The free trade agreement between Vietnam and the Eurasia Economic Union (EAEU) (grouping Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan) was signed on May 29 after more than two years of negotiations, opening up a new chapter in the partnership between Vietnam and the union as well as each EAEU member nation in particular. The agreement is expected to be effective from early next year, after all signatories complete their domestic procedures
The recent efforts in widespreading information on the FTA are demonstrating the determination of the Government to support businesses to benefit opportunities and overcome challenges. Vietnam enterprises are encouraged to learn technical content of the Agreement and the tariff reduction schedule of specific sectors of this FTA. Domestic firms should enhance their understanding of the FTA to overcome difficulties, raise product competitiveness and improve product quality to meet the strict requirements of these markets.
Opportunities for advantaged export commodities
EAEU have a very high tariff protection and Vietnam is the first country to be entitled to preferential tariff treatment on the market. According to experts of the Ministry of Industry and Trade, in comparison with other FTAs, FTA Vietnam - EAEU is expected to bring new opportunities for advantaged export commodities Vietnam. In fact, the agreement will abolish 90 percent of tax lines, equivalent to 90 percent of bilateral trade turnover. Nearly 100 percent of Vietnamese seafood products and 80 percent of garment and textile and leather and footwear items will enjoy 0 percent tariff rates.
Other tax lines would be abolished in accordance with a committed route. Many farm produce and wooden items would be imposed low tax rates.
FTA commitments will include cutting 82 percent of tax lines on the garment-textile sector and 72 percent for the rubber sector.
According to Vietnam National Textile and Garment Group, the union’s annual import turnover of garment and textile products approximates US$17 billion. Of these, Vietnam holds only 2 percent with US$700 million due to tariff barriers. The turnover is expected to increase 50 percent thanks to tax cut.
Along with tarriff cuts, as compared to the FTAs that Vietnam is involved, the commitment to the rules of origin of the FTA Vietnam - EAEU is large aperture, creating favorable conditions for Vietnam's export goods. Especially with textile items which have been a big advantage when applying the rule of one stage C/O. Seafood and tea also benefit from application of rules of origin, which allow import of raw materials if they meet internal rate of 40%. For footwear, the agreement also applies the rules of origin for leather hat, and materials are still imported without requirement of 40% value added.
For its part, Vietnam agreed to open the market with a roadmap for the Union for some livestock products, a number of industrial products including machinery, equipment, vehicles ... According to a representative of the Ministry of Finance, these items basically do not compete with Vietnam goods which in return contribute to further diversification of the domestic market. On the other hand, exports from EAEU to Vietnam are mainly raw input materials for production. Therefore, the application of the preferential import tax rates for these items will help Vietnamese enterprises to lower the cost of input materials and enhance their competitiveness.
Pay attention to trade defense
Challenges seen from the FTA to Vietnam comprise long geographical distance, causing difficulties in goods transportation and preservation, and hindrances in payment with foreign currencies such as the U.S. dollar and euro.
According to experts from the Department of Competition of the Ministry of Industry and Trade, according to official statistics, EAEU initiated investigation and applied 12 cases of trade defence on Vietnamese products, of which 60% were steel and related products, others were chemical products, cooking facilities and vehicles. Steel products have to suffer the highest risk of being applied trade defense measure from EAEU because it may compete with steel produced in EAEU, while other products including seafood, garment, leather and farm products have high demand in EAEU markets, so that they may be not objectives of trade defense from EAEU.
The tariff reduction schedule: 53% of tariff lines would be immediately eliminated to 0% after the FTA takes effect. Three years later (in 2018) the two sides will continue to cut 1.5% of tariff lines (products from meat and vegetables, agricultural machine parts, transformers, pearls, precious stones...). 5 years after 2020, 22.1% of tariff lines (paper, seafood, furniture, machinery, vegetables, iron and steel products) will be cut and by 2022 the FTA will remove more than 1% of tariff lines (automotive spare parts, some types of engine automobiles, steel...). By 2026, 10% of tariff lines (beer, machinery, equipment, tools, spare parts, automobiles (trucks, buses, cars, cars over 10 seats) would be eliminated.