The European Union has inked a landmark free trade deal with Vietnam, paving the way for tariff reductions on 99% of goods between the 28-member bloc and the Southeast Asian country.

The negotiations between Vietnam and the European Union (EU) over a free trade agreement (FTA) was keenly watched by many other countries and blocs, particularly India. When the talks eventually led to a deal being signed on the last day of June, it came somewhat as a double whammy for India-mostly from the textiles-apparel point of view. First, Vietnam's textiles-apparel industry has decidedly gained an advantage over India as far as exports to most European countries are concerned. And second, Vietnam has got the FTA that it badly wanted, stealing a march over India-the former's parleys with the EU began just as those of the latter ran into a bottleneck.

Of course, it is a big deal that will have a far-reaching effect on global supply chain.

There were two distinct agreements-a Free Trade Agreement (FTA) and an Investment Protection Agreement (IPA) under the ambit of the Vietnam-EU Comprehensive Partnership and Cooperation Framework Agreement (PCA) that will together see tariff reductions on an overwhelming 99 per cent of goods traded between the EU bloc and Vietnam.

Technically, however, it is not a done deal yet-it will now have to be presented to Vietnam's National Assembly for ratification and the European Parliament for its consent, besides the respective national parliaments of the EU member states in the case of the IPA. The passage in Europe may not be a cakewalk, given the strident opposition to the agreement by groups that are critical of Vietnam's human rights record.

Nevertheless, the agreements, signed in Hanoi by the EU trade commissioner Cecilia Malmstrom and Vietnam's minister for industry and trade Tran Tuan Anh, remain intrinsic to the framework established by the EU-Vietnam Partnership and Cooperation Framework Agreement, which would govern overall bilateral relations in areas, including development cooperation, peace and security, trade and investment, judicial cooperation, social affairs, good governance, rule of law and other issues of common interest. Both sides also agreed on the importance to ensure the implementation of the obligations under the Trade and Sustainable Development chapter of the trade agreement.

The Immediate Backdrop

The timing of the EU-Vietnam agreement may not have been remarkable, but the context certainly was. It came just two days after the EU and South American bloc Mercosur (an economic and political bloc comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela) agreed to a free-trade treaty following two long-drawn decades of intensive talks.