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 is 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."

Meanwhile, the deal was seen as "a good standard for the trade relationship between the EU and South East Asia as a whole".

"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.

"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.