Vietnam – EU Trade Agreement & Investment Protection Agreement

Once in force, the agreements will provide opportunities to increase trade and support jobs and growth on both sides, through

• Eliminating 99% of all tariffs
• Reducing regulatory barriers and overlapping red tape
• Ensuring protection of geographical indications
• Opening up services and public procurement markets
• Making sure the agreed rules are enforceable

Following the signatures, the agreements will be presented on the Vietnamese side to the National Assembly for ratification and on the EU side to the European Parliament for its consent, as well as to the respective national parliaments of EU Member States in the case of the Investment Protection Agreement.

This is the first time a trading partner officially accepts in an FTA the marking of origin of ‘Made in EU” for non-agricultural goods. This allows manufacturers to reflect the increasing integration of the EU market, with the exception of pharmaceuticals where there is still an important portion of national approvals.

How is it possible to benefit from the tariff elimination?

Under the FTA, only products originating in one of the parties can benefit from the preferences granted under the agreement: rules of origin are therefore an important aspect. The relevant provisions for trade between the EU and Vietnam are laid down in the Protocol on Rules of Origin.

The following conditions have to be met for goods exported from the EU to benefit from preferential treatment at the Vietnamese border. Goods must:

• ‘Originate’ in the EU
• Be accompanied by a Certificate of Origin and
• Fulfil certain additional requirements

The Rules of Origin (RoO)

The Rules of Origin (RoO) are the legal instrument used to link a product with a country with a view to granting the product a specific treatment based on its origin.

The preferential rules of origin define when a product can be considered as sufficiently transformed in a country in order to grant it a tariff preference under an FTA or under unilateral preferences.

Preferential RoO have become trade policy instruments used to enhance or to limit market access for preferential partners. Trade partners therefor negotiate the content of these rules in the framework of FTA negotiations.

Vietnam and the EU, for example in relation to products containing sugar and dairy, to steel products, mechanical machinery, electrical machinery and others. There are simplifications which will guarantee a similar level of flexibility as the GSP rules both for Vietnam and for the EU.

Non-alteration:

The Protocol contains the principle of non-alteration which means that the products can transit through third countries, as long as they have not been altered, transformed or subject to operations other than preserving them in good condition or adding/affixing marks, labels, seals or any other documentation to ensure compliance with specific domestic requirements of the importing country. Documentary proof of compliance with non-alteration (certificate of non-manipulation) may be required in case of doubt. This ensures that the authorities of the importing country cannot systematically require that evidence. This will facilitate the use of regional hubs such as Singapore.

Certification and self-certification:

The trade agreement with Vietnam is based on the EU standard system available in other agreements. EU approved exporters can make use of self-certification. Any EU exporter may also use self-certification in case of consignments not exceeding the value of € 6000. EU exporters may also export goods covered by certificates EUR.1 issued by customs. In the future the EU may move to a system of registered exporters (REX). Vietnamese exporters will need government certificates (Certificates of Origin) but Vietnam can also introduce self-certification whenever it is ready to do so.

Cumulation:

The protocol provides for bilateral cumulation. It means, for example, that EU textile producers may supply Vietnamese garment producers with fabrics originating in the EU. The FTA provides cumulation with South Korea in relation to fabrics used for producing garments after complying with certain administrative requirements. Vietnam will also benefit from cumulation with ASEAN countries with which the EU has an FTA in force for two fishery products: squid and octopus. A review clause foresees the possibility of agreeing to extended cumulation for more products and/or more countries with which both parties have an FTA in the future. This has to be requested by one of the parties and will require consensus from both sides.

Duty drawback is allowed:

Exporters using inward processing schemes for subsequent export to Vietnam or to the EU may benefit from suspension or reimbursement of duties applied to non-originating inputs used in the manufacture, if they have complied with Product Specific Rules (PSR).

A single set of product-specific rules (PSR) for both EU and Vietnam has been agreed and will apply without discrimination or any differential treatment to all producers in both countries who wish to benefit from the preferential treatment.

Most of the basic agricultural products have to be wholly obtained in Vietnam or in the EU. The PSR for agricultural and processed agricultural products mostly require the change of tariff classification (also referred to as change of tariff heading (CTH)) but often provide for weight limitations (between 20% and 60%) in relation to non-originating content of raw agricultural materials (i.e. dairy, sugar, cereals etc.). The PSR for other products mostly require the change of tariff classification or alternatively a limitation in value of non-originating materials between 50% and 70%. Some products benefit from rules expressed in specific manufacturing operations. The PSR for textiles and garments require double transformation (from fibre to fabric or from yarn to garment). Printed fabrics benefit from the so called ‘printing rule’. Vehicles have to comply with the value limit of 45% of non-originating materials and vehicle parts with the value limit of 50% of non-originating materials.