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Signing of EU – Vietnam Free Trade Agreement Will Have Big Impact on Bike Sector

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HANOI, Vietnam – Last Sunday, the long-delayed free trade agreement between the European Union and Vietnam has finally been signed. The EU Council of Ministers has approved the EU-Vietnam trade and investment agreements, which paved the way for their signature and conclusion which took place in Hanoi on Sunday 30 June. The deal is expected to have a big impact on the (electric) bike sector as China’s production role is diminished due to anti-dumping measures.

Signing of EU – Vietnam Free Trade Agreement Will Have Big Impact on Bike Sector
越南免稅出口之歐洲的產品當中自行車、電動自行車及零配件將佔很大一部分。照片來源/Vietnam Bicycle Exhibition

It’s widely believed that Vietnam’s supply role for parts as well as complete (electric) bikes is to grow rapidly. Also, because the country is already considered to be the leading supplier of neighboring Cambodia where bike production is also booming.

Current trade agreements

Vietnam benefits already from a special trade arrangement granted by the EU under its Generalized System of Preferences. Currently regular bicycles imported from Vietnam have a GSP import tax of 10.5 percent while on Vietnam made e-bikes 2.5 percent import tax is levied.

Products exported from Vietnam to Europe have to abide to the local content rules. These rules specify that 50 percent of the ex-works price of the (electric) bikes exported to Europe must be made with in Vietnam manufactured components like frames. However, there are ‘specially removed’ bi-lateral cumulation rules which apply here. They state that parts (like mid-motors) imported from Europe that are to be fitted on Vietnam made e-bikes, are considered local content. It boils down to the fact that EU made parts add value to the local content making it much easier to reach the named local content and with that the rules of origin of the by Vietnam exported e-bikes.

Companies from the bicycle and e-bike industry which recently invested in Vietnam are (among others) KMC, Bohle/Schwalbe, Astro, Kenda, DDK and A&J.

Eliminating customs duties

Last Sunday EU Commissioner for Trade Cecilia Malmström and Romanian Minister for Business, Trade and Entrepreneurship Ștefan-Radu Oprea signed the agreement on the EU’s behalf in Hanoi. The agreements are set to bring unprecedented benefits for European and Vietnamese companies, consumers and workers, while promoting respect for labour rights, environmental protection and the fight against climate change under the Paris Agreement.

The trade agreement will eliminate nearly all customs duties on goods traded between the two sides in a progressive way that fully respects Vietnam’s development needs. The agreement also contains specific provisions to remove technical obstacles, such as those in the car sector. Thanks to the agreement, EU companies will also be able to participate in bids for procurement tenders in Vietnam on an equal footing with domestic companies.

European Parliament

Following the signing of the agreements by the EU and Vietnam the deal will be presented to the European Parliament for consent. Previously the Parliament objected to the free trade agreement because of Vietnam allegedly violating workers’ rights. However on that Trade Commissioner Malmström said “Beyond the clear economic benefits, this deal also aims to strengthen respect for human rights as well as protecting the environment and workers’ rights. I welcome Vietnam’s engagement in the process so far – their recent ratification of the International Labour Organisation Convention on collective bargaining is an excellent example of how trade agreements can encourage higher standards.”

Once the European Parliament has given its consent, the trade agreement can be officially concluded by the Council and enter into force, while the investment protection agreement will first need to be ratified by Member States according to their respective internal procedures. It’s expected to enter into force next year.

Vietnam’s importance for EU

Vietnam is the EU’s second largest trading partner in the ASEAN region after Singapore, with trade worth € 49.3 billion for goods and over € 3 billion for services. While EU investment stock in Vietnam remains modest standing just at € 6 billion in 2017, an increasing number of European companies are establishing there to set up a hub to serve the Mekong region. Main EU imports from Vietnam include telecommunications equipment, footwear, textiles, furniture, agricultural and bike products. The EU mainly exports to Vietnam goods such as machinery and transport equipment, chemicals and food and beverages.

Taiwan important investor

In the past 30 years Taiwan has been one of the major foreign investors in Vietnam. In different industries, the Taiwanese have invested in some 4,000 companies. Many of them are somehow connected with the Taiwan industry association. Some industries, like the bicycle industry, have their own departments. Today some 30 Taiwanese bicycle industry companies, like KMC, Bohle/Schwalbe, Astro, Kenda, DDK and A&J. have their production facilities in Vietnam. Most of them are components manufacturers, distributing their products to bicycle assemblers in Cambodia. As both Vietnam and Cambodia are members of the ASEAN Economic Community they can benefit from the favorable tariff reductions for export to Cambodia. “In the past years the supply chain for the bicycle industry in Vietnam developed to a high level,” is explained by Richard Tsai, Chairman and CEO of DDK. The company’s long time involved in Vietnam gave him a lot of experience. Today he is often consulted by Taiwanese companies who want to invest in Vietnam. “The Vietnamese government is very supportive towards the bicycle industry and offers multiple tax schemes. They also develop a line of industry parks as well as infrastructure, including a new harbor in the Saigon river. Most of the bicycle industry is located on industry parks around Di An and New City, both North of Ho Chi Minh City. Logistic wise these are the best locations as it is only 70 kilometers to Cambodia and 1.5 kilometers to the harbor.”

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