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UK-Vietnam FTA to benefit Vietnam’s textile exports

Date: 2021-05-21

The free trade agreement between the United Kingdom and Vietnam officially took effect on May 1.


The United Kingdom-Vietnam Free Trade Agreement is intended to replicate the benefits of the EU-Vietnam FTA, as the UK has exited the European Union. Under the UKVFTA, trade between the two nations will continue to enjoy preferential treatment.


In the first six years after the UKVFTA takes effect, the UK will eliminate tariffs on 99.2 percent of the tariff lines in relation to Vietnam imports, which is equivalent to 99.7 percent of Vietnam’s exports to the UK. Vietnam’s beneficiaries include mobile phones and their spare parts, computers and parts, seafood, rice, textiles, wood, vegetables, shoes, cashews, coffee, and peppers.


The UKVFTA states that as soon as the agreement takes effect, the import tax on textiles (mainly textile raw materials and their products) from Vietnam to the UK will be reduced from the previous 12 percent to zero. This will help Vietnamese export-oriented products and footwear and clothing products to expand the UK market.


In addition, UKVFTA has also made commitments on rules of origin, customs, trade facilitation, food hygiene, and safety measures, as well as technical barriers to trade and services, investment, trade defense, competition, State-owned enterprises, government procurement, and intellectual property rights.


The UK is Vietnam's third largest trading partner in Europe. The Ministry of Industry and Trade of Vietnam stated that in 2019, the UK mainly imported textiles and garments from Vietnam. Although China occupies the largest market share in the UK, China's textile and apparel exports to the UK have fallen by eight percent in the past five years. In addition to China, Bangladesh, Cambodia, and Pakistan are also exporting textiles and clothing to the UK. These countries have an advantage over Vietnam in terms of tax rates. Therefore, the tariff concessions brought by UKVFTA will make Vietnamese goods more competitive.


Since the UKVFTA came into effect temporarily on Jan 1, 2021, bilateral trade between Vietnam and the UK increased by 20 percent in the first two months of this year. Vietnam’s exports to the UK reached $998 million, a year-on-year increase of 33 percent, showing that the UKVFTA has been driving the recovery of trade between Vietnam and the UK.


Earlier this year, some media reported that the Communist Party of Vietnam has set a goal for Vietnam to become a fully developed country by 2045.Vietnam has signed over 10 free trade agreements with the goal of expanding and diversifying export markets.


Among these free trade agreements, the most important ones are the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the EVFTA.


The CPTPP came into force on Jan 14, 2019. In 2019, trade between Vietnam and 10 contracting states reached $77.4 billion, an increase of 3.9 percent year-on-year. Exports from Vietnam were up 7.2 percent year-on-year to $39.5 billion, and imports were up 0.7 percent year-on-year to $37.9 billion.


The Ministry of Industry and Trade of Vietnam said that Vietnam's exports to CPTPP countries still showed great potential for growth.


The EVFTA came into effect on Aug 1, 2020. According to Vietnamese media reports in April, the EVFTA has provided $1.5 trillion in export opportunities for Vietnamese goods since it came into effect.


Statistics showed that in 2020, Vietnam’s exports to the EU (Vietnam’s fourth largest export market) amounted to $43.7 billion, and imports from the EU amounted to $18.5 billion. In the first three months of this year, Vietnam’s exports to the EU increased by 18 percent year-on-year to $1.5 billion.


Some analysts pointed out that in the long term, EVFTA will have a positive impact on the textile and apparel industry of Vietnam. Under the EVFTA, 42.5 percent of tax items on Vietnamese textiles and apparel will be reduced to zero, and the remaining ones will enjoy the benefits in three to seven years. Vietnam’s textile and apparel products are supposed to be more competitive than those from Bangladesh and Cambodia, which are enjoying zero tariff treatment.


Meanwhile, most of the countries that export textiles and clothing to the EU have not signed a free trade agreement with the EU. If Vietnamese companies meet the demand of the origin, EVFTA will help increase the amount of Vietnamese textile exports to the EU.


The Ministry of Planning and Investment of Vietnam has previously stated that Vietnam's textile and apparel exports to the EU may increase significantly. In particular, in light of the current complex and unpredictable business situation due to trade protectionism, trade wars, and the COVID-19 pandemic, EVFTA will help Vietnamese textile and apparel companies increase their exports with diversified products and achieve a higher added value.