PREFERENTIAL IMPORT TARIFFS UNDER FREE TRADE AGREEMENTS (FTAs) AND CHALLENGES FOR SMALL AND MEDIUM-SIZED ENTERPRISES IN VIETNAM
Article by Legal Specialist at Dai Ha Thanh Law Firm - Nguyen Ngoc My Xuan - Currently majoring in Law at Ho Chi Minh City University of Law.
As Vietnam continues to deepen its integration into the global economy, Free Trade Agreements (FTAs) have become increasingly significant in expanding export markets, promoting international trade, and enhancing the competitiveness of the national economy. Among the most tangible benefits offered by FTAs are preferential import tariffs, which help lower input costs, reduce product prices, and improve the competitive edge of domestic enterprises. However, in order to access these tariff preferences, enterprises are required to strictly comply with rules of origin, certification requirements, and relevant administrative procedures-areas that remain complex, particularly for small and medium-sized enterprises (SMEs) with limited resources and experience. In practice, a considerable number of enterprises have failed to benefit from preferential tariff rates due to insufficient awareness of the applicable regulations or difficulties in meeting technical documentation and procedural requirements.
Within the scope of the following article, Dai Ha Thanh Law Firm Co., Ltd. will provide essential information to our valued clients regarding “Preferential Import Tariffs under Free Trade Agreements (FTAs) and the Challenges Faced by Small and Medium-sized Enterprises (SMEs) in Vietnam”. This article aims to support businesses in effectively leveraging international commitments and optimizing the benefits derived from FTAs.
1. Overview of Import Tariffs and Free Trade Agreements (FTAs)
Import tariffs and free trade agreements (“FTAs”) are two crucial instruments in the management of international trade. A clear understanding of these two factors will provide businesses with a comprehensive view of the integration landscape, while also enabling them to capitalize on preferential tax opportunities, expand markets, and enhance competitiveness.
1.1. Definition and Role of Import Tariffs
1.1.1. Definition of Import Tariffs
Import tax is a type of indirect tax levied on goods permitted to be imported into the territory of Vietnam. According to Clause 1, Article 2 Law on Export Tax and Import Tax 2016, import tax is applied to goods imported through Vietnam's border gates and borders, including goods imported from non-tariff zones into the domestic market.
This type of tax is considered a macroeconomic regulatory tool in international trade, while also generating revenue for the State budget.
1.1.2. Role of Import Tariffs
Firstly, based on the provisions of Article 10 Law on Export Tax and Import Tax 2016, import tax rates are applied to protect domestic production from competitive pressure from foreign goods, contributing to the promotion of domestic production growth.
Secondly, import tax is one of the stable sources of revenue for the State budget. Regulations regarding the collection, payment, and refund of tax are specifically guided in Decree No. 134/2016/ND-CP detailing certain articles and measures for the implementation of the Law on Export Tax and Import Tax, and Decree No. 18/2021/ND-CP amending and supplementing several articles of Decree No. 134/2016/ND-CP.
Thirdly, the adjustment of import tax rates for each item is implemented by the Government according to a roadmap, based on commitments in trade agreements and the socio-economic development situation. This is clearly stipulated in Clause 1, Article 11 Law on Export and Import 2016, with the aim of regulating the trade market by increasing or decreasing tax rates. By doing so, the State can control the volume of imported goods to balance domestic supply and demand.
Fourthly, import taxes are also associated with regulations on quality inspection, technical standards, and traceability. The application of tariff preferences based on the origin of goods helps promote compliance with quality standards, thereby strictly implementing technical policies and protecting consumers.
1.2. Overview of Free Trade Agreements
1.2.1. Definition of Free Trade Agreements
Free Trade Agreement (“FTA”), also known as a free trade agreement, is understood as an arrangement between two or more countries aimed at eliminating or reducing trade barriers such as import taxes, quotas, and other non-tariff measures, thereby facilitating the smoother cross-border flow of goods, services, and investments.
Although current Vietnamese law does not provide a specific definition of an FTA, the legal basis for the application of special tariff preferences under FTAs is clearly established in Clause 3, Article 5 Law on Export and Import 2016. Accordingly, special preferential tax rates are applied to goods originating from countries, groups of countries, or territories that have signed special preferential tariff agreements with Vietnam. This provision serves as an important legal foundation affirming the implementation of FTAs that Vietnam has signed, while also opening up significant opportunities for businesses to benefit from tax incentives—provided they meet the rules of origin requirements stipulated in each FTA.
