Unpacked: UK-Vietnam Trade and the CPTPP

12/04/2023    80

From Brexit to the CPTPP, the road has been long for the United Kingdom, but the final outcome should see the country’s trade ties with Vietnam become stronger than before. Below we discuss the evolution of two-way trade between Vietnam and the UK following Brexit and the implications of the UK’s accession to the CPTPP on this bilateral trade relationship.

When the United Kingdom voted to leave the European Union in 2016 it sent economic shockwaves around the world. This was an unprecedented change to the global economic order. The exit of the UK, which accounted for 16 percent of the EU economy, dealt a significant blow to the EU’s position as a powerful force in global trade.

For Vietnam, this represented a sizable shift in how its trade program was developing – the UK should have been a part of the European Union-Vietnam Free Trade Agreement (EVFTA), but this would no longer be the case.

The EVFTA was scheduled to come into force in 2020 – after the UK was expected to exit the EU single-market. As a result, Vietnam-UK trade, assuming no other arrangements were made, would fall back on WTO guidelines and tariff schedules.

Neither party, however, wanted to miss out on the benefits that the EVFTA had promised.

For example, Vietnam was set to benefit from savings of up to US$131 million in tariffs on exports to the UK. By the same metric, the UK would have benefited to the tune of US$63 million from exports to Vietnam.

The UK had, at the time, declared its intention to join the CPTPP to which Vietnam is a party, but with 10 countries in the agreement already, being confirmed as a member would take some time. Consequently, the UK and Vietnam moved ahead with a bilateral trade agreement to keep trade flowing.

The UK and Vietnam negotiate a bilateral agreement

The UK and Vietnam went to work forging their own FTA, using the EVFTA as its foundation. It would, however, require some changes.

Tariff-rate quotas (TRQ), for example, were lowered for products entering the UK with respect to the size of the UK market compared to that of the collective EU; modifications to the rules of origin were made given that goods from the UK would no longer be considered as from the EU; and, a handful of branded goods were added to the intellectual property clauses. For the most part, however, the EVFTA agreement was left intact but for the name.

As a result, negotiations for the United Kingdom-Vietnam Free Trade Agreement (UKVFTA) moved relatively quickly and were completed December 11, 2020, with the agreement signed December 29 of the same year.

This was another feather in the cap of the UK’s post-Brexit trade negotiations bringing to an end almost four years of relative uncertainty.

Vietnam and UK enjoy strengthening ties

The UKVFTA has significantly reduced tariffs and strengthened the trade relationship between Vietnam and the UK, resulting in substantial benefits for both countries.

British luxury carmaker McLaren, for example, opened its first showroom in Vietnam last year. AstraZeneca is also working with the Vietnamese government on disease prevention and control and pharmaceutical research.

In the other direction, Vietjet CEO, Thao Nguyen, pledged a 155-million-pound donation to Oxford College in the UK in 2021 and in return received her name on a dormitory. Although these funds have not, yet, been delivered, the desire to raise the profile of Vietnamese brands in the UK is evident.

It is worth noting that the two-way trade between Vietnam and the UK experienced a decrease in 2020, which can be attributed to the lower demand caused by the COVID-19 pandemic. However, the trade bounced back in the following year, reaching the highest level ever recorded between the two countries.

The UK’s accession to the CPTPP

Earlier this year, the relationship between Vietnam and the UK took another step forward when the UK’s accession to the CPTPP was confirmed.

This will see a number of advantages for both parties over and above the UKVFTA. These include:

  • Tariffs on engines and medicines exported to Vietnam will come down faster.
  • Tariffs on chocolate and port will be eliminated sooner.
  • Duties on beef exported to Vietnam will be eliminated at entry into force.
  • Duties on pork and chicken will be eliminated from years 3 and 5, respectively.
  • Vietnam will receive access to a separate duty-free TRQ on long-grain milled rice. The volume will increase incrementally over eight years, capped at a permanent quota of 17,500 tons.
  • Vietnam along with Chile, Malaysia, Brunei, and Peru will share a single, duty-free TRQ on sugar – the volume of which will increase incrementally over 10 years. This will be capped at a permanent quota of 25,000 tons.
  • UK businesspersons travelling to Vietnam for short-term business will be allowed to stay for up to six months as opposed to the three months currently permitted.
  • British citizens will have guaranteed access to Vietnam.

These changes will liberalize trade between these two countries further and allow for better and smoother supply chain integration for the UK among the member states.

What’s next for trade between Vietnam and the UK?

Although the immediate impact of the UK’s accession to the CPTPP is not expected to be significant due to the existing UKVFTA, there will be several long-term benefits such as tariff reductions and increased market access for both Vietnam and the UK.

Vietnam is expected to benefit from increased exports of agricultural and seafood products while the UK should see a boost in its meat exports to Vietnam.

The two countries have been working on trade reform for the past seven years, and this latest development is expected to further strengthen their trade relationship and lead to continued growth in two-way trade.

Source: Vietnam Briefing