Challenges from the implementation of the UK's CBAM for Vietnam's exports
Although the United Kingdom remains a modest market, the potential of this market for Vietnamese exports in general and CBAM product groups in particular is assessed as very promising in the context that Vietnamese exports only account for about 1.16% of the total imports of this market (2023 data, ITC Trademap). Iron and steel, the CBAM product group with the largest export turnover to the UK market from Vietnam, also only accounts for less than 2.7% of the UK's import market share for this product.
Therefore, the expected implementation of CBAM in this market from the beginning of 2027 will certainly have a significant impact on the future of Vietnam's exports to this market, primarily for CBAM products.
Although the specific CBAM mechanism of the United Kingdom is still under development and drafting, without specific details, from the basic orientations envisioned by the British government, it can be seen that this mechanism, once applied, will create several major challenges for Vietnamese production and export businesses:
Challenges regarding awareness change:
Compared to the EU's CBAM, information about the UK's CBAM in Vietnam seems much more limited. Many businesses have heard of the EU's CBAM since this policy was first mentioned, however, the number aware of the UK officially applying CBAM from 2027 is very small.
Meanwhile, unlike the EU's CBAM, the UK's CBAM is expected to be fully applied (with both declaration and tax payment obligations) from January 1, 2027, without a transition period for stakeholders to gradually adapt as in the EU's CBAM roadmap (according to which October 1, 2023 - December 31, 2025 is the period where the EU only requires entities to fulfill the declaration obligation without having to pay any CBAM fees/certificates).
Therefore, it is necessary to strengthen communication to raise awareness among businesses exporting to this market in related CBAM goods sectors to prepare their mindset and resources for implementing this regulation.
Challenges regarding compliance capacity:
Although not fully stipulated, just looking at the precedent of the EU's CBAM, the UK's CBAM will certainly require Vietnamese businesses to collect and provide specific information about the production process of CBAM products and the amount of greenhouse gas emissions from this process (direct emissions), or even from the process of producing the electricity used in this process (indirect emissions), as a basis for calculating the CBAM fee for the relevant shipment. This is not an easy task, requiring specific advice from specialized units with potentially significant initial costs.
In addition, many reporting contents require scientific and transparent data management systems as well as smooth coordination between different entities in the production chain within the business or between the business and other suppliers (especially electricity sellers in the case of indirect emissions reporting). Not many businesses have a management and connection system that meets these conditions. Therefore, compliance is expected to be quite complex, requiring not only significant financial resources but also the ability to design and operate appropriate emission monitoring, statistics, and management systems.
Challenges regarding competitive position and transformation capacity:
When applied, with CBAM fees payable based on the greenhouse gas emissions of each CBAM shipment, the competitive position of suppliers will change depending on the level of production transformation and the ability to reduce net emissions. This makes competition to attract CBAM orders to the UK more intense and significantly more unpredictable.
At the same time, businesses that want to gain a competitive advantage in this aspect will be forced to green their production process with the goal of minimizing net emissions in the product production cycle. The cost and technological capacity for green transformation are always a challenge for most businesses, especially small and medium-sized enterprises.
Source: Center for WTO and International Trade - VCCI