The European Union and Vietnam reached an agreement in principle yesterday in the negotiations for a Free Trade Agreement (FTA), after two and a half years of talks.

Following a telephone conversation between EU Trade Commissioner Cecilia Malmström and Vietnamese Minister of Industry and Trade Vu Huy Hoang, all issues of substance have been agreed on. The agreement will remove nearly all tariffs on goods traded between the two economies.

“This finely balanced agreement will boost trade with one of Asia’s most dynamic economies,” said Malmström. “It sets a new, better and modern model for Free Trade Agreements between the EU and developing countries, and establishes a good standard for the trade relationship between the EU and Southeast Asia as a whole.”

On the basis of the agreement, the negotiating teams will continue the process, settle some remaining technical issues and finalize the legal text. Once finalized, the agreement will then need to be approved by the EU Council and the European Parliament.

The EU and Vietnam started negotiating the FTA in October 2012. According to an EU document, it is the most ambitious and comprehensive FTA that the EU has ever concluded with a developing country. It is also the second, after Singapore, with a country in the ASEAN region.

The EU-Vietnam FTA will eliminate over 99 percent of tariffs, 65 percent of which will be eliminated by Vietnam once the agreement comes into force, with the remainder will be gradually eliminated over a 10-year period. EU duties will be eliminated over a 7-year period.

The FTA also reduces non-tariff barriers to European exports. Vietnam has committed to increasing the use of international standards in drafting its regulations. The agreement contains a chapter addressing sanitary and phytosanitary measures aimed at facilitating trade in plant and animal products.

The EU-Vietnam FTA will also level the playing field between State Owned Enterprises (SOEs) and private enterprises when SOEs are engaged in commercial activities. On Intellectual Property Rights, Vietnam has committed to a high level of protection, going beyond WTO standards. The FTA also opens Vietnam to EU forms providing business services, environmental services, postal and courier services, banking, insurance, and maritime transportation.