HOW CAN EUROPEAN BUSINESSES BENEFIT FROM THE EU- VIETNAM FREE TRADE AGREEMENT?
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HOW CAN EUROPEAN BUSINESSES BENEFIT FROM THE EU- VIETNAM FREE TRADE AGREEMENT?
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HOW CAN EUROPEAN BUSINESSES BENEFIT FROM THE EU- VIETNAM FREE TRADE AGREEMENT?
- 1. www.duanemorris.com ©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris – Firm and Affiliate Offices | New York | London | Singapore | Los Angeles | Chicago | Houston | Hanoi | Philadelphia | San Diego | San Francisco | Baltimore | Boston | Washington, D.C. Las Vegas | Atlanta | Miami | Pittsburgh | Newark | Boca Raton | Wilmington | Cherry Hill | Princeton | Lake Tahoe | Ho Chi Minh City | Duane Morris LLP – A Delaware limited liability partnership OLIVER MASSMANN - Partner, General Director DUANE MORRIS VIETNAM LLC HOW CAN EUROPEAN BUSINESSES BENEFIT FROM THE EU- VIETNAM FREE TRADE AGREEMENT?
- 2. www.duanemorris.com AGENDA: • OVERVIEW OF VIETNAM IN 2016 • OVERVIEW OF THE EU- VIETNAM FREE TRADE AGREEMENT (EVFTA): UPDATE ON THE PROGRESS • MARKET ACCESS COMPARISON OF CERTAIN COMMERCIAL SECTORS IN THE WTO, AEC AND EVFTA • CONCLUSION 2
- 3. www.duanemorris.com Vietnam 2016 Economy at a glance •GDP: US$200 billion •GDP per capita: US$2,215 •GDP Growth: 6.21 % (compared to 6.68% in 2015 and 5.98% in 2014) •Inflation: 1.83% •Population: About 91.70 million •Labor force aged 15 and above: 54.61 million •Total export and import turnover: : US$349.2 billion (6.5% increase) •Minimum wage (for Area I): VND 3,750,000 (US$ 168) per month (from Jan 2017) •Vietnam reached the 60th position in 2016 on the Global Competitiveness Index (GCI) list. •Vietnam tops 6 European Union (and 7 further European) countries on the GCI list. 3
- 4. www.duanemorris.com Vietnam – From 1980s till now 4 1980s – Rice Importer Now – 2nd Rice Exporter Worldwide
- 5. www.duanemorris.com EU – Vietnam Free Trade Agreement (EVFTA) 5
- 6. www.duanemorris.com EVFTA – Bilateral negotiations 6 Launch of negotiations First round in Hanoi 15 rounds alternately in Vietnam and Brussels Last round in Hanoi Agreement in principle 06/2012 10/ 2012 Conclusion of negotiation FTA text released
- 7. www.duanemorris.com What happens next? 7 EVFTA should be taken into effect Translation into all European languages EVFTA should be signed Legal review Current Status Middle 2017 Early 2018
- 8. www.duanemorris.com EVFTA – Comprehensive agreement • Trade in goods Market access for goods – tariffs Rules of Origin Export duties Technical Barriers to Trade (TBT) Sanitary and Phytosanitary Measures Customs and Trade Facilitation Administrative Cooperation in Customs Matters • Services and investment: National treatment Liberalisation commitments / market access Investment to state dispute settlement 8 Cross-cutting issues Dispute Settlement and Investment Dispute Settlement Government Procurement State Owned Enterprises & Subsidies Intellectual Property Rights Geographical Indications Trade and Sustainable Development Cooperation and Capacity building Annexes (car; green tech and pharma)
- 9. www.duanemorris.com EVFTA – Main features Symmetrical elimination of nearly all tariffs (over 99%) Removal of almost all export duties and cap on remaining ones Services commitments going beyond GATS Negotiations on Investment protection and disputes settlement on-going 9
- 10. www.duanemorris.com EVFTA – Tariff Liberalization • Tariff liberlization: – 99% of tariffs both value and number of tariff lines – After 7 years for EU – Vietnam 10 years • Coverage at entry into force: – 71% of value of Vietnamese exports / 84% tariff lines – 65% value of EU exports / 49% tariff lines 10
- 11. www.duanemorris.com EVFTA – Benefits for Vietnam • Vietnam’s annual economic expansions rate may grow an additional 15% every year (said Tomaso Andreatta, representative of the European Business Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014) • Tariffs for most of Vietnamese export product to the EU will gradually reduce to 0% and Vietnam’s export to EU is expected to grow about 35% for next few years • The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13% • The EVFTA is the legal framework for a more stable relationship in bilateral trade for Vietnam when competing in the international market • The EVFTA will generate greater effects, e.g. increased quality of investment flows from EU, acceleration of the process of sharing expertise and transfer of green technology and the creation of more employment activities 11
