- Green Growth
- Your Consultant
|Most tariffs will be eliminated across many products following the new UK-Vietnam Free Trade Agreement which comes into effect next month|
The conclusion of the UK-Vietnam Free Trade Agreement (UKVFTA) last week took place just as the two countries celebrated 10 years of a bilateral strategic partnership.
Vietnamese Minister of Industry and Trade Tran Tuan Anh said, “The signing of the agreement is of huge significance and practical value for several reasons. It stems from the actual needs of both countries – Brexit means that the agreement between Vietnam and the EU (EVFTA) that came into force in August no longer applies to the UK after December 31.”
He also explained that both sides wanted to reach a deal as soon as possible so as to accelerate economic rebound post-pandemic. In addition, the clauses in the UKVFTA will be almost identical to those in the EVFTA, signifying that the two countries would have no need to undergo a decade of negotiations as such with the EVFTA.
Since the Vietnam and UK established diplomatic relations in 1973, bilateral trade cooperation has been developing ceaselessly. Statistics by the Vietnam General Department of Customs show that total import-export value between Vietnam and UK reached $6.6 billion in 2019. In recent years, the UK has become Vietnam’s third-largest trading partner in Europe, behind Germany and the Netherlands.
The volume of Vietnamese-made products consumed in the UK is, however, much bigger than statistics imply because a significant amount of Vietnamese goods are shipped through major seaports in the Netherlands, Germany, France, and the Czech Republic before reaching the UK.
Due to COVID-19 impacts, two-way trade value between Vietnam-UK went down 15 per cent in the first 10 months of 2020 falling to $4.7 billion. Vietnam’s export to the UK declined by 14.9 per cent to a bit more than $4.1 billion compared to one year ago.
The British market has seen a sharp plunge in the demand for non-essential goods such as wooden furniture, apparel, footwear, fine handicrafts, interior decoration items, tourism utensils, means of transport, and spare parts. This trend is expected to be prolonged until the end of the pandemic due to consumers’ concerns and rising unemployment. This has contributed to Vietnam’s exports to UK falling sharply in the first 10 months this year.
In this context, the demand for food and foodstuff products, electronic items, personal care items, medical supplies such as ventilators and blood filters, testing instruments, and medical protective gear continues to rise in a stable manner.
The UK’s investment scale in Vietnam does not currently match the country’s actual potential as that country is one of five largest outbound investors globally of about $300 billion – simultaneously it is the largest investment capital recipient.
UK International Trade Secretary Liz Truss, who visited Vietnam to help reach an agreement, said, “Our deal with Vietnam is an important step towards the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which we aim to formally apply for in early 2021. Accession will strengthen our relationship with Vietnam and enable us to form closer ties with 11 dynamic economics in the Indo-Pacific region, as well as bring more opportunities for the UK, its economy, and its people.”
She added that agreements with Singapore and Vietnam are vital for the UK’s future as an independent trading nation. “Not only do they lock in billions of pounds’ worth of trade, they also pave the way for new trade agreements and us joining the CPTPP, which will play to the UK’s strengths and define our role in the world for decades to come,” Truss added.
In the past couples of years, the UK has been Europe’s second-largest market (behind Germany) for Vietnamese exports. Vietnam-UK trade relations have been progressing to favour Vietnamese export products, shown through trade surplus metric of around $5 billion per year.
The goods structure between Vietnam and UK is highly reciprocal. Accordingly, Made-in-Vietnam products that are highly advantageous in the British market include tropical agricultural produce, seafood, footwear, textiles, apparel items, leather, wooden furniture, pottery, glass items, plastic and rubber products, machinery, pharmaceuticals, iron and steel items, chemicals, and more.
The room for market growth in the UK market for Vietnamese products remains immense as the country’s export products just account for 1 per cent market share in UK’s total import value each year of nearly $700 billion.
Vietnam is deemed as a fascinating market for many, and the gateway for foreign investors to break into a huge ASEAN market that accommodates more than $630 million people and a GDP reaching $2.56 trillion. Vietnam’s macro-economy has also been stable in recent years, with GDP growing an average 6-8 per cent annually, and with import-export jumping 12 per cent per year.
Foreign investment flow into Vietnam has been stable on-year, with noticeable improvements in both investment business environment and national competitiveness, ranking 77 out of 140 countries. Strengthening an all-sided partnership with the UK is a priority orientation in Vietnam’s external policy.
The agreement with the UK entails opportunities for investment cooperation, technology transfer, and modern management expertise from British businesses, attracting new visitors post-pandemic, and stimulating other bilateral cooperative relations in diverse fields such as development assistance, security, culture, and education and training.
Simultaneously, it creates a positive message for Vietnam-UK relations, especially after the two countries just released a joint statement on bilateral cooperation vision on the occasion of 10 years celebrating a strategic partnership between the two countries.
According to the Ministry of Industry and Trade, the fields in which UK has strong advantages and Vietnam would like to push up cooperation in the coming time are renewable energy, sustainable production and consumption, and greenhouse gas emission reduction.
Not only that, as the UK is strong in the field of sustainable development, renewable energy, eco-friendly technologies, logistics, finance, and the digital economy, both sides have endless potential to propel cooperation in the Industry 4.0 era, according to the ministry. Towards sustainable development, both sides commit to beef up relationship in environmental protection, minimising carbon emissions, cleaner production, and promoting the use of renewable energy.
In the framework of green finance foundations, the pair have also penned out low-carbon energy conversion production projects. Both countries propose for research and development of equipment and service supply chains, and investment in projects promoting technology transfer and lowering the cost of renewable energy development across Vietnam.
Highlights of UK-Vietnam Free Trade Agreement
The UK-Vietnam trade deal will come into effect on January 1, 2021.
- 99 per cent of tariffs will be eliminated by the time of full implementation, including
machinery and mechanical appliances, and pharmaceutical products;
- Businesses, supply chains, and consumers will benefit from staged tariff reduction on
imports to the UK for products such as clothing and footwear;
- Businesses will maintain access to Vietnam’s service sectors. The agreement prohibits
customs duties on electronic transmissions and on financial services. British investors will continue to be able to supply advisory and auxiliary services.