VIETNAM – THE EU-VIETNAM FREE TRADE AGREEMENT TAKING EFFECT FROM 1 AUGUST 2020

1. VIETNAM – THE EU-VIETNAM FREE TRADE AGREEMENT TAKING EFFECT
FROM 1 AUGUST 2020
By Dr. Oliver Massmann
The date has been set for the landmark EU-Vietnam Free Trade Agreement (“EVFTA” or
“Agreement”) to take effect on 1 August 2020. The Agreement is anticipated to bring significant
advantages for enterprises, employees and consumers in both the European Union (“EU”) and
Vietnam. According to analysis carried out by the Government as well as the World Bank, Vietnam
expects an increase in the country’s GDP to be 2,18 - 3,25% (years 2020 - 2023); 4,57 - 5,30%
(years 2024 - 2028) and 7,07 - 7,72% (years 2029 - 2033). Concurrently, exports from Vietnam to
EU are to rise 20% in 2020, the figure is to double in 2025. In addition, with the possibility of
skilled laborers’ wage to rise by up to 12%, with salaries of common workers increasing by
13%, the Agreement can help lift around 800,000 people out of poverty by 2030.
The EVFTA is the most comprehensive and ambitious trade and investment agreement that the
EU has ever concluded with a developing country in Asia. It is the second free trade agreement in
the ASEAN region with EU, after Singapore, and it will intensify bilateral relations between
Vietnam and the EU. Coupled with the trend of investors continuously withdrawing capital and
production out of China in recent months, the EVFTA is contributing to turn Vietnam into the
manufacturing hub of Asia.
Under the EVFTA, Vietnam has not only opened additional sub-sectors for EU service providers,
but also made commitments deeper than those outlined in the WTO, offering the EU the best
possible access to Vietnam’s market. Sub-sectors that Vietnam commits to under the EVFTA (but
not WTO) include: Interdisciplinary Research & Development (R&D) services; nursing services,
physiotherapists and para-medical personnel; packaging services; trade fairs and exhibitions
services and building-cleaning services.
Some notable provisions of the EVFTA:
Tax
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU
exports immediately after the Agreement comes into effect.
After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be
removed by Vietnam. After 10 years, the elimination rate will be 98.3% of the total tariff lines,
equal to 99.8% of the EU’s exports respectively.

2. Similarly, nearly 100% of Vietnam's exports to the EU will be eliminated import tax after 10 years.
So far, this is the highest level of commitment a partner has given Vietnam in a trade agreement.
This is especially meaningful when the EU has been one of the two largest export markets of the
country.
Market access
For the sectors listed in each party’s Specific Schedule of Commitments, except where there is a
specific reservation, the two parties undertake to not apply restrictions related to: (i) the number
of businesses allowed to participate in the market, (ii) the transaction value, (iii) the number of
activities, (iv) foreign capital contribution, (v) the form of legal entities, and (vi) the number of
natural persons recruitment.
Public procurement packages
Under the EVFTA, Vietnam commits to allow EU contractors to participate in bidding packages
that simultaneously meet the three conditions regarding Value of bidding package; Procurement
agency; Goods and services require procurement.
Vietnam’s commitments on Government procurement mainly deal with the obligation to treat EU
bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when
the Government purchases goods or requests a service worth over the specified threshold. Vietnam
undertakes to follow the general principles of National Treatment and Non-discrimination. The
EVFTA also requires its parties to assess bids based on fair and objective principles, evaluate and
award bids only based on criteria set out in notices and tender documentation and create an
effective regime for complaints and settling disputes. These rules require parties to ensure that
their bidding procedures match the commitments and protect their own interests, thus helping
Vietnam to solve its problem of bids being won by cheap but low-quality service providers.
It should be noted that Vietnam reserves the right to retain a certain proportion of the value of
bidding packages for domestic contractors, goods, services and labor.
Distribution service
Vietnam has agreed to abolish the requirement of economic needs test five years after the date of
entry into force of the Agreement, but Vietnam reserves the right to implement the distribution
system planning on a non-discriminatory basis. Vietnam also agrees not to discriminate in the
production, import and distribution of alcohol, allowing EU businesses to reserve their operating
conditions under current licenses and only need one license to carry out import, distribution,
wholesale and retail activities.
It should be noted that the EVFTA contains a Memorandum of Understanding concerning Bank
Equity, in which Vietnam pleads to favorably consider allowing EU credit institutions to raise

3. foreign ownership to 49% of charter capital in two Vietnamese joint stock commercial banks. This
commitment, if enacted, will be valid for 5 years only (after the expiry of 5 years Vietnam will not
be bound by this commitment) and is not applicable to 4 banks where the State is holding majority
shares (i.e. BIDV, Vietinbank, Vietcombank and Agribank).
Vietnam will benefit more from the EVFTA compared with other such agreements, since Vietnam
and the EU are considered to be two supporting and complementary markets. In other words,
Vietnam exports goods that the EU cannot or does not produce itself (i.e. fishery products, tropical
fruits, etc.) while the products imported from the EU are also those Vietnam does not produce
domestically, including machinery, aircraft and high-quality pharmaceutical products.
Vietnam has been making visible efforts and progress to meet the high standards set out in the
EVFTA. From 1 August 2020, the Agreement will create sustainable growth, mutual benefits in
various sectors and be an effective tool to balance trade relations between the EU and Vietnam.
***
Please do not hesitate to contact the author Dr. Oliver Massmann via email
under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane
Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the
only foreign lawyer presenting in Vietnamese language to members of the NATIONAL
ASSEMBLY OF VIETNAM.