On August 1st, 2020, after many years of intense negotiations, the comprehensive and modern EU-Vietnam Free Trade Agreement (EVFTA) finally entered into force. It is dubbed comprehensive because it promises to gradually eliminate almost all tariffs between the two regions over the course of the next decade. It is considered modern because it includes binding rules on climate, labor and human rights. For many cross-border trading businesses, the deal represents a welcome opportunity to lower product costs and get goods to market faster.
A mutually beneficial free trade agreement
Both sides are expected to benefit from the deal. Vietnam, one of the fastest-growing countries of the Association of Southeast Asian Nations (ASEAN), is the EU’s second-largest trading partner in the region after Singapore, with annual trade in goods worth €48 billion a year. For Vietnam’s businesses, the deal is equally important, making this free trade agreement pivotal for two reasons:
- Many of the most prominent foreign investors in Vietnam are from the EU, and investment flows from the EU are estimated to increase.
- For the EU, the agreement is an important stepping stone to a broader EU-Southeast Asia trade deal.
The tariff elimination will benefit a wide range of exporting, importing and manufacturing industries in both countries. On the Vietnamese side, businesses making or exporting smartphones and electronic products, footwear, textiles and clothing, coffee, rice, seafood and furniture are expected to be able to increase their sales into the EU. EU businesses producing and selling high-tech products, including electrical machinery and equipment, aircraft, vehicles and pharmaceutical products, should find it easier to gain market share in Vietnam.
Some benefits for EU companies importing into Vietnam include:
- Almost all EU exports of machinery and appliances are fully liberalized
- Around half of EU pharmaceutical exports can now enter Vietnam duty-free
- All EU textile exports are now liberalized
- Car parts will enter Vietnam duty-free by 2027
- Close to 70% of EU chemicals exports to Vietnam are duty-free under the agreement
Some benefits for Vietnamese companies importing into the EU include:
- Nearly 60% of EU import tariffs on machinery and equipment are eliminated
- Cars, car parts and motorcycles will be free from tariff barriers after July 2027
- No import tariffs on wine beginning July 2027, and on beer beginning in 2030
- A zero-rating of the import of significant quantities of Vietnamese rice, sweetcorn, garlic, mushrooms and other agricultural products (known as tariff-rate quota provisions)
The challenge of administering the EVFTA
Leveraging the cost savings opportunities from these trade agreements offers a strategic advantage for European and Vietnamese companies. While trade agreements such as the EVFTA can provide long-term cost savings, administering this complex agreement and staying on top of regulatory changes is challenging. For example, proving that the goods in question originated from one of the two regions is essential for companies to claim duty reductions. However, this can be very time-consuming. When a new product is sourced, a business may have to solicit suppliers to obtain product information and certificates of origin to meet the requirements of the trade agreement. Managing thousands of products can quickly become overwhelming, crippling many importers before they even begin.
Getting to grips with rules of origin
Businesses looking to take advantage of the recently ratified EVFTA must also understand and comply with the rules contained within. Qualifying all applicable goods for coverage under the EVFTA is needed to ensure compliance and achieve the lowest total product costs for goods manufactured, assembled or value-added in the EU or Vietnam. When businesses can demonstrate that products comply with the complicated legal rules of origin, customs duties can be significantly reduced and often eliminated. This regularly involves processing complex bills of materials (BOMs) against these rules. But the amount of time required can paralyze an exporter before there’s an attempt to understand the potential gains. Sourcing materials from third-party nations may decrease the overall cost of production. However, because of the origin of the material, the import costs will compromise competitiveness if entering the EU or Vietnamese markets.
Getting sustained value from the EVFTA
One effective way for businesses to get sustained value from the EVFTA and other trade agreements is by automating time-intensive and error-prone processes. This requires sophisticated technology to automatically match multi-faceted BOMs against complex rules of origin, a comprehensive regulatory database that is always up to date and a network to efficiently secure proofs of origin from all trading partners.
E2open’s Trade Agreements application, part of a comprehensive suite of intelligent applications for managing global trade, is ready today to assist companies with the qualification, vendor solicitation and administration of the EVFTA. Existing customers get automatic access to updates and new features which will allow them to benefit from all the opportunities the new agreement provides.
Not only that, but we support more than 150 trade agreements around the globe, including the United States—Mexico—Canada Agreement (USMCA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). E2open Trade Agreements customers seamlessly identify qualifying goods by using our trade content database, E2open Global Knowledge®, which contains the rules of origin, product classifications and duties and taxes for all significant preferential trade programs around the globe.
We’re ready to help open new markets for your company by simplifying the trade compliance and qualification processes. With new trade agreements either on the horizon or recently passed around the world, global trade compliance becomes key to the opportunities ahead.