Currently, Vietnam is one of the most active countries participating in free trade agreements (FTA) in the world. Vietnam has made serious efforts into improving its infrastructure, accelerating administrative reforms, abolishing economic barriers for market access. In addition, most of FTAs pay attention to fairness which drives Vietnam to improve its domestic business environment towards equality between state-owned and private enterprises; thereby attracting more foreign investment.
By the end of March 2019, Vietnam has signed 12 FTAs; 4 of the agreements are under negotiation.
The 12 signed FTAs are as below:
ASEAN – AEC
The establishment of the ASEAN Economic Community (AEC) had four primary targets. The most apparent, practical and actionable target was to eliminate economic barriers and materialize market that is free in transferring goods, services, investment, capital, and skilled workers.
So far, most of the commodities, except sensitive goods like petroleum and explosives, have been traded at import tax around 0 – 5% within ASEAN. Particularly, 99% of commodities from Vietnam benefit import tax exemption since 2010 which creates more competition of Vietnamese goods in the ASEAN market.
Moreover, the barrier-free transferring of skilled workers and investments would take advantage of the members’ strengths and shape the most prospective industries of each party. This generates not only better job opportunities for ASEAN community but also favorable conditions for recruitment of firms in the area.
ASEAN – Australia-New Zealand Free Trade Agreement (AANZFTA)
AANZFTA, a free trade agreement signed by Australia and New Zealand, including Vietnam as one of the eight ASEAN signatories, entered into force in January 2010.
Vietnam agreed to cut down import tax on 89.8% commodities imported from Australia, New Zealand and other ASEAN countries in exchange for 100% tariff lines eliminated when exporting to Australia and New Zealand by 2020.
ASEAN – India Comprehensive Economic Cooperation Agreement (ASEAN-India CECA)
ASEAN and India went into the Framework Agreement on Comprehensive Economic Cooperation on October 8th, 2003. The Parties, on the basis of the Framework Agreement, signed an Agreement on Free Trade in Goods (effective on January 1st, 2010), an Agreement on Free Trade in Services (effective on July 1st, 2015) and an Agreement on Investment (effective on July 1st, 2015) with the aim of establishing an ASEAN – India Free Trade Area.
Although some industries in India need protection, the country has put great attempt to gradually cut down 80% tariff bringing more trade opportunities to ASEAN, especially Vietnam and its key agricultural goods like pepper, coffee, cashew nuts.
Furthermore, service and investment between India and ASEAN has promoted economic cooperation over the past years. ASEAN is receiving Indian OFDI following Japan, the United State, China and EU. After TPP was signed, more and more Indian enterprises are looking into the prospective investment chances of mechanics, textile and garment industries in Vietnam.
ASEAN – Japan Comprehensive Economic Partnership (AJCEP)
In April 2008, ASEAN and Japan signed the ASEAN – Japan Comprehensive Economic Partnership (AJCEP) which officially took effect on December 1st, 2008. The agreement includes commitments on trades in goods, services, investment and economic cooperation.
After ten years, the total export value between Vietnam and Japan witnessed a significant growth rate in two-way trade; Vietnam enjoyed a trade surplus of 141 million USD in 2018. Vietnam’s export staples to Japan in the recorded period were garments and textiles (537 million USD); transport vehicles (365.2 million USD); machines and equipment (259 million USD).
As committed, Japan will exempt 96.45% of total tariff lines for Vietnam originated goods by 2026, mainly for agricultural products, seafood, textile, footwear, wooden commodities, electronic parts, etc. Reciprocally, till 2025, 88.6% of total tariff lines of Japanese products shall be removed when imported into Vietnam.
ASEAN – People’s Republic of China Comprehensive Economic Cooperation (ACFTA)
The China – ASEAN FTA, the greatest regional FTA in the world in terms of population, came into effect in 2005 for Agreement on Trade in Goods and Services, and in 2010 for Agreement on Trade and investment.
So far, China has cut down 95.35% of tariff lines. The rest sensitive goods committed to receiving import tax in the range of 5% – 50% are cereals and cereal originated products, coffee, tea, spices, petroleum, fertilizer, plastic material, fabrics, textile, leather footwear material, engines, cars and their components, furniture. The import taxes of these items are expected to be at the lowest 0% in 2019.
In spite of the fact that Vietnam market is becoming a lot more competitive, this agreement has put down obstacles of trade for ASEAN in general, and Vietnam in particular.
The participating parties have also pledged to reinforce attempts to meet the target of one trillion USD in trade and 150 billion USD in investment by 2020.
ASEAN – Korea Comprehensive Economic Cooperation Agreement (AKFTA)
Based on the Framework Agreement on Comprehensive Economic Cooperation signed in 2005, the two sides signed four other agreements including Agreement on Dispute Settlement Mechanism (effective in 2005), Agreement on Trade in Goods (effective in 2007), Agreements on Trade in Services and Investment (effective in 2009).
Vietnam committed to eliminating approximately 86% of total tariff lines, and the remaining 14% shall be reduced to 5% tax or partially reduced or kept at MFN rate. In return, 90.9% types of goods from Vietnam have been free traded when exporting to Korea with C/O from AK since 2010, and the rest 9.1% are tentatively either abandoned or partially lessened by Korea at the final stage of tariff schedule. Some kinds of items consisted in that 9.1% are fishery (shrimp, crab, frozen fish, canned fish), agricultural items (dairy products, honey, garlic, ginger, red bean, sweet potato), tropical fruits, and industrial products (such as garment, mechanical products…).