In the context of globalization and deepening international economic integration, participating in FTAs has become one of Vietnam’s key strategies to expand export markets, attract investment, promote growth, and restructure the economy. “As of 2025, Vietnam has signed and negotiated a total of 20 FTAs, of which 16 are currently in effect, including several new-generation agreements such as CPTPP, EVFTA, UKVFTA, and RCEP. These FTAs have opened trade doors with more than 60 countries and territories, accounting for about 90% of global GDP.”
1.2.2. Main Features of Free Trade Agreements
Firstly, FTAs do not entail full market opening like deeper forms of integration such as customs unions or common markets; rather, they focus primarily on reducing or eliminating tariff and non-tariff barriers between member countries. However, each country retains the right to maintain and adjust its own trade policies toward non-member countries. In other words, FTAs allow for selective trade liberalization, limited to the scope of participating parties, rather than applying universally. This is one of the key features that enables countries to remain flexible in their foreign policy and safeguard domestic interests, while still promoting trade liberalization within the framework of bilateral or multilateral cooperation.
Secondly, the contents of an FTA are developed on a voluntary and mutually agreed basis between the parties; however, once signed, the commitments become legally binding. Member countries are obligated to fully and seriously implement the agreed-upon provisions. This not only creates a sense of obligation and accountability among countries, but also helps maintain trust and stability in trade relations between the parties.
Thirdly, while first-generation FTAs primarily focused on tariffs and trade in goods, modern FTAs have expanded to include areas such as services, investment, intellectual property, labor, and the environment. This reflects a growing depth and breadth of integration, requiring member countries not only to adjust their trade policies but also to reform domestic institutions to align with international commitments.
Fourthly, FTAs create opportunities for countries, especially developing economies like Vietnam—to expand export markets and attract foreign investment. This, in turn, promotes economic restructuring, enhances the competitiveness of domestic enterprises, and strengthens overall capacity for international integration and competition.
Fifthly, one of the important features of an FTA is that tariff preferences are not automatically applied, but depend on whether the goods meet the rules of origin. Each agreement has its own system of rules of origin to determine the true origin of the product, ensuring that only goods originating from member countries are eligible for tariff preferences.
Sixthly, the core content of FTAs is the commitment to reduce or eliminate import duties on goods originating from member countries. According to Clause 1, Article 5 Law on Export and Import 2016, imported goods originating from countries, groups of countries, or territories that have special tariff preference agreements with Vietnam will be subject to special preferential tax rates. In many cases, these tax rates are gradually reduced and may reach 0% according to the commitment schedule in each FTA. Such tariff reductions facilitate bilateral or multilateral trade, expand market opportunities, enhance competitiveness, and reduce input costs for businesses during the process of international economic integration.
1.2.3. The Role of Free Trade Agreements in International Trade and for Vietnamese Enterprises
Firstly, participating in FTAs has opened up opportunities for Vietnamese goods to access large markets such as the European Union (EU), Japan, and South Korea with preferential import tax rates, with many tariff lines significantly reduced or even eliminated to 0%. As a result, Vietnamese businesses have the opportunity to expand their markets, increase export turnover, and enhance the competitiveness of their products in international markets.
Secondly, FTAs not only bring benefits in goods trade but also play an important role in attracting foreign investment into Vietnam. Thanks to commitments to market opening and investor protection in FTAs such as the EVFTA, CPTPP, and RCEP, Vietnam has become an attractive destination with a stable and transparent investment environment. These agreements often come with provisions on tax incentives, labor standards, environmental protection, as well as raising governance standards and reducing legal risks for investors. These principles are incorporated into Vietnam's legal system, contributing to the completion of the legal framework and incentive policies, making it easier for both domestic and foreign investors to access the market effectively and sustainably.
Thirdly, the implementation of FTAs, especially new-generation FTAs such as the EVFTA and CPTPP, requires Vietnamese businesses not only to meet high standards in product quality, environmental protection, and labor practices but also to upgrade their corporate governance towards transparency and sustainability. While this creates pressure, it also serves as a driving force for businesses to restructure, transition to modern production models, and integrate into the global economy.