- 12. www.duanemorris.com EVFTA – Benefits for the European Union • 23 of the 27 member states of the EU (UK not included) are trade partners of Vietnam • Investment protection for Vietnam’s third largest (2015) investor • Improvement of intellectual property rights • Better access to EU’s third important trading partner - ASEAN 12
- 13. www.duanemorris.com Government Procurement • Average government procurement in the EU is about 16 percent • Vietnam has one of the highest government procurement rates of all countries worldwide (with about 39 percent) • Vietnam is not a member of the Government Procurement Agreement of the WTO • Vietnam undertakes to transparency and procedural fairness regulations • Investors will get access to a huge market of government procurement 13
- 14. www.duanemorris.com Conflict Resolution • EVFTA secures a modern reformed investment dispute resolution standard • Independent International Tribunal will be competent to all conflicts about investment protection provisions (5 year transitional period for Vietnam) • A court of Appeal will be established • UNCITRAL rules on transparency in treaty-based investor-state arbitration are implemented which guarantees a high standard of juridical transparency • The decisions of the tribunal are enforceable and cannot be questioned by local jurisdiction 14
- 15. www.duanemorris.com Opportunities and challenges in some specific sectors 15
- 16. www.duanemorris.com Automotive • Almost fully liberalization of EU machinery and appliances exports • EU exported car parts will be duty free after seven years • Cars and motorcycles will be duty free after ten years • 3 years after the FTA comes into effect, Vietnam will accept UNECE (standards adopted from the EU, U.S., Russia and many other states which settle e.g. Worldwide harmonized Light vehicle Test Procedures) certification without any further testing requirements • Demand for automobiles in Vietnam is at no other time set to surge like this moment • Vietnam is going to be the new production hub in Asia for the machinery and especially automotive tier two manufacturing industry where several German and European automotive companies already experienced their own success story 16
- 17. www.duanemorris.com Pharmaceutical Products • Already 8% of EU exports to Vietnam (2015) • Improvement of intellectual property right • Simplification of marketing authorization • Centralized procurement system for pharmaceuticals which will legally secure market access 17
- 18. www.duanemorris.com Alcoholic Beverages • Geographical Indications will be better protected • Tariffs for alcoholics will be reduced after 7 or 10 years • Vietnam removed /decreased restrictions in manufacturing of beverages 18
- 19. www.duanemorris.com Challenges • As the market will be much more open, a high level of competitiveness will reach Vietnam’s companies • Especially the sellers of electrical products, cars, motorcycles and machinery will get to know a new level of business competition • The challenge will be to maintain and improve the standards of labor rights, environmental protection and sustainability even though the price pressure will increase • The income from tariffs will be reduced 19
- 20. www.duanemorris.com Impacts • EVFTA will make trading more transparent and competitive • It will be much easier for investors to access new markets in Vietnam • A high quality standard is settled • Intellectual property will be safer 20
- 22. www.duanemorris.com Supervision on Sustainable Development • A Committee on Trade and Sustainable Development will monitor the realization of the FTA’s chapter regarding economic growth, sustainable social development and environmental protection • Additionally the EU and Vietnam will set up Domestic Advisory Groups, consisting of civil society representatives, employers’ and workers’ organizations, business groups, and environmental organizations 22
- 23. www.duanemorris.com MARKET ACCESS COMPARISON OF CERTAIN COMMERCIAL SECTORS IN THE WTO, AEC, EVFTA 23
- 24. www.duanemorris.com Notes regarding the market access commitments • The WTO, AEC and EVFTA take a positive approach, meaning what is open to foreign investment is listed. • In WTO Market Access Service Sector the principle applies: Who does not ask and demand might not get the market access for investment. There is NO Automatic Right for Market Access for the WTO members in the WTO Services Sectors in principle. 24
