On the 1st of August 2020, both the Investment Protection Agreement (EVIPA) and the Free Trade Agreement (EVFTA) between the European Union (EU) and Vietnam finally came to force.
These two ambitious agreements are set to eliminate the customs duties and the vast majority of tariff barriers for a significant number of products, to open up Vietnamese services markets to EU companies, and to strengthen the protection of EU investments in the country. Moreover, they also include provisions regarding IP rights protection, investment liberalization measures, and ambitious projects in the field of sustainability, green, blue, and circular economy. Other significant (and beneficial) changes to the regulatory landscape, are the reduction of many non-tariff barriers, together with simplified customs procedures.
The two sectors that will take the more significant advantage from this change are the automotive and the pharmaceuticals sectors. In these fields, the alignment of Vietnam's standards to the international ones will allow the EU firms to market their products in Vietnam without going through additional testing and without the need of obtaining local certification in Vietnam.
Also, a more straightforward custom procedure will lower import costs and operations complexity.
EU companies will be now able to import and market in Vietnam remanufactured goods, which will open a window of opportunity for trading high-value products such as medical devices and machinery spare parts to serve the aftersales market. Also, the introduction in Vietnam's legal system, of the geographical indications trademark for wines, spirits, beverage, and food products, will help EU firms to both protect their products against counterfeiting and to leverage on the superior quality of their production. Another attractive update is the reform of the Visa system for European contractual service suppliers. From now, a EU firm not established in Vietnam which will sign a service contract with a Vietnamese client will be able to temporary dispatch its staff to Vietnam for the duration of the service contract (for a maximum of 6 months in a row). This new Visa system applies to urban planning, landscape services and architectural, to engineering and IT services, to higher education and foreign language training, and all environmental-related services.
From an economic perspective, the agreements should be beneficial for both sides. Indeed, Vietnam's GDP should increase by 4.6% and its exports to the EU by 42.7% by 2025. At the same time, analysts expect the EU's GDP to grow by US$29.5 billion by 2035.
The EVIPA and the EVFTA will help Vietnam, which recently surpassed Indonesia and Thailand, to consolidate his position as the second most important EU's trading partner among all ASEAN countries. At the same time, the expected growth in trade between the two partners should strengthen the EU position as ASEAN's third-largest trading partner.
The EVIPA and the EVFTA will further open to EU firms a fast- growing economy of more than 100 million consumers with a growing middle class and a young and dynamic workforce. Moreover, with the coming into effect of this new generation of agreements, Vietnam is more and more set to become the perfect gateway for broader access to both ASEAN and other dynamic regional markets, such as Australia.
Franco Allena, BD at Kelmer Group
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