The agreement will see the removal of a 45% tariff, helping EU products compete with other imports in Vietnam.
Although Vietnam is currently a relatively small export market for the EU, spirit brands say sustained economic growth in the country means it has potential which is ‘yet to be unleashed.’
Another key part of the agreement is increased protection of products with geographic indications, such as Champagne.
Removal of tarrifs
The EU and Vietnam announced it had reached, in principle, a free trade agreement (FTA) yesterday. It comes on the back of two and a half years of negotiations, resulting in the removal of ‘nearly all tariffs on goods traded between the two economies.’
Vietnam is a growing economy, and the EU says the new agreement provides opportunities for companies in both regions. The agreement is the first of its kind that the EU has concluded with a developing country.
Vietnam will open the market to EU food products, with wines and spirits liberalised after 7 years.
In addition, products recognised with geographical indications– such as Champagne, Rioja wine and Scotch whisky – will benefit from recognition and protection on the Vietnamese market at a comparable level to that of EU legislation.
In turn Vietnamese products – such as Mộc Châu tea or Buôn Ma Thuột coffee – will be recognised in the EU.
Economies of scale
Trade body spiritsEUROPE says Vietnam is a high growth market for European spirits, having seen a 730% increase in exports in the last decade to reach €42m in 2014. However, director general Paul Skehan says the full potential of the market is ‘yet to be unleashed.’
The removal of the 45% tariff will “deliver significant market access improvements for spirits products,” he added.
“While we have no access to the final version of the agreement, we expect the rules of origin to allow for the use of logistical hubs in the region while benefiting from the tariff concession provided by the FTA.”
“The use of such hubs is essential for economies of scale in our export activities.
“EU exports depend in large part on the reputation of our high quality products. It is good to see that Vietnam agrees to improve its Intellectual Property Rights legislation to protect a list of spirits products covered by European Geographical Indications .”
Good for British gin
The Wine and Spirit Trade Association (WSTA), which represents over 340 companies in the UK, said the agreement will open up the market for gin exports.
Although such exports are currently in modest quantities, they were close to doubling between 2009-2013.
The elimination of the current import tariff will put imports closer to a level playing field with domestic products (80% of spirits consumed in Vietnam are vodka, 95% of which are locally produced).
"At a time when many of our members are focusing on growing exports this is great news,” said Miles Beale, chief executive of WSTA.
"We are pleased this agreement will reduce barriers and allow high quality products like British gin and English wine to compete."
Competing with other imports
The Comité Européen des Entreprises Vins (CEEV), the representative professional body of the EU wine industry, said exports to Asia are ‘crucial’ for the sustainability of EU wines.
It said the FTA will help European wines compete with other imports.
“EU competitors such as Australia and Chile have strong market shares in the Asia-Pacific area - and Vietnam in particular - and have negotiated important reductions of tarrifs,” said Ignacio Sánchez Recarte, Secretary General of CEEV.
“The elimination of tariffs [in the EU – Vietnam FTA] over a relatively short period of time (7 years) will limit the competitive disadvantage with our competitors.”
Vietnamese demand for wine is still limited (around €16m / $17m of direct exports) but CEEV says the country has important potential.
“Vietnam, and its growing economy, is an interesting developing market in south-east Asia for EU wines. However, EU wines have not always enjoyed the full potential of the market.
”The main barrier suffered by our wines is an unfair tariff. Good news – the FTA foresees the removal of tariffs.”
It also welcomes the protection of geographical indications.
“These emblematic EU GIs have a very important standing in Vietnam. And because of the lack of protection, ‘Champagne’ is used in this form or translated to designate and label local products, for example.
“The FTA will allow strong protection, and this will create the conditions for fair trade relationships.”
Next steps
Wine and spirit organisations are now calling on the EU to ratify the FTA as soon as possible so the industry can start to benefit from its terms. The agreement has only been announced in principle.
“Now the legal text shall be drafted and then ratified by the European Parliament. We request (and hope) that the FTA can be active as soon as possible,” said Ignacio Sánchez Recarte of the CEEV.
“The European Commission has done a very good job: now the ball is in the court of the European Parliament.”