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EU approves free trade agreement with Vietnam

The European Commission just cleared a new agreement that will eliminate most taxes on, which might lead to a big commercial boost between countries in the EU and Vietnam.

1. In what consists this pact and what are its advantages?

European Union managed to close a Free Trade Agreement with the Socialist Republic of Vietnam, which will clear off almost 99% of barriers on tariff lines currently existing between the two areas.

Tariffs of 71% on Vietnamese exports and on 65% of EU will be eliminated once the agreement enters into force, after the vote in National Assembly of Vietnam, and the remaining restrictions being eliminated gradually during the next decade. As emphasized by Mr. Geert Bourgeois (Member of European Parliament) “it’s the most comprehensive trade agreement with middle-income country and the aim is, of course, removing barriers from 99% of the products[…] which will give boost in export in both directions”.

For European Union it represents the possibility for the companies and products of Member-States to enter into the world’s fastest growing emerging market of 98 million people, most of it young and active population, exporting strategical products from south Europe such as wines, olives, olive oil, cork, dairy and agricultural products and to bring EU’s top exportation products – such as machinery, vehicles, farmaceuticals, mineral fuels, plastics, optical, technical, medical apparatus and instruments, organic chemicals, iron and steel as well as aircrafts – into Vietnam.

Vietnam is already a big exporter of electronics, textiles and garment, rice, coffee, rubber, coal and exotic fruits and this agreement means for the country the possibility to enter into a market of 400 million people without restrictions. European Union also demanded Vietnam to sign ILO covering a wide area of social and labor issues including basic human rights, minimum wages, industrial relations, employment policy, social dialogue, social security and other issues, rights of labour unions which will mean the increase of security and protection of workers in the country, the sedimentation of basic human rights which means the promotion of the general welfare.

Although this is a trade agreement, Vietnam will also abide by the United Nations Framework Convention on Climate Change of 1992, Paris Agreement and Kyoto Protocol.

2. How can this increase business between Portugal and Vietnam?

Portugal produces strategic goods and can implement companies which can be of interest to Vietnam in the same way as Vietnam can exports products, settle and open strategic company branches in Portuguese territory.

Over three-quarters (77.1%) of Portuguese exports by value are delivered to European countries and the remaining to international clients in Africa (6.9%), North America (6.1%), Asia (4.9%), Latin America (2.3%) excluding Mexico but including the Caribbean then Oceania (0.4%) led by Australia.

Portugal’s top exports include pig meat, wines, olive oil, copper ore, rolled tobacco, refined petroleum, vehicle parts and uncoated paper.

Portugal has started to invest in vietnamese market already and last year managed to bring the famous Portuguese beer brand “Super Bock” to Vietnam and “Castelbel Porto, a Portuguese brand of high-quality bath, body and home scented products, traditionally handcrafted, also hit the Vietnamese market. Representatives of Portuguese wine brands have also been seeking to enter the Vietnamese market recently.

Vietnamese themselves are now appreciating and enjoying foreign products and brands due to the rapid increase of capital accumulation and private consumption, such as red wines, smoked products, cheese, olive oil and luxury brands, higher consumption of animal protein, and this implies that there is market, there are clients, sales and exportation opportunities for Portugal in the amazing golden period of investment in Vietnam.

On other hand, vietnamese fear the side effects of the trade war China-US, fear collateral damage due to its geopolitical and close relationship with China and are looking forward to explore new economic areas such Europe and Portugal offers a doorway into the European Union with portuguese’s foreign investment friendly policy which allows with a simplified and straightforward process the possibility of opening a bank account in a local bank, apply for a portuguese taxpayer number, opening a company without the need of doing it in joint venture with a local partner and apply to portuguese Golden Visa investment program through real estate, bank transfer, company, funds, granting the possibility to access a residence permit to the investor and closest family members including parents-in-law, working and living freely in Portugal, enjoying social and welfare protection as well as free travelling in Schengen Area for a maximum period of 90 days per Schengen country.

Due to the currently cheap labor cost in Vietnam the Portuguese industries also have an alternative to manufacture their products at low cost, settle companies, representation offices and branches with lower cost in rental and logistics than in other areas such as Macao, Hong Kong or China, which have high-cost in labor force, rental, logistics, restrictions to foreign companies and investment with an increasing aged population, beneficting from Vietnam’s strategic location in South Asia with a coast line of 3200 kms and with 70% of the population living in the coastal area.

3. Is Vietnam becoming a booming market?

Vietnam benefits from its geopolitical location close to China and close to other Asian financial centers such as Singapore, Hong Kong and Japan – one of Vietnam´s top business partners currently helping to develop infrastructures in the country such as subway system and has became a top choice option for moving industries from those areas into the country turning it into an important industry center.

The ongoing trade war between US and China is making Vietnam a big winner with industries increasingly looking to this southeast asian country as destination to manufacture their products, instead of China, avoiding the tariffs and forcing American companies to seek for alternatives to their supply chain, since it began to affect, mostly, small and medium companies who have seen the costs skyrocketing.

Importers are also moving from China to Vietname seeking cheaper labor costs – China wages have increased 60% since 2011 – and to manufacture basic consumer goods – increasingly disencouraged by the Chinese Government in order to foment tech, data and aerospacial industries.

Private consumption, manufacturing, industry and tourism are contributing to Vietnam´s GDP growth of 7% and foreign direct investment (FDI) rose 6,7% in 2019 reaching an amount as huge as $ 20.38B during the last year.

Vietnam opened its borders in the recent years to foreign investment, investing foreign experts and foreign companies to settle in the country and the country´s government decided to separate politics from economics, industrialized itself and the population started to move from farming activities to industry and services.

With a population of nearly 98 million, 70% of Vietnam´s population is under 35 years old, 15% is under 30 years, 70% living in coastal areas as referred above, which shows the great availability of labor force in order to build the country´s economy, this along with the already referred great geopolitical location, coastal area that allows the producers to quickly move and sell the products in Asia, stable politics, low wages, rated as one of the world’s top friendly countries towards foreigners, opened to foreign direct investments – all of this are just some of the reasons why the time to investment in Vietnam is now.

The content of this information does not constitute any specific legal advice; the latter can only be given when faced with a specific case. Please contact us for any further clarification or information deemed necessary in what concerns the application of the law.

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