FTA with the EAEU and the "uncommon" principles

The threshold mechanism requires enterprises to coordinate to regulate to avoid order break. Photo: Phan Thu.

Threshold mechanism: Be careful to avoid "break" orders

Opportunities for Vietnamese enterprises when the EAEU came into force (October 5th, 2016) is huge because the total population of this alliance is nearly 200 million, the total value of products - GDP more than 2,200 billion USD.

Remarkably, when the tariff reduced to 0%, a number of Vietnamese commodities such as seafood, furniture, textile etc., will benefit immediately. Mr. Truong Hoang Hai, general secretary of HANSIBA cited, Vietnam's seafood benefits immediately when the tax immediately down to 0% because this is the market of many seafoods.

"Just make sure shrimp, fish etc., no antibiotic residue, hygiene, standard delivery, stable quality, then surely we can export firmly into this market," Mr. Hai said.

However, "this is a very special agreement when the negotiation time is super-fast within a year (the average negotiating an FTA takes three years) and the counterparts have an approach unlike the US or the EU", said Mr. Ngo Chung Khanh, Deputy Director of Multilateral Trade Policy Department (Ministry of Industry and Trade).

Because, in addition to the most favored nation treatment, national treatment, reduction and elimination of tariffs etc., the FTA of Vietnam- EAEU has its own principles and businesses need to pay attention because it will affect directly to the business.

Mr. Khanh said that the Vietnam FTA- EAEU has the principle of threshold mechanism for textiles and furniture. Specifically, when negotiating, the partner agrees to bring the zero tariff at the time of the agreement's entry into force and does not require strict rules of origin for yarns or woven labels as in other agreements.

For example, Vietnam's textile and clothing products will immediately be entitled to a 0% tax on exports to the EAEU instead of a tariff of over 20% without an agreement. However, the counterparts fear that the opening of the market for textiles and clothing should apply the threshold mechanism, ie if the value of garment export turnover to EAEU more than double the value of the three years combined, they immediately started the threshold level. Uncontrolled, they will stop the incentives and return to the old rates.

"This, Vietnamese enterprises need to pay close attention", Mr. Khanh warned that "Vietnamese enterprises do not often look at each other, strong people do as their way. If every time call to "export" when the alert threshold, all businesses are damaged, leading to the risk of order break, broken plans”.

Rules of origin are more stringent than TPP

Not only did it introduce a threshold mechanism, it also introduced rules of origin that were "unlike any other".

According to Mr. Khanh, fearing Vietnamese enterprises abusing the rules of origin or doing tricks to change their rules of origin, they have made the rules more stringent than the TPP. Accordingly, the EAEU only allows direct shipments not to allow subdivision of shipments.

This would be a problem that multinational corporations are entangled by these corporations to follow the supply chain while the EAEU requires direct shipping (including transit) from Vietnam to Russia to be considered as met the rules of origin.

At the same time, the partners have strict requirements on certificates of origin forcing enterprises to pay attention to this issue, if not, will be suspended preferential when detected fraudulent systematic origin.

A Multinational Trade Policy Department leader pointed out that when an enterprise “A” export to Russia by completing the certificate of origin itself but may be due to incomplete information, poor professionalism or subjective nature to provide the incorrect certificate of origin and was discovered by the Russian customs. At that time, the counterparts will be reminded for the first time but if they continue to detect, enterprise “A” will be immediately stopped exporting.

However, if there continues to be a business of the same branch is found an incorrect certificate of origin, then the whole industry will be prohibited export. This is a huge obstacle that requires the company to coordinate to ensure its benefits.

With these issues, one expert said that businesses need to master the content of the agreement, tax reduction will be meaningless if not meet the rules of origin, certification of origin etc.

Moreover, with the EAEU market, in the medium to short term, the business must be ahead of other countries in the region. Currently, Vietnam is the first country to have an FTA with EAEU but do not think that we will always have the opportunity "alone a market." One day, EAEU will also have FTAs with other countries, if not take advantage now, our interests are getting smaller and smaller.