The Europe-Vietnam free trade agreement has generated a lot of buzz, but it will actually benefit only a few apparel manufacturers.
After years of negotiation the EVFTA has finally been ratified by both the EU (earlier this year) and now Vietnam. It comes into effect August 1, 2020.
The new free trade agreement will eliminate import duties on 91.8% of tariff lines, equivalent to 97.1% of EU exports.
However there are provisions. A major sticking point for apparel is the ‘origin’ rule. That will be difficult for most manufacturers since they rely on imported raw materials – mainly coming from China.
Manufacturers who have vertical setups will be best positioned to benefit from the new deal.
Key Provisions:
- Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the Agreement came into effect.
- After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be removed from Vietnam. After 10 years, the abolition rate will be 98.3% of the total tariff lines, equal to 99.8% of the EU’s exports respectively, according to Duane Morris LLP.
Products will benefit from the tariff preferences under the EVFTA rules of origin provided that they can prove that they are “originating”, according to Dezan Shira & Associates. Products are considered originating under the agreement if they meet one of the following requirements:
– wholly obtained in Vietnam
– products produced in Vietnam incorporating materials which have not been wholly obtained there, provided that such materials have undergone sufficient working or processing within Vietnam.While raw materials from Vietnam and goods produced in Vietnam using Vietnamese inputs easily fall into the wholly obtained category, many goods contain materials or components imported from countries not party to a trade agreement.
- These goods must prove that what has been inputted have undergone specific levels of alteration within Vietnamese borders to tap into the benefits of the EVFTA. Many goods have set procedures – outlined in Protocol 1 of the EVFTA text – that must be completed within Vietnam for the goods in question to be considered originating.