Vietnam – Chile Free Trade Agreement (VCFTA)
In November 2011, the Free Trade Agreement between Chile and Vietnam was signed attaching commitments on goods and goods related issues. The Agreement then took effect in January 2014. It was Vietnam’s very first FTA with a South American country,
The objective of this agreement was to facilitate easier market access, rules of origin, sanitary and phytosanitary measures, technical barriers, safeguards, etc.
On the Vietnam side, the government determined to offer Chile tax-free for 87.8% commodity ranges by 2028. In exchange, until 2029, Chile will abandon 99.62% of tariff lines, equivalent to 100% of the export value of Vietnam to Chile as of 2007.
Vietnam – Japan Economic Partnership Agreement (VJCEP)
Vietnam and Japan signed the Economic Partnership Agreement in December 2008. The agreement came into effect in October 2009 and stated more preferences between the two parties that agreed under the agreement. Nevertheless, VJEPA does not replace AJCEP, instead, they coexist together. Therefore, firms can flexibly choose the most favorable one to their certain situations.
By 2026, Vietnam’s commitment to removing 90.64% of tariff lines is to gain Japan’s deletion of 96.45% of tariff lines.
Vietnamese commodities that were traded free immediately after the agreement came into effect include electronic components, machines, devices, household electrical items, plastic and paper products. There are 1,261 ranges of agricultural goods exported from Vietnam enjoying 0% tax in 2019. Until the end of the roadmap, most preferential industries in Vietnam will be agriculture, seafood, textile, garment, footwear, electronics, and wood processing.
Vietnam – Eurasian Economic Union Free Trade Agreement (VCUFTA)
After Vietnam and the Eurasian Economic Union (EAEU) signed the Free Trade Agreement in May 2015. It was EAEU’s first FTA. The agreement then became effective in October 2016. EAEU consists of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan.
Commitments on EAEU side:
EAEU’s commitment to commodity openness for Vietnam can be divided into six following groups:
- Immediate tax exemption group (6,718 tariff lines)
- Roadmap-based tax exemption group (2,876 tariff lines)
- Immediate 25% tax reduction group (131 tariff lines)
- Uncommitted group (1,453 tariff lines)
- Threshold-protection-method-applied group (180 tariff lines focusing on textile and garment, footwear, and wooden products)
- Tariff quota group (for only rice and unprocessed tobacco leaves)
EAEU’s tariff-line-based commitment
on commodity openness
EAEU’s export-value-based commitment
on commodity openness
Commitments on Vietnam side
Vietnam’s commitment to commodity openness for EAEU can be divided into four groups as below:
- – Immediate tax exemption group
- – Roadmap-based tax exemption group
- – Other committed group
- – Uncommitted group
Vietnam’s tariff-line-based commitment
on commodity openness
Vietnam – South Korea Free Trade Agreement (VKFTA)
In May 2015, Vietnam and Korea signed the Free Trade Agreement (VKFTA) which came into force in December of the same year. In comparison with FTA between ASEAN and Korea (AKFTA), VKFTA denotes more preferences to both parties in terms of goods, services and investment. However, VKFTA does not replace AKFTA. Both the FTAs coexist and enterprises can choose the more favorable one to support their certain circumstances.
In VKFTA, 506 tariff lines on Korea side and 265 tariff lines on Vietnam side were committed to be added into the tax exemption list of AKFTA. Some Vietnam originated items are benefited such as fishery products (frozen and canned shrimp, crab, fish); agricultural products; tropical fruits, and industrial goods such as textile, garment, mechanical products, garlic, ginger, honey, red beans, and sweet potatoes.
According to the agreement, Korean firms being operated in Vietnam and Vietnamese firms being run in Korea will be treated impartially.
ASEAN – Hong Kong, China Free Trade Agreement (AHKFTA)
In 2017, ASEAN and Hong Kong (China) officially signed a Free Trade Agreement and a Bilateral Investment Agreement which are believed to be effective in 2019. At present, the particular terms about tariff reduction and abolishment are under consideration in ASEAN members as it seems that Hong Kong is more open to goods from ASEAN than the other parties.
Furthermore, investments among these participating parties will be treated in an equal manner expecting a mutual benefit for the development of ASEAN as well as Hong Kong.
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
Started from TPP with twelve country members including the United States, Canada, Mexico, Peru, Chile, New Zealand, Australia, Japan, Singapore, Brunei, Malaysia and Vietnam, CPTPP was eventually signed in March 2018. The agreement became effective in Vietnam in January 14, 2019.
Beside the most crucial goal of every FTA as traditional commerce of goods, services and investment, CPTPP shows its concern to varying aspects such as public procurement, e-commerce, state-owned enterprises, small and medium enterprises, competition policies, intellectual possession, workforce, environment, transparency and anti-corruption, cooperation, and dispute settlement.
In general, the parties in CPTPP commit fairly high openness to Vietnam with 78 – 95% tariff lines exempted immediately once the agreement came into force. Especially, many Vietnamese export staples enjoy 0% tariff at once or after 3 – 5 years like agricultural products, seafood, textile and garment, footwear, wooden items, electronic and electrical commodities, rubber, etc.
Related: Why Is Vietnam The World’s Factory?
Vietnam is poised to profit greatly from these free trade agreements that facilitate both national and international business communities. The principles of these frameworks are to drive economic growth through sound trade ties and economic co-operation. Further integration in global and regional supply chains, increased FDI, and growing market share will create trade opportunities for many sectors.
If you are interested in exploring more about the emerging business opportunities in Vietnam, feel free to contact Seavestor.