“When will my tariffs be eliminated?” - Guide to Tariff Reductions within the EVFTA
Updated: Jun 19, 2020
It finally happened: On February 12, the EU parliament voted in favor of the EU-Vietnam Free Trade Agreement. This was a huge step forward and the culmination of many years of negotiations. The finishing touch will be done by the Vietnamese National Assembly which is poised to vote on the agreement in May 2020. Now that the FTA´s commencement is actually coming into reach, the questions about it are getting more concrete. One crucial issue is, of course, the timeline of tariff reductions. Our customers now start asking: “When will my tariff lines be tax-free?” 🤷♀️ In today´s special blog edition we will give you a guide on how to find out. ☝️
Firstly, if you are looking for timelines of tariff reductions you should note that it is still unclear when the EVFTA will actually come into effect. Some say it could be enforced as early as in July 2020. However, this is not sure yet.
Secondly, you should understand that currently there is no database where you can conveniently look up tariff schedules. For this, you will have to go through the actual full text of the EVFTA. But, no worries, we will try to explain how to get there as following.
STEP 1 – FIND OUT YOUR “HS CODE”
When starting out with your research you will need a so-called “HS code” or in German “Zolltarifnummer”. “HS” is the abbreviation for “Harmonized System”. Worldwide, nations have agreed on a shared – harmonized – nomenclature for goods specifications to facilitate trade. An HS code has six digits which specify the product from general (first two digits on the left) to specific (last two digits on the right). Most countries will add another two digits for further specification in order set a certain tariff rate according to their needs. Sometimes another two digits will be included as a “statistical suffix”. The full HS codes therefore vary from one country to another. An example for the Vietnamese HS code for "bottled wine" may be found below:
You can look up the harmonized six-digit codes here at the "World Customs Organization": http://www.wcoomd.org/en/topics/nomenclature/instrument-and-tools/hs-nomenclature-2017-edition/hs-nomenclature-2017-edition.aspx
The European Union furthermore offers a comprehensive tool were you can research your eight-digit EU HS code as well as current tariff information: https://trade.ec.europa.eu/tradehelp/
As you have seen above though, the HS codes often leave some room for interpretation. In practice you will therefore have to confer with your importer abroad. She should then get back to her relevant authorities, such as the customs office, to fix the correct HS codes before the shipment is on its merry way to the receiving import harbor. BTW: We have heard that Vietnamese customs officers are ready to discuss applicable HS codes if the petitioner is a able to support sound arguments.
STEP 2 – FIND OUT YOUR TARIFF REDUCTION CATEGORY
Based on your HS code you should now research your specific “tariff reduction category”. Below, you will find two links to the EVFTA text on the website of the European Commission. They contain all applicable HS codes for the respective jurisdictions as well as their “Base (tariff) Rates” and the before-mentioned “(tariff reduction) Category”. So, regarding on from where you would like to export/import you will have to open a different pdf. As these pdfs display all HS codes, they are quite extensive with the EU version containing almost 1,500 pages. You can however search for codes by using “Ctrl + F” and then entering your HS code.
Exporting from EU to Vietnam: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2020:186:FULL&from=EN#page=676
Exporting from Vietnam to EU: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2020:186:FULL&from=EN#page=173
You should write down the “base rates” as well as “categories” of your relevant HS codes for the next step.
STEP 3 – CONFIRM YOUR TARIFF REDUCTION SCHEDULES
In the final step you should look up which tariff reduction regulations apply to your HS code categories. You can check this within the documents above. They are in the column on the right to the "base rates".
There are two general distinctions between the categories:
A = About 70% of all HS codes fall into this category. If yours applies here: Congratulations! You can stop reading this article now as your goods will be tax-free right at the start of the implementation of the EVFTA. 🏁👏🥳
B = This category more or less concerns the remaining 30% of all HS codes. These will be tax-free over the course of three to 15 years after the EVFTA has been effective. They range from “B3” to “B15”. The number accordingly stands for the amount of years after which the tariff reaches “0%”. Typically, the reduction steps will be equally distributed over the number of years until complete tax elimination. The first reduction step will happen on the first day of the come-into-force of the EVFTA. The next annual reduction will then take effect on January 1 of the following year. Subsequent reductions will then also follow on January 1 of each year.
This could play out as following (if the EVFTA will in fact be put into force on July 1):
And there you have it: The tariff reduction schedule for your export/import products! 😁
Of course, there are some more questions to be answered, respectively things to research, for example:
If your product is a "GSP" item (e.g. garments, footwear, agricultural produce), there are special regulations for the tariff schedule. Because no tariff rate might be higher after EVFTA takes effect than before its implementation rates for some GSP items will only change after a certain time.
Some HS codes have specific requirements, e.g. regarding quotas.
To make use of the EVFTA, your supplier will need to have sufficient "local content". This is pretty relevant because a lot of Vietnamese input materials do not originate locally but are being imported, especially from China. Many suppliers are at high risk of not making it over the necessary added value thresholds. The rules for local content are, however, quite extensive and thus a story for another time.
For more information, you may turn to the complete EVFTA text which is available here: https://trade.ec.europa.eu/doclib/press/index.cfm?id=1437 (albeit, this tends to be a tough read)
Also, you should have contacts in your home countries that might be able to help you out:
For German companies, the Chambers of Commerce and Industry (IHK) are the guys to talk to. Their customs staff is awesome and you can use their services as a part of your membership. More info: https://www.ihk.de/#ihk-finder
For Vietnamese companies, the VCCI or MoIT may help out.
Or you can also consult us 🤓
We are wishing you successful and increasing business within the EVFTA framework!