EU-Vietnam Free Trade Agreement | Deloitte Netherlands

Analysis

EU-Vietnam Free Trade Agreement

One step closer to becoming operational

On 30 March 2020, the Council of the European Union (EU) adopted a decision on the conclusion of the Free Trade Agreement between the European Union and Vietnam (EU-Vietnam FTA), clearing the final hurdle on the EU side for the agreement to become operational. After ratification by Vietnam, the agreement is expected to enter into force in summer 2020.

Liberalisation of customs duties

The EU-Vietnam FTA seeks to eliminate import duties on substantially all trade in goods between the parties. In many sectors, however, the elimination of duties will be gradual, achieved in the years after the entry of the agreement into force. The tariff schedule of each party sets transitional periods for duty liberalisation, which vary in length depending on the sector and its political sensitivities.

In the automotive industry, for example, the implementation period of 10 years is provided for many types of vehicles imported from the EU to Vietnam. Import duties on EU wines and spirits are set to be generally liberalised after seven years, while beers will be able to enter Vietnam duty free after 10 years. In a similar fashion, EU duties on many types of textile apparel from Vietnam are subject to transitional periods of five or seven years. EU import duties on some athletic/sports footwear from Vietnam will be removed as early as the entry of the agreement into force, while in some other cases, a transitional period of three years will apply.

In the sectors where import tariffs are not phased-out, the agreement provides for the application of a tariff rate quota (TRQ). This particularly concerns imports of agricultural products from Vietnam, such as rice, sweet corn, garlic, mushrooms, eggs, sugar and canned tuna. A TRQ would allow, in most cases, the importation of a within-quota quantity of such products at a zero-duty rate. The quantities above the quota will remain to be subject to (higher) tariffs.

In addition to import duties, the EU-Vietnam FTA also seeks to eliminate export duties applied by Vietnam on products such as quartz, chalk, manganese ore, lime stone etc. The liberalization of export duties is also subject to transitional periods, which are set forth in Vietnam’s schedule of export duties.

Qualifying for the preferential treatment under the EU-Vietnam FTA

In order to benefit from the preferential treatment under the EU-Vietnam FTA, including zero-duty rates, products must comply with the specific rules of origin set out in the agreement.

As a general rule, to qualify for a preference under the EU-Vietnam FTA, goods must “originate” in the EU or Vietnam, be accompanied by a proof of origin, and fulfil certain additional requirements. Depending on the type of good, it can obtain the status of an originating good either because it is wholly obtained or has undergone “sufficient working or processing” in the EU or Vietnam.

Most of the basic agricultural products will fall into the first category. The type and level of working or processing that is deemed sufficient to confer the originating status on other (mainly non-agricultural) products (made from non-originating materials) will vary per product category. In many cases, the change of tariff classification or a limitation on the value of non-originating materials (often 50% or 70%) will apply. For example, for vehicles there is a limitation on the value of non-originating materials of 45%, while for vehicle parts, we see 50%. Smartphones have the limit on the value of non-originating materials set at 70 %.

If originating and non-originating fungible materials are used in the working or processing of a product, the EU-Vietnam FTA permits the management of materials using the accounting segregation method without keeping the materials in separate stocks.

The EU-Vietnam FTA allows for a bilateral cumulation of origin, such that products made in one party and incorporating materials from the other party may receive a preferential treatment. Cumulation of origin with other countries is also allowed for certain products. This includes squid and octopus from the ASEAN countries with which the EU has concluded a free trade agreement. Further, cumulation with South Korea may be possible in respect of fabrics used in the manufacturing of garments in Vietnam.

For products that are not shipped directly between the EU and Vietnam, the agreement contains the so-called principle of “non-alternation”. According to this principle, goods that transit through third countries may benefit from the FTA on the condition that they have not been altered or transformed while in transit.

To prove the origin of goods, the EU-Vietnam FTA generally requires a certificate of origin issued by the competent authorities in the country of export. However, EU exporters that have the approved exporter status, and EU as well as Vietnamese exporters who are registered in the REX system, could use self-certification. Vietnam is expected to make the REX system operational by 30 June 2020. For consignments the total value of which does not exceed 6 000 euros, EU exporters do not need to submit a certificate of origin issued by the competent authorities and may provide an origin declaration instead even without being an approved exporter or being registered in the REX system. A similar option would be available to Vietnamese exporters, as long as Vietnam’s legislation provides for such a possibility.

How we can help

Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who provide specialised assistance in global trade matters. Our professionals support businesses in qualifying for benefits under free trade agreements, such as EU-Vietnam FTA. Specifically, we can help you:

  • identify the benefits your products can derive from the EU-Vietnam FTA;
  • determine potential supply-chain adjustments with the view to benefiting from the EU-Vietnam FTA;
  •  fulfil the conditions necessary to qualify for a duty-free or a reduced-rate duty under the agreement;
  • communicate with customs authorities and deal with customs-related formalities.

For more information, please contact:

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