EU-VIETNAM FREE TRADE AGREEMENT AND INVESTMENT PROTECTION AGREEMENT – UNMATCHED LEVELS OF MARKET ACCESS AND LEGAL CERTAINTY – WHAT YOU MUST KNOW

1. EU-VIETNAM FREE TRADE AGREEMENT AND INVESTMENT
PROTECTION AGREEMENT – UNMATCHED LEVELS OF MARKET
ACCESS AND LEGAL CERTAINTY – WHAT YOU MUST KNOW
On 8 June 2020, Vietnam’s National Assembly ratified the EU-Vietnam Free Trade Agreement (EVFTA)
and Investment Protection Agreement (EVIPA) following almost 10 years of negotiations. On 12 February
2020, the European Parliament gave it consent to the ratification of the EVFTA and EVIPA. On 30 March
2020, the Council of Europe ratified the EVFTA . Finally, on 1 August 2020, the landmark agreement
entered into force. Regarding the EVIPA, the Vietnamese Government has provided the EU Delegation
with a diplomatic note providing notification of the National Assembly’s ratification of the EVIPA, pending
endorsement of the Member States’ parliaments.
The implementation of the EVFTA has, to date, shown many positive results. This is particularly
meaningful for both Vietnam and the EU in this period when world economies are suffering from the
consequences ofCOVID-19. For instance, the total value of Vietnam’s exports to the EU market reached
US$ 27,65 billion in December 2020, a dramatic increase of 55.3 per cent compared to December 2019.[1]
In addition, the Ministry of Industry and Trade announced that it has granted approximately 24,000 sets of
Certificate of Origin with a turnover of nearly US$ 1 billion eligible for EU tariff preferences within less
than 3 months of the EVFTA coming into force . As of mid-January 2021, exports to the European Union
accounts for USD 12.90 billion for the following products: mobile phones and accessories, computers,
electronic products and components, textiles, other machinery, equipment, tools and spare parts, footwear
of all types, wood and wooden products, and fishery products.
I. LEGAL ENVIRONMENT
1. General market access for goods and services
The EVFTA is the most comprehensive and ambitious trade and investment agreement that the EU has ever
concluded with a developing country in Asia. It is the second agreement in the ASEAN region, after
Singapore, and it helps to intensify bilateral relations between Vietnam and the EU. Vietnam now has access
to a market of around 448 million people and an average GDP of US$13,918 billion (with the exception of
2020 due to Covid-19’s impacts on the economy).[2] Meanwhile, exporters and investors from the EU also
have further opportunities to access one of the largest and fastest-growing countries in the region.
According to a report released in early 2020 covering 130 cities worldwide,[3] Hanoi and Ho Chi Minh
City are ranked among the top-10 most dynamic cities due to their low costs, rapid consumer market
expansion, strong population growth, and transition towards activities attracting significant amounts of
Foreign Direct Investment (FDI). According to the World Bank, Vietnam has one of the fastest-growing
economies in the world — 7.1 per cent GDP growth in 2018, and 7.0 per cent in 2019, 2.91% for
2020.[4] Even though this is the lowest GDP growth level of the country in the last 10 years due to impacts
by the novel corona virus, it is still among the world’s highest, especially comparing to neighbouring
countries such as Singapore that saw a GDP growth of approximately minus 6.
In addition, Vietnam has the fastest-growing middle class in the region. Vietnam’s middle class accounts
for 13 per cent of the total population and this figure is expected to become 26 per cent by 2026.[5]
Vietnam’s super-rich population[6] is also growing faster than anywhere else, and there is no doubt that it
will continue to rise over the next ten years.
Market access for goods

