EU And Vietnam Sign Free Trade Agreement For Future Textile And Garment Tax Reduction Geometry?

In June 30, 2019, the European Commission and the Vietnamese government signed two trade agreements in the Vietnamese capital, Hanoi, namely the free trade agreement and the investment protection agreement. In terms of trade in goods, the two sides plan to gradually reduce 99% of the tariffs on bilateral trade within 10 years after the entry into force of the agreement, and the remaining part will be liberalized in the form of quotas. Besides, the agreement also contains provisions on environment, human rights and labor rights. Once the FTA and the investment protection agreement come into force in the future, it will further promote and strengthen trade and investment cooperation between Vietnam and the EU, and create new market opportunities for the development of both sides.

The two agreements signed by EU and Vietnam have yet to be ratified and become effective.

The EU - Vietnam FTA negotiations began in June 2012. The consultation lasted for 3 and a half years. At the end of December 2015, the agreement was concluded and signed. In June 25th this year, the agreement was finally ratified by all the member states of the European Union. At present, the two agreements still need the approval of the two legislative bodies before they take effect. Vietnam will be submitted to the Vietnamese Parliament for approval, and Europe still needs approval from the European Parliament. In addition, the agreement on investment protection will be approved by the EU member states in accordance with their own procedures.

The EU and Vietnam are important trade partners.

Vietnam is the second largest trading partner of the European Union in the ASEAN region, second only to Singapore. In 2018, the European Union signed a free trade agreement with Singapore and plans to remove all bilateral tariffs within 5 years. Vietnam has become the second country in Southeast Asia to sign FTA agreements with the EU. This agreement is also the largest FTA signed by the European Union and developing countries.

At the same time, the European Union is also the second largest export target market after Vietnam. The main products of Vietnam's exports to Europe include clothing products. In 2018, Vietnam exported $4 billion 98 million to the EU, exported US $29 million of textile yarn, and exported US $240 million of fabrics and apparel. The EU accounted for 13.5% of Vietnam's total clothing exports, ranking 45% after the United States.

Following the formal entry into force of the EU - Vietnam FTA in the future, the import and export duties of the cotton wool yarn and hemp yarn (the current tax rate 3-5%), the chemical fiber filament yarn and the staple yarn (tariff rate 4-8%), the fabric / fabric (tax rate 3-8%) exported to the EU will be reduced to zero immediately from the time the agreement comes into force.

The tariff of most clothing products (the current tax rate 8-12%) will be reduced to zero during the transition period from 3 to 7 years, and a small part of the tariff on clothing products will be reduced to zero. In household textiles, customs duties such as curtains, blankets, etc. (tariff 6.9-12%) can be waived from the time when the agreement comes into effect. The tariff of cotton sheets, quilts, pillowcases, etc. (tariff rate 12%) is reduced to zero in 5 years. Carpet (tax rate 3-8%), manufactured goods (tax rate 3.2-12%), special woven fabric and tufted fabric (tax rate 5-8%) will be reduced to zero immediately after the agreement comes into effect.

Vietnam, the world's third largest exporter of clothing, is expected to export to 50 billion US dollars by 2020. In recent years, the Vietnamese government has attracted a lot of foreign investment through vigorously reconstructing the business environment and improving preferential policies, which has led to the rapid development of the local textile and garment industry and the continuous improvement of its international competitiveness.

With the signing of the EU and Vietnam free trade agreement and investment protection agreement, Vietnam's textile and garment industry will usher in greater opportunities for development. The EU free trade agreement will promote the export of Vietnamese clothing products to grow at a faster rate, and continuously enhance its competitiveness and market share in the EU market. At the same time, the EU and Vietnam investment protection agreement will promote Vietnam to create a better business and investment environment, and further enhance the attractiveness of investment.

At present, there is a strong market competition relationship between China and Vietnam in textile and clothing export trade, and fierce competition for international orders. The signing of the agreement has brought pressure to China's export textile and garment enterprises to the EU.