ASEAN Series: Vietnam

Published in ASEAN News on 28.10.2020

In our ASEAN series for possible alternative locations for diversified Asian business, this time we present Vietnam as a location.

This is of particular interest to EU companies as the Vietnamese National Assembly ratified the Free Trade Agreement between the European Union and the Socialist Republic of Vietnam on 8 June 2020, after the EU had already done so on 31 March 2020. The agreement will enter into force on 1 August 2020, coinciding with the current hot phase of economic disputes between the US and China.

It coincides with the comprehensive Partnership and Cooperation Framework Agreement between Vietnam and the EU, which will deepen economic and investment relations. It will provide Vietnam with capital and technology from Europe in addition to goods and services.

The duty free regime under the FTA covers both imports and exports of goods and services. The FTA includes the elimination of 99% of all tariffs on goods between the EU and Vietnam. 71% of import duties on Vietnamese products will be eliminated immediately upon entry into force of the agreement. The remaining 29% of tariffs will be eliminated over the next seven years.

Vietnam will eliminate 65% of all import duties on European goods from the entry into force of the FTA. European exporters will be able to see the various duty free products in the list with the transitional period. In return, the EU will waive import duties on products such as

electrical goods
Coffee
Seafood
furniture
Rice
Shoes
Telephone sets
Textiles and Clothing

The negotiating parties have also agreed on common standards in labour law, environmental protection and social development. With the authorisation of free trade unions, the ban on child labour and forced labour, and provisions on climate protection and species conservation, the agreements are intended to ensure that Vietnamese manufacturers also comply with EU standards.
Here you can find the guide to the agreement between the trading partners.

In the global context, too, the restructuring of global supply chains has largely favoured Vietnam compared to other ASEAN countries. Vietnam offers competitive costs, low wages, a developed infrastructure and tax incentives for many industries. The combination of these factors, together with the country's proximity to China, has allowed it to become the main winner of the US-China trade war without further incentives.

Nevertheless, the government is committed to further facilitating and making Vietnam's business activities more profitable and the country's economic development more sustainable. Recently, the government issued a decree granting preferential treatment to science and technology companies, ranging from corporate tax reductions and exemptions to credit incentives and exemptions or reductions in land and water lease fees. In addition, the government gives priority to investment in IT with work and tax incentives.

The government also announced a plan to privatise state-owned enterprises, with hundreds of companies being provided with state capital and sold by the end of 2020. This move represents an opportunity for investors in sectors such as agriculture and forestry, where Vietnam has a comparative advantage over its ASEAN neighbours due to low labour costs.

As regards Special Economic Zones (SEZs), Vietnam has started to expand its policy of development zones, and these zones offer their own incentives, ranging from free tariffs to low personal income taxes.

Guide to the EU-Vietnam Trade and Investment Agreements [english]