UKVFTA Sharpening Competitive Edge for Vietnamese Products in UK Market

The official effect of the Vietnam - United Kingdom Free Trade Agreement (UKVFTA) has provided many opportunities for Vietnamese exporters.

A fresh start

As the UK officially left the European Union and the transition ended on December 31, 2020, the signing of the UKVFTA will ensure that bilateral trade between Vietnam and the UK will not be interrupted at the end of the transition period. In addition, based on the EVFTA foundation, the UKVFTA will create a comprehensive, long-term and stable economic and commercial framework for Vietnam and the UK, thus creating a driving force for strengthening and deepening their multifaceted cooperation, especially when both sides have just extended the maintenance of bilateral relationship as strategic partnership.

With the UKVFTA, the two sides’ benefits within the EU - Vietnam Free Trade Agreement (EVFTA) are maintained. This bilateral pact is a fresh start to a new development phase of the two countries. The UKVFTA not only liberalizes trade in goods and services, but also integrates many other important factors, such as gearing toward green growth and sustainable development.

The UK is the third largest trading partner of Vietnam in the European region. According to the General Department of Customs, in 2019, the bilateral trade value reached US$6.6 billion, of which Vietnam earned US$5.8 billion from exports to the European nation and spent US$857 million on imports there. In 2011-2019, Vietnam - UK trade growth increased by an average of 12.1% a year, higher than Vietnam’s average trade growth of 10%. The growth of total import-export turnover to this market is also high (over 10%).

The UK market space for the growth of Vietnamese products is still very large, as all Vietnamese exports only account for less than 1% of the UK’s import value of nearly US$700 billion a year (2019). However, when the UK left the EU, the incentives generated by the EVFTA will not be applied in the UK market. Therefore, the signing of the bilateral FTA will facilitate reforms, open up the markets and facilitate trade in the two countries, based on relatively positive EVFTA negotiation results, thus avoiding potential trade disruptions as a result of Brexit.

Export potential

According to the Ministry of Industry and Trade, the UKVFTA’s tariff incentives will help Vietnamese goods enhance a competitive advantage over their competitors.

For the textile and garment industry, the lower tax rate helps garment products such as suits, coats, gowns and shirts increase their presence in the UK. Previously, other exporters of apparels to the UK like Bangladesh, Cambodia and Pakistan had tariff advantages over Vietnam’s products (Bangladesh was also entitled to import duty exemption under the EBA Program and Pakistan also exempts from import tax under the GSP+ Program)

The UK is a high potential but competitive footwear import market. Compared to competitors such as China, the Netherlands, Italy, Belgium and Germany, in 2019, Vietnam was subject to the second highest tariff of 6.7% among 15 biggest footwear exporters to the UK.

The UK rice market is quite large. In 2019, it imported 671,000 tons of rice. According to UN Comtrade, although Vietnam is one of top rice exporters in the world, Vietnam's rice shipments to the UK are still very modest, at 0.2% - ranking 22nd among major rice exporters to the UK. In 2019, rice exported from Vietnam to the UK had a great growth of 376%. Given the tariff was still high in 2019, Vietnam’s products found it hard to compete with other countries. With the UKVFTA, the reduced tariff will help Vietnamese rice with more room for export to the UK market.

In addition to tariff preferences, the trade pact provides transparency of quality standard commitments. On the Vietnamese side, this is an important driving force to improve manufacturing activity to meet UK market requirements, as well as its target markets. The improved output quality helps boost exports, not only to the UK but also to many other markets.

Vietnam is currently the 6th largest wooden furniture exporter to the UK market, with an export value of US$421.8 million, accounting for 3.6% of the UK’s import share. Wooden product export to the UK has many opportunities because Vietnamese wood products are well received by the UK market thanks to their highly competitive prices and good quality. Besides, a number of major wood companies in the UK already have production facilities or have signed long-term partnership contracts with manufacturers in Vietnam such as IKEA, the largest wooden furniture retailer in the UK. The FTA not only helps increase wooden furniture export to the UK, but also creates an attractive business environment in Vietnam to woo FDI inflows into its wood processing industry.

By Huong Ly, Vietnam Business Forum