Editorial · July 3, 2020
EVFTA Tariff Cuts: What Buyers and Importers Should Know
EVFTA tariff cuts will lower import duties on most goods that move between Vietnam and the European Union, but only in stages and only for goods that prove where they come from. Buyers and importers should plan for a slow glide, not a single drop.
EVFTA is the free trade agreement between the EU and Vietnam. The European Commission says the deal removes 99 percent of all tariffs. That is a large number. It does not mean every product is duty free on day one.
What the deal changes
The agreement covers trade in goods, services and investment. For buyers, the goods chapter matters most. It sets a schedule that lowers customs duties on products made in one partner and sold in the other.
Some duties go to zero as soon as the agreement starts. Others fall in steps over several years. A few sensitive products are only partly opened. Each product has its own line in the tariff schedule, so the answer for steel, coffee or furniture can differ.
The agreement was signed on 30 June 2019. The text was published in the Official Journal of the European Union on 12 June 2020. That makes the full legal text open to read today.
Sources: European Commission, EU-Vietnam trade agreement page; EUR-Lex, Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, OJ L 186, 12.6.2020.
Which duties apply to your product
Start with the product code. Importers use the Harmonized System, a global code for goods. In Vietnam it is the base for the customs tariff. Find the six digit code for your product, then look for that code in the agreement's tariff schedules.
Three questions help:
- What is the duty today for this code?
- What does the schedule say the duty will be on the first day, and in later years?
- Is the product on a list with a quota or a slower cut?
Keep a copy of the schedule line with your file. If a customs officer asks why you paid a lower rate, that line is your answer. If a code is unclear, ask your customs broker before you sign a contract.
Source: EUR-Lex, Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, OJ L 186, 12.6.2020.
Why origin papers decide the savings
Lower duties apply only to goods that "originate" in the partner. That word has a legal meaning. A product is not Vietnamese or European just because it was shipped from there. The agreement has rules of origin that set how much work or local content a product needs.
A seller must be able to prove origin with the papers the agreement allows. If the papers are missing or wrong, customs can refuse the lower rate and charge the full duty. That can erase the savings the buyer counted on.
Before you order, ask the seller:
- Which origin rule applies to this product?
- What proof will come with each shipment?
- Who fixes the problem if customs rejects it?
Put the answers in the contract. Many buyers discover this step only after the goods arrive.
Source: EUR-Lex, Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, OJ L 186, 12.6.2020.
How to price the change into a deal
Do not cut your price today for a saving that starts later. Build a simple table instead. List the current duty, the duty in each year of the schedule, and the date each step begins. Then price each shipment on the rate that applies on its date.
Also keep the other costs in view. Freight, insurance, port fees, value added tax and inspection costs do not disappear with a tariff cut. For many goods they are as big as the duty. A lower duty helps, but it does not replace good planning.
Long contracts need a clause that says what happens if the rate changes during the term. Say who benefits from a lower duty, the buyer or the seller. Write it down before the first order.
What to do this month
- List your top ten products and their Harmonized System codes.
- Read the schedule line for each code and note the first rate and later steps.
- Ask each supplier how it will prove origin.
- Check your contracts for a duty change clause.
- Talk to a customs broker or the Vietnam customs office for any code that is unclear.
A few hours of checking now can save real money in later years. The deal is large, and the savings go to buyers who prepare the paperwork.
This article is general information for buyers, not legal or customs advice. Rules can change, so check the current text before you ship.
Sources
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