Tuesday, August 11, 2015

EU and Vietnam Conclude FTA Talks

The EU and Vietnam last week announced that they had concluded negotiations on a bilateral free trade agreement (FTA), with only legal clean-up and national ratification remaining to be done (although ratification can take quite some time, as has happened with the EU-Singapore FTA).  This is the second EU FTA with an ASEAN country, after the one with Singapore, and serves as an example of what can be expected of other ASEAN countries (Indonesia, Malaysia, Philippines and Thailand) in their bilateral FTAs with the EU as well as all of ASEAN in a regional EU-ASEAN FTA:
  • Customs duties will be reduced to zero levels for virtually all products (except sensitive agricultural items, as is usually the case). Vietnam will liberalize duties for 65% of imports upon entry into force, with the remainder liberalized over a 10-year period. The EU duties will be liberalized over a 7-year period, with the exception of agricultural products which would be subject to tariff rate quotas (including canned tuna, a major item for Thailand).  EU duties on textiles would be lifted mostly at the back-end, and textiles would be subject to strict rules of origin (most ASEAN countries also have large textile industries).  Vietnam will also eliminate almost all of its export duties, with the remainder subject to limitations (export duties would be a major issue for Indonesia).
  • Non-tariff barriers would be addressed, particularly for IT, food, electrical appliances and automotive products (which will have its own regulatory annex).   Vietnam also agreed to accept a “Made in EU” mark of origin for EU products.  These mutual recognition requirements will ease EU-Vietnam trade.
  • Geographical indicators, an EU priority, were specifically adopted by the FTA. 
  • Government procurement is included, with EU companies able to bid on Vietnamese public offers by national ministries, state owned enterprises and the Ho Chi Minh City and Hanoi municipal governments.  The question is what thresholds will be set for those requirements (these and other aspects of government procurement will be difficult issues for the other ASEAN members, except for Singapore which signed the WTO government procurement agreement).
  • State-owned enterprises (SOE’s) will be subject to competition and transparency requirements, with the EU claiming that “[t]hese are the most ambitious disciplines that Vietnam has ever agreed to” (we’ll have to see how these compare with the Trans Pacific Partnership SOE  clauses).
  • Intellectual property protection would be increased, with a special annex on pharmaceuticals.
  • Services sectors would have increased market access,  particularly for business services, environmental services, postal and courier services, banking, insurance and maritime transport. 
  • Investment in Vietnam was liberalized for food products and beverages, fertilizers and nitrogen composites, tires and tubes, gloves and plastic products, ceramics, construction materials, marine engines, appliances and bicycles (many ASEAN countries have exempted food products from the ASEAN Comprehensive Investment Agreement, so this could become an issue for them in future FTA talks with the EU). 
  • Dispute resolution is still under negotiation, but the EU notes that arbitration panels, the cornerstone of investor-state dispute resolution, is intended as a last resort for dispute settlement.
  • Labor, environment, climate change, human rights and corporate social responsibility will be covered by the FTA, although the full details were not released (all of these issues could be problematic for the other ASEAN members).

As noted above, the EU-Vietnam FTA will put pressure on other ASEAN members to conclude their own FTA talks with the EU, particularly for Indonesia, Malaysia and Thailand which have lost their tariff preferences under the EU’s Generalized System of Preferences. However, if Vietnam could overcome these not-insignificant obstacles to concluding its own agreement with the EU, so could these countries if they so chose. Even then, domestic politics in the EU could also affect the ratification process, especially with regard to the military regime in Thailand (although Thailand is now the coordinating country for ASEAN-EU relations) and any potential backtracking in the Myanmar political reform process. 

In any event, the EU-Vietnam FTA provides further impetus for both the ASEAN countries’ bilateral FTA talks with the EU, the potential resumption of the ASEAN-EU FTA talks on a bloc-to-bloc basis, and even the Trans Pacific Partnership and the Regional Comprehensive Economic Partnership agreement talks (as the agreement shows that there are other trading partners out there for ASEAN).