Vietnam makes most of newly enacted UK tariff preferences
Vietnam makes most of newly enacted UK tariff preferences
The Vietnamese government promulgated Decree 53/2021/ND-CP dated May 21, 2021 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.
Outstanding tariff preferences
In fact, 65 percent of all tariffs have already been eliminated from UK-Vietnam trade. In the first six years of the deal, which went into effect on May 1, the UK will eliminate 99.2 percent of tariff lines on Vietnam’s imports. This is higher than the terms of the EU-Vietnam Free Trade Agreement (EVFTA) with 70.3 percent. Vietnam pledges to eliminate 48.5 percent of tariffs, matching other EU countries under the EVFTA.
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Tariff-rate quotas (TRQs) allow for a certain quantity of a product to enter the market at a zero or reduced tariff rate. Imports above that quantity are subject to a higher tariff rate. These have been modified to accommodate the UK’s departure from the EU and in accordance with it being a smaller importer and exporter than the EU. In order for traded products to continue benefiting from the use of TRQs, these quotas have been set at levels allowing for continuity of the two countries’ historical trade flows.
Other tariff preferences in the UKVFTA include reduced import tax on most types of raw shrimp into the UK from 10-20 percent to zero percent; a tax rate of zero percent in the next five years for wood products; and elimination of 94 percent of the total 547 tariff lines for fruits. The UKVFTA has retained the EU-Vietnam commitments on liberalizing public procurement markets and ensuring enforceable market access. Vietnam has committed to eliminating the economic needs test (ENT) applicable to secondary and subsequent retail establishments within five years after entry into force.
Benefits
The UKVFTA was officially inked in London on December 29, 2020 by the two countries’ ambassadors given the UK’s final departure from the European Union on December 31. The trade deal took effect on May 1, 2021. The agreement will see the elimination of virtually all customs duties between the two countries when it is fully implemented. The British Embassy in Vietnam has forecast that Vietnam will save US$151 million in tariffs from the deal, while the UK stands to save around US$36 million. The trade deal will strengthen the UK-Vietnam relationship across trade liberalization, legal regulation and alignment in global standards.
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Vietnam has also pledged to support the UK in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK’s participation in the CPTPP will serve as a vivid testament to Vietnam’s commitment towards free trade amid the trend of protectionism in many countries.
Vietnam is currently the second-largest Southeast Asian exporter to the UK after Thailand with trade turnover reaching US$6.7 billion in 2019. Vietnam mainly exports mobile phones, garments and textiles, and seafood to the UK. The UK is also looking to invest in education, renewable energy, technology, infrastructure, and healthcare in Vietnam.
Potential
Following an economic partnership agreement with Japan and a trade deal with Singapore, the UKVFTA is the UK’s third trade deal in Asia. The deal offers significant opportunities for the UK to expand exports to Vietnam, which is one of the world’s fastest-growing emerging markets. Although the trade deal will benefit both countries, UK investors should become familiar with Vietnam’s current legal and tax environment. Investors who target sectors in accordance with Vietnam’s development goals are likely to find success in long-term investment projects.
The UK is one of the largest foreign investors in education in Vietnam. The country’s rising middle class prefers private education over public school systems due to better quality of services, offering opportunities for UK investors. Vietnam’s strong development in renewable energy also presents further opportunities for UK businesses.
