Import duties abolished
When we mention an FTA, the first issue is the abolishment of import duties. It is indeed the most obvious and practical result of such agreements. The EVFTA is no exception and within the next seven years, almost all duties – over 99% of tariff lines – will be eliminated.
Vietnam and the EU are considered to be two supportive and complementary markets. In other words, Vietnam exported goods that the EU does not have or does not produce, such as tropical seafood products and tropical fruits, while the products imported from the EU are also goods which Vietnam cannot produce domestically, including high-quality machinery, airplanes and pharmaceuticals.
While EU businesses will benefit directly from tariff abolishment, Vietnamese businesses will have to navigate between different preferential tariff frameworks for a while. EU tariffs on Vietnam’s exports have been applied under the Generalized System of Preferences (GSP), which has eliminated part or all of customs duties on two thirds of tariff lines – textiles, footwear, seafood, electronics and others. Therefore, the tariff benefits that this FTA brings will have to be harmonized with the benefits of theGSP. Trading businesses will have to follow both frameworks until the free trade is popularized by 2027.
In principle, bilateral interests are the core of the agreement and we should expect an increase in significant competition for local companies with developed and creative companies when the EU joins the market. Local companies will have two options: competition or partners. In both cases, the results of the domestic economy will be positive.
More than import duties
The EVFTA will quickly boost Vietnam’s exports, but the agreement goes far beyond tariff liberalization. What can be most beneficial for Vietnam in the long run is in the principles and conditions that the two sides commit to.
In fact, strict requirements will ask companies to reinvent their supply chains, upgrade standards, characteristics, and transparency. Production capacity is more specialized; infrastructure and logistics are more advanced,integration processes are faster and more appropriate; and agriculture is more sustainable and protects the environment better –these are the thing that this FTA is committed to and no one can deny the benefits of such advances for Vietnam.
In addition, the focus on rules of origin is one of the core conditions for tariff elimination, which will have a positive and profound impact on Vietnam’s industrial development. In today’s manufacturing sector, Vietnam is shining thanks to its ability to assemble products (footwear, garments, electronics) with mainly importedcomponents (for example textiles, batteries, wood and electronic components).
Rules of origin call for companies to invest in a deeper level of the supply chain – many domestically manufactured raw materials and components to supply assembly plants with large scale will be developed in the future, allowing Viet Nam to be more autonomous and resilient.
Thailand was beyond the scope of pure assembly and successful developed domestic supply establishment, especially in the field of electronics and automobiles– that make this country competitive even when labor costs increase. This is the direction that this agreement will help Vietnam implement a more integrated, deeper and more effective domestic value chain, and create more qualified jobs for Vietnamese workers.
Furthermore, the EU will also encourage Vietnam to reform to minimize the environmental impact of both products and supply chains, which will also push Vietnam to transit into a cyclic and sustainable economy.
With the impending EU-Vietnam Trade Agreement (EVFTA) set to come into force during the second half of …
EVFTA brings new opportunities for companies in Vietnam to provide goods and services to the EU. Given the importance of the EU market to Vietnam’s export profile, the EVFTA’s new benefits will surely increase the competitiveness of Vietnamese businesses in Europe. In addition to competition, Vietnam should see this as an opportunity to improve industrial capacity, moving towards more efficient, more integrated and more sustainable supply chains.
By Le Thu/ Huyen Trang
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