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European Council President Donald Tusk (L-R), European Parliament President Martin Schulz, EU Council General Secretary Uwe Corsepius, Italian Prime Minister Matteo Renzi and Greek Prime Minister Alexis Tsipras respect a minute of silence during a European Union extraordinary summit seeking for a solution to the migrants crisis, in Brussels April 23, 2015. EU leaders will effectively reverse a cutback in rescue operations the Mediterranean on Thursday to try to prevent record numbers of people drowning as they try to flee war and poverty in the Middle East and Africa. Reuters/Yves Herman

The European Union and Vietnam reached an in-principle free trade agreement. The deal will come into force in late 2017 or early 2018. This will be the second trade deal of EU in an ASEAN nation after Singapore.

The deal seeks removal of all tariffs on goods traded between the two sides. The annual trade between EU and Vietnam is worth US$30 billion (AU$40.74 billion). Vietnam's exports to the EU include telephones, electronic goods, footwear, clothing, coffee, rice, seafood and furniture. EU exports are dominated by electrical machinery, aircraft, vehicles and pharmaceuticals.

Under the FTA, Hanoi will liberalise 65 percent of import duties on EU exports and do away with other tariffs in a 10-year period. In 2014, Vietnam exported €22 billion (AU$32.61 billion) of goods to the EU.

Import duties

EU Trade Commissioner Cecilia Malmström said the deal will have clauses to protect rights of workers and for ensuring sustainable management of natural resources. According to the trade commissioner, the deal includes strict rules of origin for garments and use of fabrics made in Vietnam for preventing the abuse of the deal by making it a back door for Chinese products to flood the EU market.

Explaining the significance of the trade deal, Malmström said, “Over 31 million jobs in Europe depend on exports and having easier access to a growing and fast developing market like Vietnam with 90 million consumers will be great news.” Elsewhere in Asia, the EU runs a free trade deal with South Korea and is in talks with Japan and Malaysia.

Long negotiations

The in-principle agreement was clinched after 30 months of intense negotiations. It was finally announced after a telephone conversation between Malmström and Vietnamese Minister of Industry and Trade Vu Huy Hoang . Their dialogue hastened the agreement and both sides reached a mutually beneficial package.

In addition to eliminating tariffs, Vietnam will also remove all its export duties and ensure market access for services and investment. Vietnam also agreed to liberalise trade in financial services, telecommunications, transport and postal services.

GPA Rules

In the matter of government procurement, the EU and Vietnam will abide by Government Procurement Agreement rules of the WTO and seek more transparency comparable to other ongoing EU Trade Agreements with developed countries. According to the commissioner, the agreement will maintain a dedicated chapter on cooperation in implementing the GPA and have measures to assist Vietnam in reaping the deal’s full benefits.

The EU Trade Commissioner said sustainable development will be the corner stone of the bilateral trade cooperation. The deal’s areas of importance will include labour and environmental matters, trade facilitation, and small and medium-sized enterprises.

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