- 25. www.duanemorris.com Distribution sector WTO / AFAS EVFTA The establishment of outlets for retail services (beyond the first one) shall be allowed on the basis of an Economic Needs Test (ENT) Same as in the WTO / AFAS but added the following: In case of establishing an outlet less than 500m2 within the area planned for trading activities and already completed construction of infrastructure, ENT is not required. 5 years from the date of entry into force of the Agreement, the requirement of the ENT will be abolished. 25
- 26. www.duanemorris.com Power/ Energy Sector WTO / AFAS EVFTA N/A Unbound (meaning no commitment) regarding: - Production of electricity; transmission and distribution of electricity on own account - Manufacture of gas; distribution of gaseous fuels through mains on own account - Production of steam and hot water; distribution of steam and hot water on own account Other sub-sectors: not included (meaning no commitment) in the service schedule. 26
- 27. www.duanemorris.com Transport Services 27 Maritime Transport WTO = AFAS EVFTA Internal Waterways Transport WTO AFAS = EVFTA WTO = EVFTA AFAS Air Transport Low High
- 28. www.duanemorris.com Transport 28 * Mode 1: cross-border supply Mode 3: commercial presence
- 29. www.duanemorris.com Insurance Services EVFTA WTO / AFAS No commitment regarding cross- border supply of health insurance services Non-life branches of foreign insurance enterprises shall be permitted subject to prudential regulations. No specific conditions are specified, meaning the Government can adopt conditions as it wishes to. No restriction regarding cross- border supply of health insurance service Same as EVFTA 29
- 30. www.duanemorris.com Securities services WTO/ AFAS EVFTA Commitments on 6 sub-sectors Mode 3: foreign securities service suppliers are permitted to establish representative offices and joint ventures with maximum foreign ownership of 49%. After 5 years from the date of accession, securities service suppliers with 100% foreign-invested capital shall be permitted. Same commitments in 6 sub-sectors Commitments on 2 additional services: Provision and transfer of financial data processing; and credit reference and analysis. Mode 3: Same as the WTO/ AFAS 30
- 31. www.duanemorris.com Telecommunication Services 31 Sub-sectors WTO/ AFAS EVFTA Non facilities-based services Other services - Virtual Private Network (VPN) Mode 3: Joint venture with maximum 65% foreign ownership Mode 3: Joint venture with maximum 70% foreign ownership Mode 3: Upon entry into force, Joint venture with maximum 65% foreign ownership 5 years from the date of entry into force of the Agreement, this capital limitation will be 75%. Mode 3: Upon entry into force, Joint venture with maximum 70% foreign ownership 5 years from the date of entry into force of the Agreement, this capital limitation will be 75%.
- 32. www.duanemorris.com Government Procurement Criteria EVFTA Monetary values that determine whether procurement by central government is covered under an agreement 130,000 Special Drawing Rights (SDRs) (US$191,000) from 15 years since the entry into force of the agreement Initial transitional threshold: 1.5 million SDRs Procurement of construction services by central government entities Initial threshold: 65.2 million SDRs After 15 years, 8.5 million SDRs Entities covered 22 central government bodies (added the Ministry of Public Security) 42 other entities: added two state-owned enterprises (Vietnam Electricity and Vietnam Railways) and two universities (Vietnam National University – Hanoi and Vietnam National University – Ho Chi Minh City) Sub-central government coverage: Adds 2 cities: Hanoi and Ho Chi Minh – expansion of the list within 15 years since the entry into force of the agreement Exclusion of preferences for SMEs Broad exclusion Application of offsets Based on value of a contract 32
- 33. www.duanemorris.com Conclusion • EVFTA will open a more secure and transparent investment and trading market supported by a new dispute resolution system • European investors get access to a group of 90 million consumers and a young and dynamic workforce • Vietnam will reduce many of its strict regulations and opens up; it will get the chance to establish itself as a worldwide trading partner and will get more independent from China 33
- 35. www.duanemorris.com DUANE MORRIS VIETNAM LLC Thank you very much! HANOI OFFICE HO CHI MINH CITY OFFICE Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower 83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1 Hanoi, Vietnam Ho Chi Minh City, Vietnam Tel.: +84 4 39462200 Tel.: +84 8 3824 0240 Fax: +84 4 3946 1311 Fax: +84 8 3824 0241 Contact email: omassmann@duanemorris.com 35