Vietnam-UK expected to see new horizon in their expanded ties

Friday, 2021-06-04 09:32:51
 Font Size:     |        Print

Cashews are among the many Vietnamese products that are exempt from import tariffs in the UK thanks to the UKVFTA
 Font Size:     |  

NDO - The investment and trade cooperation between Vietnam and the UK is expected to see a new horizon in the time to come thanks to new impetuses, with the Southeast Asian nation increasingly improving its business climate to welcome new foreign investment inflows.

On Wednesday this week, 11 member countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam - agreed to the United Kingdom’s bid to begin the accession process to join the CPTPP, which began to take effect in 2018.

Covering a population of 500 million people, CPTPP countries accounted for £110 billion (US$155.25 billion)-worth of UK trade in 2019 while its rules remove tariffs on 95% of goods traded between members.

The UK will continue to work closely with Japan, as this year’s chair of the CPTPP commission, alongside the other CPTPP nations to progress negotiations as quickly as possible.

“CPTTP membership is a huge opportunity for Britain. It will help shift our economic centre of gravity away from Europe towards faster-growing parts of the world and deepen our access to massive consumer markets in the Asia-Pacific,” said the UK’s International Trade Secretary Liz Truss. “We would get all the benefits of joining a high-standard free trade area, but without having to cede control of our borders, money or laws.”

The UK’s government will publish its outline approach, scoping assessment and consultation response before negotiations start in the coming weeks.

The UK and CPTPP member nations will work to set up task groups over the next few months in order to debate issues about tariffs and regulations on trade and investment.

Since July 2018, the UK has engaged with all 11 member countries at both the ministerial and official levels to explore its accession to CPTPP. All CPTPP members have welcomed the UK’s interest in accession. This approach aligns with the accession process as outlined by the CPTPP Commission in early 2019, which encourages countries to engage informally with every CPTPP member, addressing any concerns and questions before formally applying.

On February 1, 2021, the UK government formally applied to join the CPTPP, which took effect for Vietnam in January 2019.

“CPTPP membership will help open new opportunities for UK businesses, increase trade and investment and build on the strong economic ties we already hold with CPTPP members,” said the UK’s Department for International Trade (DIT) in a statement on the UK’s plan on accession to the CPTPP. “In 2019, each region and nation of the UK exported at least £1billion (US$1.26 billion) worth of goods to CPTPP member countries [including US$857.4 million to Vietnam] and we are keen to strengthen and expand this relationship with accession to the agreement.”

If the UK joins the CPTPP, Vietnam and the UK can boost trade in these areas and provide stability for both sides’ businesses, supporting the two nations’ aim to be champions of open trade in services.

The CPTPP reduces tariffs on 95% of goods between its members and sets modern rules in areas of increasing importance for the members’ industry and business, including on digital trade, data, financial, professional, and business services.

Raymond Mallon, economic advisor living in Vietnam for more than 20 years, said that Vietnam has and will benefit greatly from the CPTPP.

“Business and consumers stand to benefit from reduced tariff rates, and increased trade with other CPTPP members. But the more significant benefits will result from reforms to reduce non-tariff barriers to trade and investment in all CPTPP countries, reforms aimed at ensuring competitive neutrality (meaning “a level playing field” for all investors), transparency and anti-corruption measures, among other structural reforms,” Mallon said.

“These reforms should help reduce the costs and risks of engaging in business and trade in Vietnam, promote domestic private sector development, and provide increased opportunities for businesses to access new markets and diversify export markets and sources of foreign investment. And business success should be less dependent on access to bureaucratic decision makers,” he said.

According to him, the CPTPP is also increasing Vietnam’s access to capital and technology. This is helping to further stimulate innovation and productivity growth and facilitating deeper business integration into global production chains. This will help create new, higher income, and more interesting employment opportunities.

Benefits from UKVFTA

On May 21, 2021, the Vietnamese government promulgated Decree No.53/2021/ND-CP on Vietnam’s preferential export tariff and special preferential import tariff schedules to implement the UK-Vietnam Free Trade Agreement (UKVFTA) for the 2021-2022 period. The decree took effect on the enactment date. Notably, Decree 53 covers two appendixes.

Specifically, Appendix I of this decree features Vietnam’s preferential export tariff structure for the implementation of the UVFTA, which includes commodity codes, commodity descriptions, and preferential export tariffs for each commodity code when exported to the UK.

Meanwhile, Appendix II clarifies Vietnam’s special preferential import tariff structure to implement the UVFTA, which includes commodity codes, commodity descriptions, and special preferential import tariffs for each commodity code when imported into Vietnam from the UK and non-tariff zones.

