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【Economy】EVFTA ready to start! How the trade deal will boost Vietnam Sourcing for the EU market?


Date: 2020-07-24

News Type: Marketing News


After a decade of talks and negotiations, the European Vietnam Free Trade Agreement (EVFTA) has been ratified by the Vietnamese assembly. The trade deal will likely take effect on the 1st August 2020. Vietnam has long been seen as the ‘Workshop of the World’ with its ever-growing manufacturing sector and this trade deal should only support this expansion. It will reduce tariffs on products imported into the EU market over the course of 7 years, with some commentators pointing to 44% increase in imports.


🚩 The Current State of Vietnam Manufacturing

Even before this Pandemic, a lot of companies (particularly US-based) were looking to spread their Asian sourcing across the region. This has ensured that they were not too dependent on one market. Certainly, Vietnam sourcing was a key component of this strategy. However, the country’s manufacturing sector was at full capacity.
To a point, there have always been limitations in terms of scale and supplier networks. For the first, you just have to look at the population when compared to China; circa 90 million as a total population against 1.6 billion people. In fact, the migrant worker population within the Chinese manufacturing sector is still estimated as 300 million strong.
Secondly, Vietnam has often relied upon other markets for raw material supplies and accessories. This added to both lead time and also price.


🚩 EVFTA & The Future

This trade deal will reduce the tariffs on imports into the EU, almost all tariffs over a 7 year period. The good news is that after the deal takes effect, under the GSP regime, the EU will eliminate approximately 85% of import tariffs on Vietnamese goods. Conversely, it reduces barriers for EU businesses to invest and operate within Vietnam. This is all at a time when trade wars, protectionism are on the rise and the Pandemic has disrupted sales markets globally. Undoubtedly, this will open up the manufacturing sector to additional investment, both domestic and international, as companies look to take advantage of the available labor, rates and manufacturing opportunities.

🚩 The key role of raw materials

One point that is pertinent to the benefits of this Free Trade Agreement is centred on the rules of origin that will qualify for the Certificate of Origin being issued and the reduction in the duty on import. In the past, Vietnam has been reliant on the import of raw material coming in from overseas. Consequently, some industries are going to enhance their local supply chains to take advantage of this deal.


🚩 New opportunities for European Retailers.

Vietnam will undoubtedly benefit from the EVFTA. European retailers will see more opportunities to leverage their connections with South East Asia. This coupled with the fall out from coronavirus and the rise in protectionism, will lead to an increased interest in the Vietnamese manufacturing sector. 


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