Vietnam And The EU Free Trade Agreement Formally Passed, Foreign Trade Tariffs Will Be Closer To 0.

On February 12, 2020, at the plenary meeting held in Strasbourg, France, the European Parliament formally approved the adoption of the free trade agreement between Vietnam and the EU (EVFTA).

　　 Source: VNA

This is an important milestone between the two sides since the launch of the free trade agreement from 2012 to close to 8 years, and the follow-up to Vietnam will be submitted to the Vietnamese Parliament for consideration in May this year. Once it is passed, it will come into effect in July 2020 as soon as possible.

　　 Source: Infographics.vn

Once the EVFTA comes into force, the EU will abolish 85.6% tariff duties on Vietnam, equivalent to 70.3% of Vietnam's exports to the EU. 7 years after the entry into force of the agreement, 99.2% tariff duties will be abolished, equivalent to 99.7% of Vietnam's exports to the EU. With regard to the remaining 0.3% exports, the EU has promised to give Vietnam a zero tariff policy under the quota system.

EVFTA is widely expected to become a booster for promoting Vietnam's exports, and will help Vietnam diversify its market and export commodities. According to the research results of Vietnam's Ministry of planning and investment, EVFTA and EVIPA are expected to help Vietnam's gross domestic product (GDP) growth rate increase by 4.6%, and the growth rate of exports to the EU by 2025 will be increased by 42.7%.

Textile and clothing products, as one of the dominant products of Vietnam's exports, naturally become one of the most concerned aspects. In 2019 alone, Vietnam's textile and apparel exports to the EU market were about $4 billion 500 million, a slight increase of 2.23% over 2018. However, its share of garments imported from the EU is still very low. In 2017, the EU imports 82 billion yuan, and Vietnam only supplies about 31 euros, accounting for less than 4%. Compared with 27 billion 200 million of China and 15 billion 300 million euros of Bangladesh, Vietnam still has a relatively large distance, and the growth space can be expected.

Then let's go back to the tariff question that we are most concerned about. What will EVFTA's tariff preferences for textile and clothing go to?

First of all, we need to make it clear that, for different types of export products, this free trade agreement does not mean that all Vietnamese exports to the European Union tariffs are immediately zero. As we mentioned before, the two sides will divide different goods into different levels and set specific timetables.

In the case of denim, cowboy fabric is currently classified as class A, with a tariff of 8% from Vietnam to the EU. It will become zero tariff immediately after the implementation of EVFTA. Jeans, such as men's jeans, belong to the B5 category. The tariff is 12% (compared to 0 from Bangladesh to the EU), and will be reduced to zero duty within 6 years from the date of implementation.

So if we assume that the final agreement will be implemented in January 1, 2021, specific tariffs will probably be adjusted gradually according to the following timetable:

2021:10%

2022:8%

2023:6%

2024:4%

2025:2%

2026:0%

Of course, the complexity of international trade agreements will also have some uncertainty about the final implementation. According to the position of Vietnamese relevant departments, they will set up a list of specific preferential tariffs as soon as possible and submit them to the government for deliberation and approval. Therefore, we will maintain close attention later.

However, it is worth noticing here that it is very important for clothing to comply with the relevant regulations of EVFTA that a rule must be satisfied is called Double Transformation. To understand simply, it is necessary to have two steps to complete the garment industry chain, which needs to be completed in Vietnam, that is, garment production + fabric production. Therefore, it is not enough to simply make clothes in Vietnam. The fabric used also needs to be produced in Vietnam or from other countries and regions that have already been recognized by the European Union. In other words, if it is imported from China to denim, Vietnam is processed into jeans and then exported to Europe, it can not enjoy the preferential treatment of EVFTA.