On June 8, 2020, Vietnam’s National Assembly ratified the European Union Vietnam Free Trade Agreement (EVFTA), which will then take effect around July or August 2020. This multilateral trade partnership will bring mutual benefits for both markets in the European Union and Vietnam and hence, makes product sourcing in Vietnam more attractive for EU Markets.

Why Product Sourcing in Vietnam?

Product Sourcing in Vietnam

Product Sourcing in Vietnam

Fast-Growing Economy

In 2019, Vietnam has a GDP growth of 7%, with an emphasis on its manufacturing sector growing in double digits. In recent years, Vietnam has been the fastest growing economy in Asia.

This year, Vietnam has a GDP growth of around 2.8%. This is rather exceptional, especially during a period where many countries are in a recession or recovery, as a result of the COVID19 pandemic.


Foreign Investments

Vietnam is a very promising market as it is open to foreign investments.  Vietnam and the EU are long-standing trading partners.  EU investors had invested more than US$23.9 billion in 2,133 projects in Vietnam in 2018. Also, European investors added almost US$1.1 billion to Vietnam’s FDI, which is the 6th highest. They are only behind Japan, South Korea, Singapore, China, and Hong Kong

Product Sourcing in Vietnam

Product Sourcing in Vietnam

With more foreign investments in Vietnam, it will accelerate the growth of Vietnam’s economy and the expansion of Vietnam’s skilled workforce.


Low Labour Costs

Manufacturing in Vietnam may be more attractive than manufacturing in China due to the lower labour costs. The cost of wages in China have tripled over the past decade, alongside the increase in taxes, energy prices, and exchange rates. Hence, Vietnam may be a cheaper alternative.


How will this FTA benefit EU Markets

Tariff Cuts

When the trade agreement comes into effect, 85.6% of import tariffs on Vietnamese goods will be slashed. This is equivalent to 70.3% of Vietnam’s revenue from exports to the EU.

Product Sourcing in Vietnam

Product Sourcing in Vietnam – (Source: nhandan.org)

Over a period of seven years, the EU will rid 99.2% tariffs which are about 99.7% of Vietnam’s revenue from exports to the EU.

With the remaining 0.3% of Vietnam’s export revenue, the EU pledged to provide Vietnam with tariff-rate quota, with the import tax rate set at 0% within the quota.

With a cut in tariffs, custom promotional products from Vietnam, such as textiles, will be more affordable.

Product Sourcing in Vietnam

Product Sourcing in Vietnam – Overview of Tariff Cuts (Source: vietnam-briefing.com)


Increased Production

This FTA will also lead to more investments in the manufacturing sector thanks to the liberalisation of custom duties. The result of this agreement will deepen trade and business relations and hence, EU companies will have greater access to the emerging Vietnam market.

With additional investments in the manufacturing sector, it will facilitate expansion in some industries, both in terms of capital and increasing employment. Industries include Textiles, Electronics, and Pharmaceuticals. (Source: vietnam-briefing.com)

Overall, product sourcing in Vietnam may be more attractive for us and EU markets as factories can produce at better quantities and quality.


How about the Future of Trade between the UK and Vietnam?

A concern regarding the trade agreement between the EU and Vietnam is the impact of Brexit.

On January 31, 2020, the UK formally left the EU and is currently in an 11-month transition period, in which the country will still continue to follow all of the EU’s rules and its trading relationship will remain the same.

During the Transition Period, EVFTA will temporarily apply for trade between the UK and Vietnam.

Product Sourcing in Vietnam

Product Sourcing in Vietnam

After Brexit

EVFTA only applies to territories defined as part of the EU territory or the territory of Vietnam. Therefore, after Brexit and the transition period, the United Kingdom will no longer be in a territory protected by EVFTA, hence will no longer enjoy the preferential trade terms available in EU free trade agreements.


Possible Outcomes

However, there are some possible future outcomes in which the UK may benefit from the trade agreement.

  1. The UK still be part of the EU customs union
  2. A separate trade agreement between the UK and Vietnam in the future

Need Help with Product Sourcing in Vietnam?

Thanks to this FTA, product sourcing in Vietnam is now more enticing for EU companies. With this partnership, companies can have access to promotional products at more affordable rates. In addition, Vietnamese factories can also produce goods with better quality and quantity.

When sourcing in Vietnam, it is important to have a company close to the ground to regularly inspect these companies. Us having a buying office here, ODM is not only close to the ground but also works hard to ensure factories are producing at the top quality when sourcing for merchandise. If you need assistance with sourcing in Vietnam, do not hesitate to contact us!

We also have a design agency, Mindsparkz, here in Vietnam. They can assist you with any product design needs such as product brainstorming, graphic design, and industrial design. Plus, they can help with designing unique custom promotional gifts for you!


Do check out our other blogs!

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