2. Nearly all customs duties – over 99 per cent of the tariff lines – will be eliminated in the next 10 years. The
small remaining number will be partially liberalised through duty-free quotas. As Vietnam is a developing
country, it has liberalised around 65 per cent of the value of EU exports, representing around half of the
tariff lines, at entry into force. The remaining duties will be eliminated over the next decade. This is an
unprecedented, far-reaching tariff elimination for a country like Vietnam, proving its aspiration for deeper
integration and trading relations with the EU.
Meanwhile, the EU agreed to eliminate duties for 84 per cent of the tariff lines and 71 per cent of its trade
value for goods imported from Vietnam from 1 August 2020. Within seven years from the effective date of
implementation, more than 99 per cent of the tariff lines will have been eliminated for Vietnam. This is a
wider reduction compared with the 95 per cent of the tariff lines that the former TPP countries offer to
Vietnamese imports. In the ASEAN region, Vietnam is the top country in exporting goods to the EU.
However, the market share of Vietnam’s products in the EU is still small. Because of the EVFTA, the
sectors that will benefit most are the main export sectors that used to be subject to high tariffs from the EU
including textiles, footwear, and agricultural products. The EU is also a good point for Vietnam to reach
other further markets.
Vietnam benefits more from the EVFTA compared with other such agreements, since Vietnam and the EU
are considered two supporting and complementary markets. In other words, Vietnam exports goods that the
EU cannot or does not produce itself (i.e. fishery products, tropical fruits, etc.) Meanwhile, the products
imported from the EU are also those Vietnam does not produce domestically, including machinery, aircraft,
and high-quality pharmaceutical products.
With better market access for goods from the EU, Vietnamese enterprises can source EU materials,
technology, and equipment at a better quality and price. This, in turn, improves their own product quality
and eases Vietnam’s burden of over-reliance on its other main trading partners.
The EVFTA is considered as a template for the EU to further conclude FTAs with different countries in
ASEAN with the ultimate aim of concluding a region-to-region FTA once there is a sufficient critical mass
of agreements with individual ASEAN countries.[7] This process could take about 10-15 years. Thus,
Vietnam should take advantage of this window of opportunity, before FTAs with others in the region are
concluded and take effect, to become a regional hub.
Market access for EU service providers: Although Vietnam’s WTO commitments are used as a basis for
the services commitments in the EVFTA, Vietnam has not only opened additional (sub)sectors for EU
service providers, but also made commitments deeper than those outlined in the WTO, offering the EU the
best possible access to Vietnam’s market. (Sub)sectors that are not committed under the WTO, but under
which Vietnam has made commitments, include Interdisciplinary Research & Development (R&D)
services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and
exhibitions services and building-cleaning services.
When these reach international standards, Vietnam will have the chance to export high-quality services,
resulting in not only an increase in export value but also export efficiency, thus helping to improve the trade
balance.
Government procurement
Vietnam has one of the highest ratios of public investment-to-GDP in the world (39 per cent annually from
1995).[8] However, until now, Vietnam has not agreed to its Government procurement being covered by
the Government Procurement Agreement (GPA) of the WTO.[9] Now, for the first time, Vietnam has
undertaken to do so in the EVFTA.

3. The FTA commitments on Government Procurement mainly deal with the requirement to treat EU bidders,
or domestic bidders with EU investment capital, equally with Vietnamese bidders when the Government
purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to follow the
general principles of National Treatment and Non-discrimination. It will publish information on intended
procurement and post-award information in Bao Dau Thau (Public Procurement Newspaper)[10] and
information on the procurement system at muasamcong.mpi.gov.vn and the official gazette in a timely
manner. It will also allow sufficient time for suppliers to prepare and submit requests for participation in
responsive tenders and maintain the confidentiality of bidders The FTA also requires its parties to assess
bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices
and tender documentation, and create an effective regime for complaints and settling disputes.[11] These
rules require parties to ensure that their bidding procedures match the commitments and protect their own
interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service
providers.
Government procurement of goods or services, or any combination thereof, that satisfy the following
criteria falls within the scope of the EVFTA Government Procurement rules:
Table: Government Procurement Rules under the EVFTA
Criteria FTA
Monetary values that determine
whether procurement by central
Government is covered under an
agreement
130,000 Special Drawing Rights (SDRs) (US$191,000) after 15
years from the entry into force of the agreement
Initial transitional threshold: 1.5 million SDRs (US$2.23
million)
Procurement of construction services
by central Government entities
Initial threshold: 40 million SDRs (US$58.77 million)
After 15 years :, 5 million SDRs (US$7.35 million)
Entities covered 22 central Government bodies
42 other entities (including 2 utility-related state-owned
enterprises, 2 universities, 2 research institutes and 34 public
hospitals under the control of the Ministry of Health)
Sub-central Government coverage: including Hanoi and Ho Chi
Minh City
Exclusion of preferences for SMEs Broad exclusion
Application of offsets Based on the value of a contract
Investment Dispute Settlement

4. This is now covered in the EVIPA. In disputes regarding investment (for example, expropriation without
compensation or discrimination of investment), an investor is allowed to bring the dispute to the Investment
Tribunal for settlement. To ensure the fairness and independence of the dispute settlement, a permanent
Tribunal will be comprised of nine members: three nationals each appointed from the EU and Vietnam,
together with three nationals appointed from third countries. Cases will be heard by a three-member
Tribunal selected by the Chairman of the Tribunal in a random manner. This is also to ensure consistent
rulings in similar cases, thus making the dispute settlement more predictable. The EVIPA also allows a sole
Tribunal member where the claimant is a small or medium-sized enterprise or the compensation of damaged
claims is relatively low. This is a flexible approach considering that Vietnam is still a developing country.
In case either of the disputing parties disagrees with the decision of the Tribunal, it can appeal to the Appeal
Tribunal. While this is different from the common arbitration proceeding, it is quite similar to the two-level
dispute settlement mechanism in the WTO (Panel and Appellate Body). We believe that this mechanism
could save time and costs for the whole proceedings.
The final settlement is binding and enforceable from the local courts regarding its validity, except for a
five-year period following the entry into force of the EVIPA (please refer to further comments in the Legal
Sector Committee’s chapter on Judicial and Arbitral Recourse).
Conclusion
The EVFTA has created sustainable growth and mutual benefits in various sectors and is, by all means, an
effective tool to balance trade relations between the EU and Vietnam. Vietnam is making continuous efforts
and progress to meet the high standards set out in the EVFTA, and is currently offering greater opportunities
for foreign businesses entering Vietnam’s market. It is now time for foreign investors to implement their
business and investment plans and grasp these amazing opportunities.
For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under
omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam
LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer
presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.