Vietnam, the United Kingdom, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

From Brexit to the CPTPP, the road has been long for the United Kingdom, but the final outcome should see the country’s trade ties with Vietnam become stronger than before. Below we discuss the evolution of two-way trade between Vietnam and the UK following Brexit and the implications of the UK’s accession to the CPTPP on this bilateral trade relationship.

The UK has officially signed onto the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) joining Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and, of course, Vietnam.

This caps off years of negotiations between the trading bloc and the former member of the European Union. This agreement promises to bring broad benefits to all involved including Vietnam.

Here’s how the CPTPP might impact trade between the UK and Vietnam.

Vietnam-UK Trade

When the United Kingdom voted to leave the European Union in 2016, it sent economic shockwaves around the world. This unprecedented change to the global economic order had significant consequences, particularly for countries like Vietnam that had been developing their trade relations with the UK under the EU framework.

With the UK’s exit from the EU, it was clear that Vietnam faced a sizable pivot in its trade strategy. The UK, which had accounted for 16 percent of the EU economy, left a substantial gap in the European Union-Vietnam Free Trade Agreement (EVFTA), which was set to come into force in 2020. This shift meant that Vietnam-UK trade could default to World Trade Organization (WTO) guidelines and tariff schedules unless new arrangements were established.

Fortunately, both parties were keen to maintain the benefits promised by the EVFTA. Vietnam stood to gain up to US$131 million in savings on tariffs for exports to the UK while the UK anticipated a US$63 million advantage from its exports to Vietnam. During this time, the UK expressed its intention to join the CPTPP, but the path was complicated by the existing ten-member trading bloc. To avoid disruption, the UK and Vietnam decided to move ahead with a bilateral agreement.

The UK and Vietnam Negotiate a Bilateral Agreement

Recognizing the urgency to solidify their economic relationship, the UK and Vietnam swiftly began forging their own Free Trade Agreement (FTA), using the EVFTA as a foundational framework. However, due to the unique conditions following Brexit, several modifications were required. For example, tariff-rate quotas (TRQ) had to be adjusted, given that UK products would no longer be counted under the EU classifications. Additionally, changes were made to rules of origin to reflect this new trading reality, and the intellectual property provisions were slightly expanded to encompass new branded goods.

Despite these changes, much of the EVFTA remained intact, leading to relatively quick negotiations for the United Kingdom-Vietnam Free Trade Agreement (UKVFTA). The FTA was completed by December 11, 2020, and signed shortly thereafter, marking a significant achievement for post-Brexit trade negotiations in the UK.

Vietnam and the UK Enjoy Strengthening Ties

The implementation of the UKVFTA has significantly reduced tariffs, enhancing the trade relationship between Vietnam and the UK. This agreement has already yielded substantial benefits for both nations. For instance, British luxury carmaker McLaren opened its first showroom in Vietnam last year, while AstraZeneca collaborated with the Vietnamese government on crucial health initiatives.

On the Vietnamese side, Vietjet’s CEO, Thao Nguyen, made headlines with her commitment to donate £155 million to Oxford College in exchange for brand visibility in the UK. Even though this contribution has yet to materialize, it underscores the increasing focus on elevating Vietnamese brands within the UK market.

It’s essential to mention that the onset of the COVID-19 pandemic caused a dip in two-way trade in 2020. However, as economies began to stabilize, the trade surged to unprecedented levels in 2021, marking a recovery and reaffirmation of the growing economic ties between the nations.

Two-Way Trade Vietnam-UK

Source: UN Comtrade Database, Vietnam General Department of Customs

The UK’s Accession to the CPTPP

Earlier this year, a pivotal milestone was reached when the UK’s accession to the CPTPP was confirmed. This development is poised to create additional opportunities for both countries beyond the existing UKVFTA.

The advantages from this new agreement include:

• Faster tariff reductions on engines and medicines exported to Vietnam.
• Earlier elimination of tariffs on chocolate and port products.
• Immediate removal of duties on beef exported to Vietnam.
• Phased elimination of duties on pork and chicken over the next few years.
• An incremental increase in the duty-free TRQ on long-grain milled rice over eight years, capped at 17,500 tons.
• A shared duty-free TRQ on sugar with a permanent quota of 25,000 tons over ten years.
• Extended stay for UK businesspersons traveling to Vietnam from three months to six months.
• Assured access for British citizens to Vietnam.

These changes are set to further liberalize trade relations, facilitating a smoother supply chain integration for the UK across member states.

What’s Next for Trade Between Vietnam and the UK?

While the immediate impact of the UK’s accession to the CPTPP may not be pronounced given the existing UKVFTA, various long-term benefits, such as tariff reductions and enhanced market access, are anticipated for both nations.

In particular, Vietnam may expect to see an upsurge in exports of agricultural and seafood products, while the UK is likely to experience increased meat exports to Vietnam. Over the past seven years, both countries have been diligently working on trade reform, and this latest development is expected to solidify their trading relationship and lead to sustained growth in two-way trade.

Note: This article was first published April 11, 2023. It has been updated to reflect the latest developments.