Officially taking effect at 11pm on December 31, 2020, the United Kingdom (UK)-Vietnam Free Trade Agreement (UKVFTA) has reopened the trade and investment bridge between the two countries after the UK left the European Union (Brexit).
To ensure uninterrupted bilateral trade and the smooth implementation of trade liberalization commitments, Vietnam and the UK rushed to negotiate the UKVFTA on the principle of inheriting the EU-Vietnam Free Trade Agreement (EVFTA). It is hoped that the UKVFTA will be an important driving force to bring the relationship between the two countries to a new height.
Despite the negative effects of the Covid-19 pandemic, the import-export turnover between the two countries is estimated to reach US$5.55 billion in 2020.
Vietnam’s exports to the UK in 2020 hit $4.88 billion and imports $670 million. The UK is currently the 3rd largest trading partner of Vietnam in Europe, and the 9th largest export market of Vietnam in the world. More importantly, Vietnam has always maintained a large trade surplus in this market.
The main export products of Vietnam to the UK include: phones and components, textiles, footwear, seafood, processed agricultural products, furniture and wood products, and plastics products. Vietnam mainly imports machinery and equipment for production; pharmaceuticals, and chemicals from the UK.
The UKVFTA was signed by the authorized representatives (Ambassadors) of the two governments in London (UK). Photo: VGP
Currently, the room for cooperation in the field of trade between the two countries is still very large. The value of Vietnamese goods exported to the UK accounts for only about 0.88% of total UK imports and the value of imported goods from the UK to Vietnam only accounts for 0.17% of the value of the UK's goods exported to the world. Import and export goods between the two countries are complementary rather than competitive.
In the field of investment, the UK has 400 valid projects in Vietnam, with total registered capital of $3.6 billion, ranking 16th among 137 countries and territories having investment projects in Vietnam.
The UK's investment in Vietnam has not properly reflected the potential of this country, which is one of the 5 top foreign investment countries in the world (about $300 billion), and also one of the top countries attracting foreign investment in the world. Vietnam also has nine projects with total registered capital of $11.5 million in the UK.
The two countries also have many cooperation projects in the fields of oil and gas, renewable energy, and energy savings that are being implemented effectively.
The signing of UKVFTA took place when Prime Minister Boris Johnson’s administration was promoting its strategy of shifting focus of cooperation to the Indo-Pacific region.
For the post-Brexit period, the agreement makes an important contribution to ensuring the best interests and terms of trade for the UK with one of the fastest growing and most open economies in Asia. Therefore, the agreement is also considered a model of the next-generation FTA between the UK and ASEAN in the future.
For Vietnam, in addition to ensuring uninterrupted bilateral trade after the end of the post-Brexit transition period, the UKVFTA will create a comprehensive, long-term and stable economic-trade framework with the UK, thereby creating a driving force for strengthening and deepening multifaceted cooperation between the two sides, contributing to diversifying markets and export products.
The fact that the UKVFTA was signed and put into effect at the time the Brexit officially took effect on January 1, 2021 is very important, marking a ripe time for the Vietnam-UK relationship to take off.
The agreement will promote the export of key products of Vietnam, thereby increasing the proportion of goods entering the UK market, which only accounts for less 1% of the UK’s total import value.
For the fishery sector, the commodity group with the earliest advantages is shrimp and some types of fish. As soon as the agreement takes effect, import tax on most types of raw shrimp into the UK will be reduced from the basic tax rate of 10-20% to 0%.
For the textile and garment industry, total exports to the UK accounted for 2.77% last year. Commitments to open markets in EVFTA and UKVFTA will make an increase in turnover in this large market. In addition, with commitments on aggregation for fabric materials from the EU, in the long term, Vietnamese textile enterprises will expand their sources of supply of raw materials, avoiding dependence on certain markets.
After UKVFTA comes into effect, Vietnam's rice products will have an unprecedented opportunity, especially fragrant rice, to penetrate one of the 10 largest markets in the world, with strict standards.
According to UKVFTA commitments, the UK gives Vietnam a total duty-free quota of 13,358 tons per year. The quota will be reviewed by the two countries three years after the agreement took effect.
Besides rice, more than 10 agricultural products of Vietnam also enjoy this tax-free quota preferential rate, like tapioca.
The wood industry will also benefit directly from the agreement. In 2019, Vietnam was the 6th largest wood exporter to the UK, accounting for 3.6% of the import market share. With UKVFTA, many wood products will have a tax rate of 0% within the next five years.
The market share for fruit products will open up great opportunities for many Vietnamese products such as litchi, longan, rambutan, dragon fruit, pineapple, melon … after 94% of the total 547 tariff lines of this industry are deleted. In addition, British consumers prefer tropical, frozen or processed products, with environmentally friendly production processes, less CO2 emissions, and less plastic packaging.
During the Covid-19 pandemic, demand for agricultural products, food, electronic products (computers, Internet equipment), toiletries, personal protective equipment, medical equipment (ventilators, blood filters), testing equipment, and hospital protective gear (nitrate gloves, masks, and clothing for medical staff and patients) from the UK market increased. Therefore, combined with market access opportunities from the UKVFTA agreement, exports to the UK market will continue to be strongly promoted.
To effectively exploit the UKVFTA and conquer a high standard market like the UK, Vietnamese businesses must make great efforts in market research and product innovation, as well as meet the standards and tastes of British consumers and continue to improve the professional commercial level to establish firm customer trust.
UK firms will have a strong market adjustment to take advantage of the UKVFTA when and only when Vietnamese firms meet their expectations for expertise and trust. Nearly 100,000 Vietnamese students graduating from UK universities is a valuable resource that businesses cannot ignore if they want to develop cooperation with the British.
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