Investment in Vietnam – EU: Point out 3 notable advantages from EVFTA

July 1st, 2020|

On the morning of June 8, 2020, entire Vietnam’s National Assembly has ratified the Free Trade Agreement between Vietnam and the Europe Union (“EVFTA”). This event has put an end to the long process of nearly eight years to negotiate, sign and approve as well as to put EVFTA on the launch pad, prepare to activate the effect from August 1, 2020.

Considered as the “new generation” FTA, according to the Ministry of Planning and Investment, EVFTA shall boost a dramatic growth in Vietnam’s exports to the EU, estimated to increase from 20% in 2020 to about 42.7% in 2025. At the same time, EVFTA will gain momentum to reinforce Vietnam’s GDP to grow by an average of 4.57 – 5.3% in the second half of this decade and reach 7.07 – 7.72% at the beginning of the next decade. In the context of the post-epidemic Covid-19 glitches with severe consequences from the epidemic to remedy, the bright scenarios from EVFTA shall bring excitement to restore the economy.

In light of the above, both parties of EVFTA have committed to bringing some prominent advantages as follows:

1. Advantage 1: Unloading the tariff barrier

Vietnam and the EU shall reduce or eliminate its customs duties on goods originating from the other party following its Schedule. At the same time, each party shall not maintain or adopt any duties, taxes, or additional charges of any kind imposed on, or in connection with, the exportation of a good on the territory of the other party. It is possible to mention that some of Vietnam’s key exports have found their position in this dream list such as rice, coffee, sugar, natural honey, vegetables, flowers, juices, textiles, footwear, wood and wood products, computers, electronic products, and components.

By the time EVFTA comes into force, it will lift 85.6% of the tariff lines applicable to Vietnam’s exports to the EU. And also have to wait for 07 years more until 99.2% of the tariff lines to be removed; 0.8% of the remaining tariff lines are only taxable if it exceeds the quota. Therefore, after a short roadmap, nearly 100% of Vietnam’s exports to the EU shall go through “the broad road” without any tax obstacles.

2. Advantage 2: Simplifying customs clearance

To facilitate the customs clearance – the vital requirement, serving the formulating free import-export areas – Chapter 4 of the EVFTA regulates some crucial commitments, including:

  • Publish its advance rulings in tariff classification of goods;
  • Applying risk management method, whereby, only examine the products at risk, without the need to consider all shipments to reduce the time of the release goods;
  • Only fees associated with the import and export, which are considered appropriate to perform the service, shall be charged, not on the percentage of goods;
  • No consular legislation is required for customs declaration papers, to advance to the complete removal of this procedure of import and export after 03 years since the validation of EVFTA.

3. Advantage 3: Opening the door to attract direct investment in trade and service from the EU

The EU investors have also received a large number of incentives from Vietnam, which are “untied” them from gaining more favorable access to several areas of the vibrant and potential markets that are expanding the door, namely:

  • Banking services: allowing EU credit institutions to add more voices through holding up to 49% of charter capital in 02 join stock commercial banks of Vietnam (except for 04 State-owned banks, including BIDV, Vietcombank, Vietinbank, Agribank) in 05 years since the validity of EVFTA;
  • Logistic services: permitting EU vender to perform the empty container redistribution service initially on the Quy Nhon – Cai Mep route, proceed to expand on all routes after 05 years since the validity of EVFTA. EU enterprises are also allowed to provide dredging service and airport ground service by joining Vietnamese partners to establish a joint venture (the proportion of foreign capital limits to 51%);
  • Insurance services: allowing reinsurance transfer across the border and participate in the voluntary health insurance business according to Vietnam law, forecast the upcoming insurance market will be extraordinarily bustling and exciting;
  • Wine, liquor business: to preserve operating conditions according to the current license of the EU enterprise; they need only one “passport” for all the import, distribution, wholesale and retail activity on the basis of non-discrimination.

Besides, other sectors also welcome the EU invertors, superior to the WTO Commitment Schedule of Vietnam, such as mid birth; nursing; physician and non-professional medical personnel; buildings cleaning; postal service; delivery; hygiene – cleaning emissions; noise treatment; protecting nature and landscapes; special photography, social services and health-related services; et cetera.

EVFTA along with the EU – Vietnam Investment Protection Agreement (EVIPA), which is on the way to be approved, will be an essential foundation to support and govern the liberties of investment – trade between partners on both sides of the continent.

In case you need more information or in-depth advice about EVFTA, please contact us to get the best support.