What Does the Eurasian Economic Union-Vietnam FTA Mean for Your Business?

By Maria Kotova, Senior Associate, Dezan Shira & Associates

The trade pact with the Eurasian Economic Union (EEU) was the second Free Trade Agreement (FTA) Vietnam has signed this year, following the deal with South Korea on May 5. Vietnamese goods will have the chance to enjoy duties as low as zero percent when entering these markets for the first time. Vietnamese exports to Russia currently have preferential tax treatments as per WTO regulations, and the EEU trade pact will leave the door open even wider.

The FTA will help to reduce export duties to zero from 10 percent and simplify many procedures. According to expert estimates, the savings on fees for exporters of EEU could be around US$40 million in the first year of the agreement, and about US$60 million at the expiration of the transitional period. Vietnamese companies as a result of the abolition of customs duties are expected to be eligible for savings of up to US$5-10 million per year.

RELATED: Dezan Shira & Associates’ International Tax Planning Services

Exports to the market in the first quarter of this year reached US$21.6 million, up 11 percent year on year, whereas declines were recorded from other main markets such as the EU, the U.S., Japan, and South Korea.

Russia is one of the most important markets for Vietnamese seafood exporters, according to the Vietnam Seafood Exporters and Producers Association. Therefore, Vietnamese firms will have the greatest advantage among all seafood exporters to Russia.

Market access

The FTA between the countries of the EEU Armenia, Belarus, Kazakhstan, and Russia, and Vietnam establishes mutual obligations to facilitate access of goods to the markets of member countries of the treaty.

Customs duties will be reduced to 88% of mutual trade of goods, where 59% will be reduced immediately and 29% – gradually within 5-10 years. Overall level of import customs duties of Vietnam for EEU products will be reduced from 10 to 1% by 2025.

As a separate annex to the agreement, Russia and Vietnam agreed to simplify market access in the services sector, and later other countries in the EEU can join this agreement as required.

The Agreement will open to entrepreneurs of EEU the opportunities to deliver to the Vietnamese market of about 90 million people, and by developing cooperative production in Vietnam, to enter the markets of other countries of ASEAN and entire Asian region. Based on the materials of Eurasian Economic Commission (EEC), measures to protect the domestic EEU market from possible risk of dumping or dramatic increase of imports due to the liberalization of Vietnamese trade will be provided.

Reduced customs duties

According to the ECE materials, Vietnam will reduce tariffs for EEU countries as the following:

• on dairy products from 20% to 0% without a transition period;
• on molasses from 10% to 0% without a transition period;
• on flax seeds – from 10% to 0% without a transition period;
• on potash 0 from 6% to 0% without a transition period;
• on gasoline – from 19% to 0% by 2027; and
• on trucks – from 17% to 0% within 10 years.

In addition, Vietnam will reduce tariffs as follows:

• on poultry from 20% to 0% within 5 years;
• on alcoholic beverages from 10% to 0% for 10 years;
• on tires from 5-30% to 0% within 5 years;
• on trucks from 30-40% to 0% within 10 years; and
• on cars – 50-70% to 0% within 10 years.

Elimination of customs duties may lead to increase of exports from EEU to Vietnam of such products as meat and dairy products, wheat, flour, cigarettes, fertilizers, oil and oil products, steel pipes and rolled tires and tire cars.

On the other hand, Hanoi will increase supplies to the EEU countries of fish, rice, fruits, vegetables, nuts, and light industry products, electronic equipment, leather goods, household different finished products.

On the most sensitive products of the EEU such as tea, coffee, sugar, canned cucumbers, starch, soluble drinks, pipes, cars, some types of light industrial products (e.g. coats, suits, etc.), the rates of customs duties for Vietnam will not be declined under the agreement.

Quotas will be introduced for a number of products. For example, Vietnamese side will be given a minimum quota for delivery of rice at a zero rate of customs duty – in the amount of 10 thousand tons. This quota does not exceed 5% of the total volume of rice imports from third countries and 20% of the average annual deliveries of rice from Vietnam to the EEU countries. Besides the quota is provided for long grain rice, which is not grown in the countries of the Union.

From Vietnam side, some customs duties will remain the same on certain types of finished meat products, confectionery, salt, industrial waste products of precious metals, sugar, tomatoes, vegetables and juices, some alcoholic beverages and tobacco products, special purpose vehicles, etc., which generally won’t generate any export interest for manufacturers of EEU countries.

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