The UKVFTA Agreement and its implications
The United Kingdom - Viet Nam Free Trade Agreement (UKVFTA) was signed on December 29, 2020. The UKVFTA Agreement is a proceeding step of the Vietnam - UK trade relationship when the EU - Vietnam Free Trade Agreement (EVFTA) was no longer applied to the UK after December 31, 2020 because of Brexit. With basic commitments based on EVFTA but was adjusted to be more suitable for the two countries, UKVFTA officially took effect from 23:00 on December 31, 2020, promising to bring many benefits to both sides.
According to the commitment, after 6 years UKVFTA takes effect, the UK will abolish import tax on 99.2% of tariff lines, equivalent to 99.7% of Vietnam's export turnover. The EU has committed to giving Vietnam a tariff rate quota (TRQ) with an import tax of 0% for some products.
For UK, the UK said that they will base on EU statistics on actual bilateral trade between Vietnam and the UK for the period 2014-2016 to decide a similar policy. The UK also committed to review to increase the amount of TRQ with Vietnam's rice products after 3 years from the effective date of UKVFTA.
The export industries that benefit greatly from this agreement are seafood, rice, textiles, wood, vegetables, footwear...
In contrast, Vietnam will abolish tariffs as soon as the agreement takes effect with 48.5% of tariff lines, accounting for 64.5% of imports from the UK. After 6 years, the amount of removed tariff lines will increase to 91.8%, equivalent to 97.1% of export turnover and after 9 years it is about 98.3% of tariff lines (accounting for 99.8% of turnover).
In addition, the Agreement also includes commitments on rules of origin, customs and trade facilitation, food hygiene and safety measures, and technical barriers to trade and services (including common regulations and commitments to open markets), investment, trade defense, competition, state-owned enterprises, Government procurement, intellectual property, trade and sustainable development, cooperation and capacity building activities, legal - institutional.
According to the Ministry of Industry and Trade, thanks to UKVFTA, Vietnam will have more competitive advantages than other strong competitors from China, India, Thailand, Malaysia, Indonesia ... that have no prospect of signing FTA with the UK for many years to come. On the other hand, Vietnam will have more opportunities for cooperation, investment, technology transfer, and attracting British tourists after the end of Covid-19. The Agreement also created a positive relationship between Vietnam and the UK, especially when Vietnam and the UK just issued a Joint Declaration on the bilateral cooperation vision on the occasion of the 10th anniversary of the strategic partnership between the two countries.
For Vietnam, thanks to the commitments about opening commodity markets and adding quotas on products with high competitive advantages such as agricultural and fishery products, Vietnamese businesses will have more opportunities to promote exports. According to calculations, the value of import tax that Vietnam's goods can save when entering the UK is estimated at 3.5 trillion / year.
In the context of the ongoing pandemic causing difficulties for production and business activities, the UKVFTA Agreement is expected to help stabilize the market so that businesses can recover and develop. The Ministry of Industry and Trade assessed that the fiscal space for market growth in the UK is still very large because currently Vietnam's exports only account for less than 1% of the market share in the total annual import turnover of the UK which is nearly 700 billion USD.
However, the commitments about opening markets to goods and services for the UK will put certain competitive pressures on the domestic economy, businesses, goods and services, especially in those industries where the UK has advantages such as financial services, pharmaceuticals, chemical products...
Moreover, technical standards and quality requirements for imports from the UK are very high. For example, although UKVFTA inherits preferences with SPS (sanitary and phytosanitary measures) in the EVFTA Agreement, Vietnam's agricultural products such as tea, vegetables... need to improve the uniformity in each batch, harvest and preserve, and product quality to conquer this demanding market.
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