Fourthly, FTAs not only bring benefits to businesses but also promote institutional reforms in Vietnam’s economy, streamline administrative procedures, and improve the efficiency of state management in the field of international trade. This process contributes to creating a more transparent, competitive, and business-friendly environment for market participants. Many reform efforts have been and are being concretized through joint circulars between the Ministry of Industry and Trade and the Ministry of Finance, particularly in guiding the implementation of tariff preferences, rules of origin, and customs procedures in accordance with commitments under FTAs such as the EVFTA and CPTPP. These efforts help enhance the competitiveness not only of businesses but also of the Vietnamese economy in the process of deeper integration.
For these reasons, it is necessary to analyze the challenges faced by small and medium-sized enterprises in utilizing import tax preferences from FTAs, in order to propose appropriate solutions to overcome obstacles and enhance the effectiveness of integration. This is also a crucial task with profound practical significance in the current period.
2. Challenges for Small and Medium-sized Enterprises in Vietnam
2.1. Difficulty accessing information
Although Vietnam has participated in many bilateral and multilateral FTAs, accessing and fully understanding the contents of these FTAs remains a significant challenge for small and medium-sized enterprises. Most FTAs have complex provisions related to tariff schedules, conditions for receiving preferential treatment, technical standards, rules of origin, and more. However, small and medium-sized enterprises often lack dedicated departments for legal and international trade matters, resulting in delayed information processing or misunderstandings, which lead to incorrect implementation.
In addition, official information sources, such as the Ministry of Industry and Trade’s website or chambers of commerce, are often not effectively communicated to businesses at the local level. In many underdeveloped areas, businesses are almost unaware of the existence of tax incentives in FTAs or lack the ability to effectively utilize these tax preferences.
2.2. Costs and procedures for certificates of origin
One of the prerequisites for receiving import tax preferences is that businesses must prove the origin of their goods according to the rules of each FTA. However, the process of obtaining a certificate of origin is quite complicated, requiring businesses to store and provide complete documentation related to raw materials, the production process, and transportation.
For small and medium-sized enterprises, building a transparent and standardized input material management system according to FTA requirements is a significant burden. Additionally, the costs of hiring consultants, completing documentation, or paying fees for obtaining certificates of origin for each shipment can create financial pressure, especially for businesses with small scale and low export volumes. For these reasons, many businesses have chosen not to use certificates of origin, meaning they voluntarily forgo tax incentives that could help them save a significant amount of costs.
2.3. Low competitiveness
Although small and medium-sized enterprises benefit from tariff preferences under FTAs, many still face difficulties in entering foreign markets due to limited competitiveness. Factors such as small production scale, outdated technology, unstable product quality, or failure to meet international technical standards are significant barriers that make it difficult for businesses to compete with foreign counterparts, leading to their inability to fully utilize import tax incentives.
In addition, some businesses lack clear market strategies and experience in international marketing, logistics, and cross-border distribution, resulting in missed export opportunities, even though tariffs have been reduced under FTAs. In many cases, tax incentives only truly become effective when businesses have the capacity to actively and sustainably tap into foreign markets.
2.4. Technology transfer and capacity enhancement
Leveraging FTAs is not limited to tariff incentives but also involves the need to improve product quality, enhance production processes, and innovate technology. However, small and medium-sized enterprises often face difficulties in investing in new technologies due to a lack of capital, information, and management capabilities. Access to funding for innovation remains limited, while the costs of workforce training and technology transfer are too high relative to the financial capacity of many businesses.
At the same time, many small and medium-sized enterprises do not fully recognize the importance of technological innovation in the context of deeper integration. This leads to slow adaptation to the demands of international markets, causing them to lose their competitive edge compared to larger companies or foreign direct investment (FDI) enterprises with stronger resources.
3. Solutions to overcome difficulties of small and medium enterprises
In the context of deeper international economic integration, FTAs have been opening up many development opportunities for Vietnamese businesses, especially small and medium-sized enterprises. Regarding the role of FTAs, many experts have said: "FTAs are the gateway for Vietnam to integrate more deeply into the global economy. But to succeed, each business must find its own suitable direction and effectively exploit the opportunities from FTAs, contributing to the sustainable development of the national economy."
