THE UK – VIETNAM FREE TRADE AGREEMENT (UKVFTA)
On 11 December 2020, Vietnam’s Minister of Industry and Trade, Mr Tran Tuan Anh and the UK Secretary of State for International Trade, Ms Liz Truss concluded negotiations over the UK-Vietnam Free Trade Agreement (the “UKVFTA”). On 29 December 2020, the trade agreement was signed, which took effect on 1 January 2021, just after the UK’s post-Brexit transition expired on 31 December 2020. The UKVFTA is mostly based on the terms of the EU-Vietnam free trade agreement (the “EVFTA”).
Two-way trade has developed steadily since the two countries established a strategic partnership in 2010. Bilateral trade tripled from 2010 to 2019 to around US$7.0 billion. Vietnam exported around US$6 billion worth of goods, mainly garments, seafood and wooden furniture to the UK in 2019. This figure accounted for less than 1 percent of the UK’s total imports of nearly US$700 billion. The UK is also Vietnam’s second largest export market in Europe. Meanwhile, Vietnam’s imports from the UK reached nearly 1.0 billion USD in 2019, around 0.4% of Vietnam’s total imports.
The UK is looking to Vietnam’s support to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Vietnam is also a high potential market for British investors in renewable energy, education, healthcare, and infrastructure. Meanwhile, Vietnam is looking to the trade deal to increase its exports and growth targets.
In the first 6 years after the UKVFTA takes effect, the UK will eliminate tariffs on 99.2% of tariff lines in relation to Vietnam’s imports from the UK, higher than tariff lines under the EVFTA (i.e. 70.3%). On the other hand, Vietnam pledged to eliminate tariffs as soon as the UKVFTA came into effect, with 48.5% of tariffs line, which is the same as other EU countries under the EVFTA. The British Embassy in Vietnam estimates that Vietnam is expected to save US$151 million in tariffs from the trade deal, while the UK hopes to save around US$36 million.
The UKVFTA has also taken major steps forward in adopting rules of origin, customs and trade facilitation, food hygiene and safety measures, technical barriers to trade and services, copyright issues, intellectual property protection, investment liberalisation, sustainable development, and commitments to meet the standards of the International Labour Organisation (ILO) and the UN Framework Convention on Climate Change mostly in the fields of pharmaceuticals, machinery, equipment, chemicals, automobiles, and banking and insurance.
The trade agreement will also help reduce tariffs to zero and eliminate non-tariff barriers on most goods from both countries under a short road map and help boost the volume of goods from both sides entering the other’s market, enhancing economic cohesion between the two strategic partners.
Vietnamese rice will enjoy a zero percent import tariff compared to 17.5% now. A number of Vietnamese fisheries products, such as prawns and fish, will also benefit from lower customs duties; a number of large Vietnamese firms are enthusiastic about seeking investment opportunities in the UK.
The UKVFTA will also ensure the non-interruption of trade between the two countries and maintain the recovery of Vietnam’s exports to the UK. Garments, sportswear, furniture, computers, mobile phones, tea, coffee, pepper, prawns, specialty rice, tropical fruit, and construction steel as among Vietnamese products likely to be competitive in the UK.
In the service sector, Vietnam also holds a competitive edge in air freight and software design services. As the UK’s demand for such products is large, the trade agreement will help Vietnamese enterprises to expand their market share in the country.
The Vietnamese Government is increasingly open to foreign investments. Companies will benefit from reduced tariffs on imports and exports. Currently 65% of tariffs are removed tariff on UK-Vietnam trade, but this will increase to 99% of tariffs over time.
The UKVFTA will pave the way for a new wave of foreign direct and indirect investments from the UK in Vietnam in the former’s areas of strength, such as renewable energy and environmental technology.
As of today, there are no specific details revealed on investment protection in the trade deal. However, it is expected that clauses for investors may be similar to those of the EVFTA, a bilateral trade agreement that Vietnam recently concluded with the EU.