Reduction of custom duties

Immediate exemption or reduction in 4, 6, 8 or 10 years? What is the category of your product? The EU tariff schedule or Vietnam tariff schedule ? What is the intermediate rate applicable to my product ?

All these questions are raised by the EU-Vietnam Free Trade Agreement (EVFTA) that is why the CCIFV, through its EVFTA desk, will try to answer.

Progressive customs reductions

EVFTA's main contribution is that, in 10 years, 99% of European and Vietnamese products will be exempt from customs duties. The current customs duties will be reduced to 0% provided respect the rules of origin.

However, depending on the origin of the products, the base rate and the timetable for the reduction are different.

Indeed, for reasons of differing levels of development, the EVFTA organises a different reduction schedules for products from the EU and Vietnam.

Example of the plastic door

A plastic door produced within the EU and shipped to Vietnam is initially taxed at 27% while in the opposite way (VN → EU), the Vietnamese plastic door is taxed at 6.5%.

The entry into force of the EVFTA enables Vietnamese doors to be immediately exempted from any customs duty but in the other way - from the EU to Vietnam - the rate will be gradually reduced to 0% within 6 years.

This differentiation aims to avoid unfair competition by the immediate introduction of European products with advantageous prices in a developing Vietnamese sector, and vice versa.

The progressive reduction of customs duties will offer the parties a more or less long period to allow them to develop their competitiveness in certain sectors in order to face competition from the other party's products in the same sector.

To find out what the reduction schedule is for your product, both Vietnam and the EU have established a tariff schedule that identifies all products with the associated base rate - that is, the rate applicable before the entry into force of the EVFTA - and the category of the products, which is used to determine the tariff reduction schedule.

Example of the cotton blouse

A Vietnamese company manufactures cotton blouses for women. This company wishes to export these products to France (VN → EU).

According to the EU tariff schedule, the base rate applicable to this product is 12% and the associated category is "B3".

This means that the customs duties will be decreased in 4 equal annual installments starting from the entry into force of the EVFTA.

Therefore, each year, the prime rate will be reduced by 3 percentage points to 0% within 4 years.

Bilateral customs reductions

While some Vietnamese products already benefited from a preferential system - the GSP -before the EVFTA, European products were systematically taxed to rate base when they entered Vietnam.

Now, EVFTA offers European products a tariff advantage. This innovation allows a new development in the trade relationship between the EU and Vietnam.

However, the Generalized System of Preferences (GSP), which Vietnam enjoys as a developing country, will continue to apply until December 31, 2022, despite the entry into force of EVFTA.

In other words, until that date, Vietnamese exporters have a choice between benefiting from the provisions of EVFTA or continuing to benefit from the GSP.

Indeed, due to the staggering of tariff reductions, the GSP rates may be more advantageous than the intermediate rates offered under EVFTA.

Example of the coffee grinder

A Vietnamese company exports ceramic coffee grinders to France. The basic rate of these products is 12%. Thanks to the GSP, customs duties are lowered to 8.40%. What about EVFTA?

In accordance with the provisions of the EVFTA, each year for 6 years, the base rate will be reduced by 2 percentage points. That is 10% on August 1st, 2020, 8% on January 1st, 2021, 6% on January 1st, 2022, etc.

Consequently, during the period August 2020-January 2021, it is in the interest of the Vietnamese company to claim the application of the GSP rather than the EVFTA.

Thus, the simultaneous application of these two instruments is of significant benefit to Vietnamese exports.

For more information on reduction schedules, dismantling categories, GSP or calculation methods, please ask for our guide on tariff reduction.