For small and medium-sized enterprises in Vietnam to effectively take advantage of import tax preferences in FTAs, close coordination is required between the State, industry associations, and the businesses themselves to implement a number of specific solutions:
3.1. Enhance information dissemination and support
It is necessary to strengthen the dissemination of knowledge about FTAs through various forms such as workshops, seminars, online training courses, guidance manuals, situation simulation videos, etc. The information should be conveyed in a simple, easy-to-understand manner and closely aligned with the practical realities of businesses, avoiding the use of difficult technical terms.
Relevant ministries, especially the Ministry of Industry and Trade, should develop integrated electronic platforms, regularly updating tariff schedules, preferential conditions, certificate of origin procedures, etc., while also providing an online consulting support team for businesses, especially small and medium-sized enterprises in remote areas.
To better support businesses in taking advantage of opportunities from FTAs, many opinions suggest that there needs to be strong involvement from regulatory authorities. In this regard, the Bac Giang Department of Industry and Trade has made a specific proposal: "To remove obstacles for businesses, the Bac Giang Department of Industry and Trade believes that there should be training programs, workshops, and consultation sessions to provide complete and detailed information about FTAs, commitments, and related regulations, including how to apply tariff preferences, rules of origin, and quality standards..."
3.2. Support the simplification and reduction of costs for obtaining certificates of origin
Government agencies could consider simplifying and digitizing the certificate of origin issuance process to reduce costs and processing time for businesses.
In addition, measures could include adding financial support policies such as waiving or reducing certificate of origin issuance fees, or providing consultancy and training cost support for small and medium-sized enterprises during the initial phase of market entry. Local trade promotion centers need to become more actively involved to serve as a crucial bridge in helping small businesses handle procedures effectively.
3.3. Improve competitiveness and product quality
To take advantage of tariff preferences, small and medium-sized enterprises must invest in improving product quality to meet international standards. Businesses need to promote brand building, apply quality management systems such as ISO, HACCP, GMP, etc., and focus on packaging design, labeling, and barcodes, according to the requirements of each export market.
The government can implement support measures through programs such as industrial promotion programs, innovation funds, and science and technology development funds specifically for small and medium-sized enterprises. Collaboration between businesses and universities, as well as research institutes, should also be promoted to facilitate technology transfer and improve product productivity and quality.
Above is a general overview of the tariff preferences under Free Trade Agreements (FTAs) and the practical challenges faced by small and medium-sized enterprises in Vietnam. Dai Ha Thanh Law Firm, with its team of experienced lawyers and legal advisors who have in-depth knowledge of international trade law, is committed to accompanying your business in effectively leveraging FTA commitments and ensuring legal compliance. If you require detailed legal advice, please contact us to receive professional and optimal legal services.
REFERENCES
A. LEGAL DOCUMENTS:
1. United Nations Convention on Contracts for the International Sale of Goods (CISG) 1980
2. Law on Export Tax and Import Tax 2016
3. Decree No. 134/2016/ND-CP Detailing Some Articles and Measures for Implementation of the Law on Export and Import Tax
4. Decree No. 18/2021/ND-CP Amending and Supplementing Several Articles of Decree No. 134/2016/ND-CP
B. REFERENCES:
1. Nhu Loan, "FTAs – Opportunities and Challenges in the Journey to Enhance Business Competitiveness", Investment Online Newspaper, https://baodautu.vn/fta---co-hoi-va-thach-thuc-trong-hanh-trinh-nang-cao-nang-luc-canh-tranh-cho-doanh-nghiep-d269237.html
2. Tran Son, "Solutions to Remove Obstacles for Enterprises to Take Advantage of FTAs", Vietnam Law Online Newspaper, https://baophapluat.vn/giai-phap-go-vuong-cho-doanh-nghiep-tan-dung-cac-fta-post534986.html
3. Nguyen Long, "New FTAs Bring New Value and New Challenges", Ministry of Finance Portal, https://mof.gov.vn/webcenter/portal/btcvn/pages_r/l/tin-bo-tai-chinh?dDocName=MOFUCM258856