Anyone who has bought imported products in Vietnam will know how expensive they are. Whether it’s a German car, Italian ham, French cheese, or clothes manufactured in Spain, trade tariffs and import taxes make these items pricier than they would be overseas.
Thanks to a new trade agreement soon to be signed between the European Union (EU) and Vietnam, in early 2018 this is all set to change. Indeed, according the EU ambassador to Vietnam, Bruno Angelet, thanks to the agreement this country will be breaking new ground.
“With Vietnam what we have is a gold standard text, a new model for a trade agreement between the EU and a middle-income country,” says Angelet. “Vietnam is the first middle-income country that has negotiated such an ambitious trade agreement.”
A Long Time in the Making
The agreement has taken five years to negotiate, but the time spent has resulted in a very comprehensive deal, according to Angelet.
“It will cover 90% of the present trade in goods and services between Vietnam and the EU,” he explains. “The first big impact will be on almost 70% of goods being traded in Vietnam. These will be exempt from import tariffs [almost immediately].”
The rest of the goods and services included in the treaty will be exempt from import tariffs over time. From Vietnam to the EU they will be tariff-free after seven years. And for goods going from the EU to Vietnam, the exemption will come in 10 years.
Says Angelet: “We're giving Vietnam a little more time because it's a less-developed economy.”
Tax and Copyright
Yet the free trade agreement is much more than about customs tariffs.
Some of the negotiations were tricky, due to the different levels of economic development in the EU and Vietnam, explains Angelet. Creating a level playing field, and protecting local products was one tricky area, as was ensuring that Vietnam will not suffer when it eliminates import duties, such as that on cars.
“This is a big commitment and a big engagement from Vietnam. It will trigger a loss of fiscal revenue on the import duties side,” he says. “Of course the deal will generate economic growth, so it will be compensated by fiscal revenue elsewhere. [To help with this] we are also providing the Vietnamese government technical assistance on increasing fiscal revenue, but in a smart way. We want to make sure that what European importers gain is not lost by Vietnam.
“We have a programme and the finances to help Vietnam design new fiscal policies, to get new fiscal revenue. Not just taxation, but a better control on what should come in. And we will help them to design something smart which will compensate for what they will lose.”
In additional, regional products such as Phu Quoc pepper or coffee from Buon Me Thuot will now gain legal protection as part of the deal. This means, says Angelet, that “any other company from another country that copies or pirates Vietnamese brands will be prosecuted legally and will not have entrance in the European Market.”
One reason for the agreement’s importance is that Vietnam is no longer regarded as a developing country — it is instead classified in the middle-income bracket. As a result, says Angelet, “this year Vietnam will lose access to all the aid funding from the World Bank.”
This change in income status also affects Vietnam’s trading partnership with the EU.
“Our preferential systems [for developing countries] will disappear also,” he adds. “So, what we are doing with the free trade agreement is that when [Vietnam] loses their preferential system, they can move into a new system that will encourage and spur on exports to the European Market.”
The long-term effects of the trade agreement have yet to be seen, but one thing that’s clear is that a whole new market will be opening up for citizens of the EU and Vietnam.
However, the people who will really benefit will be the consumer. In Europe, imported Vietnamese products will continue to be cheap. And in Vietnam, all those ingredients that make up non-Vietnamese cuisine, or indeed anything manufactured in Europe will suddenly become more affordable.