Leveraging the UKVFTA: Vietnam should import raw materials from the UK.

To maximize the benefits of preferential tariffs offered by the UK-Vietnam Free Trade Agreement (UKVFTA), international trade experts have suggested that Vietnamese businesses should import raw materials from the UK for production serving export or domestic consumption, as these are also items for which Vietnam grants preferential tariffs to the UK and are product groups with high import value growth.

[caption id="attachment_605643" align="aligncenter" width="640"] Footwear is among Vietnam's key export items. Photo: Tran Viet/TTXVN

According to the trade agreement, from January 1, 2021, Vietnam committed to eliminating 48.5% of tariff lines on goods imported from the United Kingdom; 91.8% from January 1, 2027, and 98.3% from January 1, 2029. The remaining 1.7% will be partially opened through tariff quotas (the quota amount corresponds to Vietnam's commitment at the WTO, and in-quota tariffs will be eliminated before 2031) or will not receive preferential treatment.

Specifically, 61% of tariff lines for machinery and equipment imported from the UK were eliminated from January 1, 2021, while import duties for all other products will be eliminated after 9 years. Based on the assessment of the UK Department for International Trade, this is a product group that the UK exports a large volume of to Vietnam, and Vietnam also has a high demand for imports. The average MFN tariff applied by Vietnam in 2020 for mechanical products and equipment (HS 84) was 4.9%, while for electrical machinery and equipment (HS 85) it was 8.7%.

For pharmaceutical products, Vietnam eliminated 71% of tariff lines as of January 1, 2021. All other products will be exempt from import duties after 4 to 6 years.

For raw materials used in the textile and footwear industries, Vietnam reduced 80% of the tariffs imposed on these products from January 1, 2021, while tariffs on all other products will be eliminated after 4 to 6 years.

According to preliminary statistics from the General Department of Customs, Vietnam imported nearly $726.6 million worth of goods from the United Kingdom in the first 11 months of 2023.

The items accounting for the largest share of Vietnam's imports from the United Kingdom in the first 11 months included machinery, equipment, tools and spare parts worth over US$191 million (26.3%); pharmaceuticals worth US$73.8 million (10.2%); chemicals worth US$43.4 million (6%); textile raw materials, leather products and footwear raw materials worth US$35.1 million (4.8%); and seafood and seafood raw materials worth US$29.8 million (4.1%).

All of these goods are items that Vietnam needs to import for production to serve both export and domestic consumption.

A recent survey by Vietnam Report shows that the top priority for Vietnamese businesses is diversifying their supply sources, especially for imported raw materials. According to the report, 72.7% of all companies surveyed stated they want to find new suppliers with lower prices and intend to do so in the near future.

Thu Tra