16:41 | 29/12/2020 Cooperation
(VEN) - The United Kingdom (UK) and Vietnam have signed a new free trade deal (UKVFTA) to ensure continuity of their trade once the Brexit transitional period ends on December 31, 2020. The agreement signed in Hanoi in mid-December marks a new beginning in bilateral relations.
Under the UKVFTA, the UK will first eliminate 65 percent of tariffs, moving up to 99 percent within seven years. Vietnam will first remove 48.5 percent of tariffs from UK imports, which will rise to about 92 or 98 percent after six years.
In recent years, the UK has been Vietnam’s third largest trade partner in Europe after Germany and the Netherlands. According to the General Department of Vietnam Customs, two-way trade reached US$6.6 billion in 2019. However, the volume of made-in-Vietnam products consumed in the UK is greater because a significant amount of Vietnamese goods are shipped through major seaports in the Netherlands, Belgium, Germany, France and the Czech Republic before reaching the UK. Vietnam mainly exports garments and textiles, footwear, wood and wood products, and seafood to the UK, while importing pharmaceuticals, machinery and equipment.
Minister of Industry and Trade Tran Tuan Anh affirmed that with high commitments and standards, the UKVFTA will be a new driving force to promote bilateral trade and investment relations. Vietnam’s sectors likely to be major beneficiaries of the trade deal will be fishery, rice, garment and textile, wood, fruit and vegetable, and leather and footwear.
Vietnam’s garment and textile exports to the UK currently account for only 2.77 percent of the total, indicating great growth potential. Shrimp and tra fish will enjoy the benefits in the fishery sector as soon as the UKVFTA comes into effect because import duties will be slashed. In addition, a zero tax rate within five years will be applied to Vietnam’s wood and wood products. The UK holds significant potential for Vietnamese rice exports as stipulated by numerous commitments under the trade deal, which provides Vietnam’s rice with a competitive advantage over rice from Thailand, China and India. In addition, the UK is committed to reviewing and increasing the Tariff Rate Quotas (TRQs) for Vietnamese rice after three years from the effective date of the UKVFTA.
Increased pressure to improve product quality
According to the Ministry of Industry and Trade, in addition to opportunities to promote exports, the trade deal also poses challenges for Vietnam.
Commitments to opening the market for UK goods and services will create certain competitive pressure for the Vietnamese economy, especially in the sectors where the UK has advantages such as financial services, pharmaceuticals and chemical products.
Raw materials for production of Vietnam’s garments and textiles are mainly imported from China and ASEAN countries. Although the trade deal facilitates supply expansion, the Ministry of Industry and Trade still recommends that businesses switch to other sources to take advantage of opportunities.
Although the UKVFTA inherits the preferences with flexible SPS (sanitary and phytosanitary) regulations from the EU-Vietnam Free Trade Agreement (EVFTA), most of Vietnam’s agricultural products, such as tea and vegetables, still face difficulties due to lack of uniformity in each shipment, poor harvests and preservation.
The trade deal also includes non-traditional commitments in the fields of labor and environment. Although Vietnamese law has specific regulations on minimum wages, working time, occupational health and safety, child labor and environmental protection in accordance with international standards, some businesses have failed to comply with them, thereby risking their eligibility for the deal’s incentives.