The European Union (EU) and Vietnam have reached an agreement in principle for a free trade agreement (FTA), after two and a half years of intense negotiations, the European Commission announced Tuesday.
The agreement will remove nearly all tariffs on goods traded between the two economies, it said.
According to the statement, EU Trade Commissioner Cecilia Malmstrom and Vietnamese Minister of Industry and Trade Vu Huy Hoang have hammered out all issues of substance during a telephone conversation on Tuesday morning.
"Both sides have reached a mutually beneficial and balanced package," the statement said.
"We have a deal. This finely balanced agreement will boost trade with one of Asia's most dynamic economies," Malmstrom said, noting that the deal sets "a new, better and modern model for Free Trade Agreements between the EU and developing countries."
This agreement is the first of its kind that the EU has concluded with a developing country.
"Vietnam is a growing economy and once this agreement is up and running, it will provide significant new opportunities for companies on both sides, by increasing market access for goods and services," the commissioner said.
According to the EU, over 31 million jobs in Europe depend on exports, so it is important to have easier access to a growing and fast developing market like Vietnam, with its 90 million consumers.
According to the agreement, Vietnam will remove almost all of its export duties besides eliminating tariffs. The agreement will also create new market access opportunities in services and investment.
Vietnam has agreed to liberalise trade in financial services, telecommunications, transport, and postal and courier services, the EU said.
On investment, Vietnam will open its market to the EU, for instance by removing or easing limitations on the manufacturing of food products and beverages, as well as in the non-food sectors.
Meanwhile, the deal was seen as "a good standard for the trade relationship between the EU and South East Asia as a whole".
After the conclusion of the Singapore FTA in 2014, this will be the second FTA between the EU and a country of the Association of Southeast Asian Nations (ASEAN).
"It is a building block towards the EU's ultimate objective of an ambitious and comprehensive region-to-region FTA with ASEAN as a whole," the statement said.
In June 2012 the EU and Vietnam launched negotiations for a comprehensive free trade agreement with a view to ensuring an effective environment for trade and investment relations.
"Both sides have worked extremely hard in the past few months to achieve this breakthrough," Malmstrom said.
On the basis of the agreement, the negotiating teams will continue to settle some remaining technical issues and finalize the legal text. The finalized agreement is supposed to be approved by the EU member states and the European Parliament.
"Given the cooperation established with Vietnam over many years and strengthened by this negotiating process, it is expected that this process could be finalised in a few months' time and certainly before the end of the year," the EU said.