The Vietnam-UK Free Trade Agreement (UKVFTA) has just been signed and ended the negotiations, and is expected to take effect in early 2021. This FTA is setto open up many opportunities to promote exports for a seriesVietnam’s billion-dollar export product to the UK market are rich in potential.

Fisheries are one of the typical industries that will benefit immediately
after the UKVFTA comes into effect.Photo: Nguyen Thanh 

Agricultural and aquatic productsenormously benefit

According to the Multilateral Trade Policy Department (Ministry of Industry and Trade), the market for Vietnamese goods growth in the UK market is still extended because currently Vietnamese goods only account for less than 1% of the totalimport market shareof goods each year is nearly US$700 billion (2019) of the UK.However, when the UK leaves the EU, the incentives brought by the Vietnam-EU Free Trade Agreement (EVFTA) will not be applied.Therefore, the signing of a bilateral FTA will facilitate trade in the two countries on the basis of inheriting the positive negotiation results in EVFTA.

"The biggest opportunities and benefits created from this agreement are to promote the export of key products of Vietnam," said a representative of the Multilateral Trade Policy Department.

The first typical commodity group benefiting from the UKVFTA is agriculture and fisheries.For the seafood industry, the Ministry of Industry and Trade analysed, with the UKVFTA, the import tax on most raw shrimp (fresh, frozen, chilled) imported into the UK was reduced from the basic tax rate of 10-20% to 0% as soon as the agreement comes into force.The commodity groups with the earliest advantages in the aquatic and seafood group are shrimp and some types of fish (pangasius).The shrimp and pangasius processing industries will have the opportunity to boost export turnover and have the prospect of attracting investment to take advantage of these commitments.

For agricultural products, rice and vegetables are two typical items.Particularly for rice, the Ministry of Industry and Trade assessed the UK is a very potential rice export market for Vietnam.With the opportunities brought from this agreement, rice originating from Vietnam will have anadvantage overproducts from Thailand, China, and India.In addition, the UK also committed to review and increase tariff rate quotas (TRQ) for Vietnamese rice after threeyears from the effective date of UKVFTA.This will also be an opportunity to promote rice exports to the UK.

For vegetables and fruits, when the UKVFTA comes into effect, it will immediately eliminate 94% of the total 547 tariff lines for vegetables and fruits and vegetables, including many products that are Vietnam's strengths such as litchi, longan, rambutan, dragon fruit, pineapple andmelon. The UK has a large demand for fruits and vegetables, in the coming time, Vietnam's fruit and vegetable export industry will have the opportunity to access the UK market more favourably and promote export turnover inthis market.

Notably, in the UKVFTA, besides rice, the UK also commits to adding TRQ to more than 10 other items such as eggs, garlic, sweetcorn, tapioca starch and surimi. This benefit is especially meaningful.This means the UK is one of the potential import markets for Vietnamese products enjoying TRQ preferences (eg: rice, tapioca, surimi).

Textile, garment and wood products are welcoming to the opportunity

Not only the agricultural and aquatic products, but also the processing and manufacturing industries export tens of billions of dollarseach year, such as Vietnam's textiles and garments, will thrive with the UKVFTA.

According to forecasts of the Ministry of Planning and Investment, textile and garment export turnover to the EU market will increase by about 67% by 2025 compared to without the EVFTA.In terms of output, in general, the EVFTA has a positive impact on output with a growth rate of 6% (for the textile industry) and 14% (for the garment industry) by 2030. Therefore, these benefits will also be visiblefrom the UK through the UKVFTA.

Vietnam's textile and garment exports to the UK account for only 2.77% of the total import volume to the UK market.Therefore, this industry still has great potential for development and increase in turnover.In addition, with commitments on aggregation for fabric materials from South Korea and the EU, it will help expand the supply of raw materials in this industry to enjoy preferential treatment, avoiding dependence on certain markets.

With wooden furniture, the Ministry of Industry and Trade analysed, Vietnam is one of the largest exporters of wooden furniture and furniture to the UK, and specifically in 2019 it is the sixthlargest wood exporter to the UK with an export value of more thanUS$421.8million, accounting for 3.6% market share of UK wood products import.With the UKVFTA, many wood products and wood products have a tax rate of 0% within 5 years (raw wood currently has the tax rate of 2-10%).Therefore, Vietnam's wood industry will also benefit from this agreement.

No fewer challenges

At present, both Vietnam and UK are expecting that when the EVFTA terminates with the UK (due to the UK leaving the EU), the FTA between the two countries will come into effect soon to avoid trade disruption.

Nguyen Khanh Ngoc, Deputy Director of the European-American Market Department (Ministry of Industry and Trade) analysed more, with the UKVFTA, Vietnam will have competitive advantages compared to strong competitors from China and India, Thailand, Malaysia, Indonesia, the Philippines and Myanmar.These are countries willlack an FTA with the UK for many years to come.In addition, Vietnam also has more opportunities to expand supply of goods;expanding investment cooperation and transferring technology and modern management skills from British enterprises;there is an additional opportunity to attract British tourists after the Covid-19 pandemichas ended;encourage other bilateral cooperation with the UK in development assistance, defence, security, culture, education and training.

However, leaders of the European-American Market Department also saidthe UKFVTA poses certain challenges for Vietnam in taking advantage of commitments as well as pressure on the domestic market.Specifically, commitments to open markets with goods and services to the UK will create competitive pressure for the economy, businesses and domestic goods and services, especially in the industries that the UK hasstrengths such as financial services, pharmaceuticals andchemical products.

Nguyen Khanh Ngoc also mentioned the outstanding problem and challenge that cannot be ignored when mentioning UKVFTA that this agreement includes "non-traditional" commitments in the field of labour and environment. Although Vietnamese law has specific regulations on minimum wages, working time and occupational safety and health, child labour and environmental protection in accordance with international standards, butin fact, there are a number of companies that have not strictly complied.

“This can lead to the risk that the manufacturing industry will not enjoy incentives from violations of a minority of businesses.Therefore, during the implementation process, businesses need to pay close attention to these commitments,”emphasised the leader of the European-American Market Department.