Specifically, goods exported from Vietnam will be eligible to enjoy the preferential export tariffs when they are imported into the UK, have transport documents (copies) showing the UK as their destination, and have import customs declarations for the batches of Vietnam-originated goods imported into the UK.

Meanwhile, in order to be eligible for special preferential import tariffs, import items must be imported into Vietnam from the UK or from the non-tariff zones. In addition, the goods must meet the regulations on the rules of origin and have documents certifying the origin of goods as set out in the UVFTA.

According to the Vietnamese Embassy, with the positive impacts from the UKVFTA and Vietnam increasingly improve the quality of its business and investment climate and the country’s good control of the COVID-19 pandemic, the Southeast Asian nation has and will continue becoming an attractive trade and investment partner of the UK.

In fact, the UK have strong advantages in many sectors that Vietnam is in critical need of cooperation in, such as finance, banking, service, insurance, pharmacy, IT, and high-tech consultancy, among others.

The UK also has a great demand for imports, especially from Asia. Annually the UK earmarks as much as US$700 billion for purchasing goods from all over the world.

Commitments on tariffs for both the UK and Vietnam have, generally, been transitioned without changes. This has meant that tariff preferences applied by the UK on imported goods from Vietnam remain the same, like those applied by the EU, at the end of the UK’s transition period with the EU on December 31, 2020. Vietnam has also committed to applying the same preferences to imported products from the UK, that it applies to products from the EU.

The UKVFTA aims to strengthen the existing relationship between the 2 nations. In fact, 65% of all tariffs have already been eliminated from UK-Vietnam trade. In the first 6 years after the UKVFTA takes effect, the UK will eliminate tariffs from 99.2% of the tariff lines in relation to Vietnam imports. This is higher than under the EVFTA (70.3%). Vietnam pledges to eliminate 48.5% of tariffs, matching other EU countries under the EVFTA.

Right after the UKVFTA took effect in May 2021, items with immediate exemption of non-quota import tariffs include mango, cashew, pepper, coconut, rambutan, coffee, longan, and litchi. Other items such as tuna, ground fish, shrimp, tuna, and fragrant rice, as well as other agricultural products will also be exempted from tariffs under quotas.

In addition, industrial products with immediate tariff exemptions include wallets, purses, suitcases, bags, protective shoes and sport shoes, nightclothes, swimwear, indoor clothing, shawl, handkerchief, and leggings.

Together with Vietnam’s continued reform of policies and opening of the economy, the UVFTA will encourage foreign investors in Vietnam to expand production and business.

Under the UVFTA commitments, when the agreement takes effect, imported tariffs on shrimp materials entering the UK are pared down from 10-20 to 0%.

Cementing cooperation

According to the Vietnamese Ministry of Planning and Investment, as of May 20, 2021, Vietnam had US$3.92 billion registered between 421 investment projects invested in by UK investors. In the first five months of this year, the total newly-registered, newly-expanded, and stake acquisition-based capital from the UK in the Southeast Asian nation stood at US$55.15 million.

The two-way trade turnover between Vietnam and the UK totalled US$5.64 billion in 2020, with Vietnam earning US$4.95 million from exporting goods to the UK. In the first quarter of this year, Vietnam’s total export-import turnover reached more than US$1.63 billion, a year-on-year rise of 12.48%. This included nearly US$1.47 billion worth of export revenue, up 14.74% year-on-year.

Tran Ngoc An, former Vietnamese Ambassador to the UK, said, “Vietnam is viewed by British investors as one of the most attractive destinations for business in the Asia-Pacific region,” An said. “Due to Brexit, the UK side has been proactively working with the Vietnamese side on boosting new bilateral co-operation mechanisms, including the UKVFTA.”

In the joint declaration both nations made in September 2020 titled “The Vietnam-UK Strategic Partnership: Forging ahead for another 10 years”, the two countries vow to
work with each other to support sustainable economic growth and prosperity, particularly in the areas of sustainable urbanisation and development, water resources management, environmental protection, ocean governance, hydro-meteorology services, healthcare, innovation, including cooperation on digital economies, smart cities, infrastructure and construction, in line with the United Nations Sustainable Development Goals.

The UK commits to supporting Vietnam’s low-carbon climate-resilient growth strategy and transitioning to renewable energy including wind and solar power.

“We will cooperate to make the transition to low carbon economies, including trade and investment that contributes to reducing greenhouse gas emissions, science and technology and green financing. We will ensure bilateral cooperation to support initiatives around sustainable energy, low carbon economies and green financing,” read the declaration.