heard about, the CPTPP or the EVFTA respectively, according to the most recent study by the Vietnam Chamber of Commerce and Industry (VCCI).
Clearly, there is a need for greater understanding of the benefits that FTAs can bring to businesses and trade.
“In a post-coronavirus world, as more companies seek to build new resilience into their supply chains, the EVFTA strengthens Vietnam’s value proposition.”
The EU is already Vietnam’s second-largest export designation. Vietnamese exports to the EU have grown consistently in recent years, hitting a total of $42.5 billion in 2018, representing a year-on-year growth rate of 11 percent. Exports comprise mainly of telecommunications equipment, electronics, footwear, textiles and food products like coffee, rice and seafood.
During the last few years, due to rising production costs in China, Vietnam has emerged as an attractive alternative sourcing and production location.
In a post-coronavirus world, as more companies seek to build new resilience into their supply chains, the EVFTA strengthens Vietnam’s value proposition.
Now reopened for business following several weeks of lockdown in Asia, the country is in a prime position to capture opportunities from pent-up investment demand and shifting global production trends.
Local business owners should take notice of these three significant aspects of the newly ratified trade agreement.
1. The EVFTA lowers duties and simplifies customs clearance.
Under the terms of the EVFTA, 70 percent of Vietnamese exports will enter the EU’s 27 member states duty free. The remaining tariff line items will decrease gradually within seven years.
Business owners should keep up to date on the prevailing tariffs applicable to their business to take advantage of savings and competitive pricing.
The agreement also simplifies the entry of goods, including customs clearance procedures into the EU. But businesses should also be aware of customs requirements such as product origin and food safety and technical demands, as well as the continued applicability of import and sales value-added tax (VAT).
“With the EVFTA, together with markets such as South Korea, Japan and Singapore, Vietnam becomes a member of an exclusive EU-FTA club with preferential access to 27 countries.”
UPS can help businesses both big and small navigate such crucially important requirements.
2. The EVFTA promotes supply chain diversification.
With the EVFTA, together with markets such as South Korea, Japan and Singapore, Vietnam becomes a member of an exclusive EU-FTA club with preferential access to 27 countries.
Additionally, due to special rules of origin, Vietnamese goods made from contributions sourced from the above countries will help businesses further qualify for duty preferences. This is especially timely in the wake of tariff barriers and supply chain disruptions, providing businesses with opportunities to diversify their supply chains.
The special rules of origin are particularly valuable to Vietnamese apparel producers, many of whom source raw materials from a single source. With the EVFTA, cotton or fabrics from South Korea that undergo sufficient processing in Vietnam are consequently labeled as originating in Vietnam, allowing apparel to qualify for lower duties to the EU.
This additional flexibility is a plus for Vietnamese businesses, boosting supply chain resilience. Vietnamese businesses should expect additional flexibilities like this as more ASEAN member states conclude FTAs with the EU.
3. Sustainability is important to success.
One distinguishing aspect of the EVFTA is its strong focus on sustainable trade and its shared vision on labor, corporate social responsibility and environmental conservation. These values will have far-reaching potential to improve the competitiveness of Vietnamese businesses and their brands.
UPS stands ready to help local businesses achieve this vision through sustainable logistics. Since 2017, through the support of The UPS Foundation and the Green Freight Asia network, Vietnamese trucking companies have received training on eco-driving, technology tools such as telematics and carbon footprint management.
These efforts, along with the vision reinforced by the EVFTA, will further fortify the government’s goals to transform the country into a regional logistics hub by 2025.
“UPS congratulates Vietnam on this remarkable milestone. We look forward to embarking on this new and exciting chapter for EU-Vietnam trade.”
The EVFTA marks a new chapter in Vietnam-EU relations and along with it, broader benefits that stand to enhance Vietnam’s competitiveness in international trade.
UPS will help Vietnamese businesses unlock opportunities to benefit from this landmark achievement. In addition to advising businesses on how to meet customs and other FTA requirements, UPS has made enhancements to our operations in Vietnam to improve connectivity and time in transit to the EU and 2,300 other destinations.
UPS Worldwide Express Freight solutions expanded recently to multiple provinces in Vietnam, offering exporters guaranteed door-to-door international service for heavy palletized shipments.
UPS congratulates Vietnam on this remarkable milestone. We look forward to embarking on this new and exciting chapter for EU-Vietnam trade.
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