HIGHLIGHTS OF UNITED KINGDOM-VIETNAM FREE TRADE AGREEMENT

LEGAL UPDATE

Negotiations over the United Kingdom-Vietnam Free Trade Agreement (UKVFTA) were concluded on 11 December 2020 between Vietnam’s Minister of Industry and Trade and UK’s Secretary of State for International Trade. The UKVFTA was signed on 29 December, and the agreement was applied temporarily as of 1 January 2021.

The UKVFTA is intended to replicate the benefits of the EU-Vietnam FTA (EVFTA)[1], as the United Kingdom (UK) has exited the EU. Under the UKVFTA, trade between the 2 nations will continue to enjoy preferential treatment, including the elimination of virtually all customs duties once the agreement is fully implemented. From 1 January 2021 until mid-May 2021, preferences from the UKVFTA will be applied retrospectively for goods imported to Vietnam from the UK.

1. Maintaining an Existing Relationship

Cooperative trade has existed since the 2 countries established a strategic partnership in 2010. In recent years, the UK has been the 3^rd largest trade partner of Vietnam in Europe after Germany and the Netherlands. Vietnam mainly exports garment and textiles, footwear, wood and wooden furniture and seafood to the UK, while importing pharmaceuticals, machinery and equipment from the UK.

From 2010 to 2019, bilateral trade between the countries tripled to about USD7 billion. In 2019 alone, UK businesses exported goods to Vietnam worth over USD830 million. In the same year, Vietnam businesses exported goods to the UK worth over USD6.4 billion. The British embassy in Vietnam estimates that the UKVFTA will save Vietnam roughly USD151 million in tariffs while the UK may save around USD36 million.

2. Commitments under the UKVFTA

The UKVFTA aims to strengthen the existing relationship between the 2 nations. In fact, 65% of all tariffs have already been eliminated on UK-Vietnam trade. In the first 6 years after the UKVFTA takes effect, the UK will eliminate tariffs on 99.2% of the tariff lines in relation to Vietnam imports. This is higher than under the EVFTA (70.3%). Vietnam pledges to eliminate 48.5% of tariffs, matching other EU countries under the EVFTA.

3. Tariff Rates on Goods

Tariff rates for bilateral trade in goods between the UK and Vietnam continue to apply as replicated from the EVFTA. However, in some cases, the non-preferential applied rates may in fact be lower because of changes in the UK’s Most Favoured Nation tariff schedule after leaving the European Union (EU).

4. Tariff-Rate Quotas Changes

Tariff-rate quotas (TRQ) allow for a certain quantity of a product to enter the market at a 0 or reduced tariff rate. Imports above that quantity are subject to a higher tariff rate. These have been modified under the UKVFTA to accommodate the United Kingdom’s exit from the EU and taking into consideration the UK being a smaller importer and exporter with Vietnam 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 2 countries’ historical trade relationship.

5. Geographical Indications

Geographical indications (GIs) protect the geographical names of food, drink and agricultural products.

The following UK GIs are protected under the UKVFTA:

- Irish Whisky/Irish Whiskey/Uisce Beatha Eireannach

- Irish Cream

- Scotch Whisky

- Scottish Farmed Salmon

Irish Cream and "Irish Whisky/Irish Whiskey/Uisce Beatha Eireannach" are transborder GIs that can be produced in the territory of both Northern Ireland and the Republic of Ireland.

6. Other Highlights from the UKVFTA

- Fishing: As soon as the agreement takes effect, import tax on most types of raw shrimp into the UK will be reduced from 10-20% to 0%;

- Wood industry: many wood products will have a tax rate of 0% within the next 5 years;

- Fruits: 94% of the total 547 tariff lines will be deleted;

- The UKVFTA has retained the EU-Vietnam commitments on liberalising public procurement markets and ensuring enforceable market access; and

- Vietnam has committed to eliminating the Economic Needs Test (ENT) applicable to secondary and subsequent retail establishments, within 5 years after entry into force.

7. CPTPP[2]

As a founding member of the group, Vietnam has publicly shown their support for the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP currently consists of 11 member countries and would require approval of all member states for the UK to join the trade pact. Some of the UK’s other allies, Australia, Canada and New Zealand, are also members of the CPTPP, improving the UK’s chances of joining the trade pact.

UK International Trade Secretary, Liz Truss, said: “Our deal with Vietnam is an important step towards the UK’s accession to Comprehensive and Progressive Agreement for Trans-Pacific Partnership) which we aim to formally apply for in early 2021.”

8. Opportunities in Vietnam

As a result of the UKVFTA’s preferential treatment for UK investors in Vietnam, exciting opportunities are available more than ever across various sectors. Below we highlight some of those sectors.

8.1 Education

The UK is one of the largest foreign investors in Vietnam’s education industry. The growing middle class in Vietnam prefers private education over government schools, creating a large market for private institutions, English language training centres and vocational schools.

8.2 Renewables[3]

The renewable energy sector in Vietnam continues to rapidly expand and thus presents great opportunities for UK investors. Although Vietnam still relies heavily on fossil fuels for its energy resource, the great potential for renewables and recent government support puts Vietnam in a more attractive position for foreign investment in the sector.

8.3 Infrastructure

As large numbers of Vietnamese citizens continue to move into urban areas throughout the country, government officials are pushing the development of metro rail systems which would alleviate traffic congestion and significant air pollution issues. The aviation industry continues to grow with emerging airline companies, new routes both foreign and domestic, and the construction of the Long Thanh International Airport in Ho Chi Minh City. Railway and aviation sectors continue to grow in Vietnam and are a great opportunity for UK businesses in those industries.

8.4 Healthcare

The rising middle class and aging population have resulted in a quickly growing demand for quality healthcare services. Public hospitals sometimes lack adequate medical equipment for various medical procedures. Meanwhile, Vietnam’s Ministry of Health forecasted that the country’s medical equipment market will grow at a rate of 18 to 20% from 2016 to 2020. In general, government healthcare resources are strained by the demand, opening up a great opportunity for private healthcare services.

9. Conclusion

The UKVFTA is intended to replicate the benefits of the EU-Vietnam FTA, as the UK transitions out of the EU. This agreement will help the nations maintain preferential trade conditions and economic benefits through market-opening commitments already included in the EVFTA. With the exchange of official notes confirming the completion of internal procedures of both sides, the UKVFTA will officially take effect from 1 May 2021.

For more information, please contact:

Mark Oakley / Managing Partner

mark.oakley@acsvlegal.com

© 2021 ACS Legal Vietnam Company Limited – All rights reserved

This legal update is not an advice and should not be treated as such.

Open in pdf: Highlights of United Kingdom-Vietnam Free Trade Agreement

[1] See for more information our update Impact of Free Trade Agreement between Vietnam and the EU.

[2] See for more information our update CPTPP adding legal layers to foreign investment protection.

[3] See for more information our update Decision on Fit critical for wind energy development in Vietnam and our update LNG-to-power projects in Vietnam and key legal issues.