A free trade agreement reached this month would help Vietnam revamp its massive manufacturing sector after the coronavirus pandemic and solidify the global outreach of its deal partner, the United Kingdom, after its looming departure from the European Union, experts believe.
The two countries finished negotiations December 11 on a two-way free trade deal that would eliminate nearly all customs duties.
The agreement, which still requires formal signatures to take effect, would keep Vietnam on track to sign multiple free trade deals around the world, to help domestic manufacturers avoid import tariffs, analysts say. Vietnam could ultimately save $151 million in tariffs on goods shipped to the U.K., the British Embassy in Hanoi forecasts.
Vietnam joined the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership two years ago. And as part of a Southeast Asian negotiating bloc last month, it entered the Regional Comprehensive Economic Partnership deal, which has China as the heavyweight. Vietnam and the European Union also finalized a free trade pact earlier this year.
“They’re totally embracing globalization and free trade,” said Jack Nguyen, a partner at the business advisory firm Mazars in Ho Chi Minh City.
“They want to get more high-end, high-tech investments into Vietnam. They want to get their products out to the market. They want to attract manufacturers to set up in Vietnam to export to other countries. So any agreement that will lower tariffs, lower trade barriers, they’ll want to sign,” Nguyen said.
Vietnam-U.K. trade tripled from 2010 to 2019, when it reached about $7.6 billion.
Tariff savings would help to ease the Southeast Asian country out of a slump in global demand that is hobbling manufactured exports. Vietnam reports relatively few cases of COVID-19, the disease caused by the coronavirus, but anti-pandemic shutdowns in much of the West have curtailed orders for classic made-in-Vietnam exports, such as garments, shoes, electronics and automotive gear.
About half of all businesses in Vietnam have downsized because of COVID-19, according to a survey by the Private Economic Development Research Board, as cited by domestic news website VnExpress International in September. Manufacturing accounts for about a quarter of the country’s GDP.
Both free trade agreement signatories are “keen to close this deal as soon as possible” to boost post-COVID-19 economic recoveries, Vu Minh Khuong, an associate professor at National University of Singapore’s Lee Kuan Yew School of Public Policy, wrote in an online publication recently.
Vietnam will get more access to the U.K.’s “distinctive strengths” of R&D and management consulting services, Vu wrote in a November commentary for the East Asia Forum.
But the two countries lack a trade relationship that’s wide enough to lift Vietnam out of the post-pandemic slump next year, said Ralf Matthaes, founder of the Infocus Mekong Research consultancy in Ho Chi Minh City.
“The U.K. and Vietnam do not have strong ties,” Matthaes said. Zooming in on Vietnam’s exports, he said, “How many people are buying new mobile phones right now or new TVs? It’s very limited.”
The free trade deal, considered easy to complete because it borrows from contents of the Vietnam-EU pact, comes just as the U.K. expects to finish its Brexit implementation period next week.
Tariff savings to the United Kingdom would come to just $36 million, less than Vietnam’s gains, the British Embassy predicts. But the agreement shows that the U.K. government can form its own trade relations after leaving the European Union following the Brexit referendum that British voters approved in 2016.
“It’s the U.K. scrambling to stay in place, is the phrase I use,” said Frederick Burke, Ho Chi Minh City-based partner with the law firm Baker McKenzie.
“For the U.K., if they can get enough of these trade agreements, they can almost keep up with when they were part of the EU, but it won’t have the same advantages, because it’s just a bilateral trade agreement, it’s not a full EU trade agreement,” Burke said.
