Vietnam: 6 key trade agreements every business should know

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Vietnam has signed most free trade agreements (FTA) in the Asia Pacific region. Suresh Kumar, TMF Vietnam Managing Director, outlines the major FTAs, their benefits and impact on business in 2016.

1. Vietnam–Korea free trade agreement

The Vietnam-Korea FTA was signed on 5 May 2015 to attract Korean investors; their management expertise and high technology to the country. The agreement will help create job opportunities and increase employee wages. Particularly for unskilled workers, this can assist in easing and eradicating rural poverty.

Under the FTA, Vietnam will liberalise 89.2% of all products imported from Korea. This includes: materials for apparel and plastic production, electronics, home appliances, certain steel products, electrical cables, auto parts, trucks and passenger cars of no more than 3,000 cubic centimetres. As most of the imports from Korea are materials for domestic production, the agreement will help Vietnam reduce its reliance on certain markets.

Likewise, Korea will remove 95.4% of tariff lines for imported goods from Vietnam including, crab and shrimp products, fish, fruits, furniture and manufactured goods.

2. Vietnam-Customs Union of Russia, Kazakhstan and Belarus free trade agreement

Also known as the Vietnam-Eurasian FTA, it was signed on 29 May 2015 with an aim to phase out tariffs on most goods traded between its member countries over the next 10 years.

Under the agreement, exports from Vietnam to Russia, Kazakhstan and Belarus will be expected to increase to US$12 billion in 2020 (from the current US$10 billion), while the tariffs for exports to the countries will drop to zero from 53% after the effective date.

Vietnam is the first country to sign with these Eurasian countries, and the agreement will make Vietnamese products more competitive compared with the other countries in the region.

3. Vietnam-U.S. Double Tax Avoidance Agreement

Though yet to be ratified, the Double Tax Agreement was signed on 7 July 2015 to help U.S. investors save their tax, costs or expenses when doing business in Vietnam. Business information is expected to be more transparent due to the article commitment on information exchange, which will increase investors’ confidence to invest in the country.

It is expected that the agreement can help increase the trading activities and volume between the two countries.

4. Vietnam-European Union free trade agreement

After more than two years of negotiations, the European Union and Vietnam have reached a conclusion to eliminate nearly all tariffs on goods traded between the two economies.

According to the European Commission, this FTA will improve the protection in Vietnam of Geographical Indications (GIs) representing EU flagship agricultural products, such as Champagne, Roquefort cheese and Scotch Whisky. Vietnam’s GIs will also be recognised as such in the EU for further promoting imports of quality products such as Moc Chau tea or Buon Ma Thuot coffee.

The agreement also includes a robust and comprehensive chapter on Trade and Sustainable Development, which covers related labour and environmental matters. It will also help Vietnam’s products be more competitive with China; as the country has not entered any free trade agreements with the EU.

5. Trans-Pacific Partnership Agreement

The TPP deal was finally signed on 5 October 2015. Though yet to be ratified in the US Congress and by other TPP country lawmakers, Vietnam stands out as the biggest beneficiary. The winners will be Vietnamese footwear, apparel, garment, seafood and pharmaceutical businesses – investors will need to manufacture in Vietnam and export to other TPP countries.

The agreement covers 40% of the world’s economy with a market size of 800 million people over the 12 member nations (USA,Canada, Australia, Mexico, Peru, Vietnam, Malaysia, Singapore, Chile ,New Zealand and Brunei).

6. The ASEAN Economic Community

The ASEAN Economic Community (AEC) was established with the aims of creating a united market and production base for ASEAN member countries; promoting the free flow of goods, services, investment, and skilled labour among ASEAN countries. The AEC will bring huge opportunities for Vietnam’s products with a unified ASEAN market of 600 million people and GDP of US$2.5 trillion.

According to the ASEAN free trade agreements (AFTA), most goods and services traded between ASEAN countries will be taxed at zero per cent after 31 December 2015. The tariffs and non-tariff removal will facilitate businesses to help cut the cost of imports, lower production costs, increase competitiveness and boost exports.

As Vietnam has eliminated the import taxes for about 80% of tariff lines, and will completely remove all kinds of tariff lines by 2018, it will be expected to receive a strong flow of direct and indirect investments not only from the ASEAN countries, but also other relevant countries such as Japan and Korea.

Although Vietnam’s business environment and economy can be improved for a sustainable growth by entering the above trade agreements, legislative changes are still required for:

• Social matters relating to labour, such as freedom to set up independent trade unions
• Equal treatment for public and private enterprises
• Intellectual property rights and protections
• Environmental protections
• State sector reforms

This liberalisation bodes well for Vietnam as it moves to integrate closely with the international community. Realistically though, this is a goal for the future and will not happen immediately.

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As a developing country, the Vietnamese economy expects sustainable growth in the next five to 10 years, which will offer more foreign direct investment and business opportunities. TMF Group Vietnam has the right expertise and knowledge of local rules and regulations to help you stay compliant, while your business aspirations thrive.