Subtle differences between EVFTA and UKVFTA

Subtle differences between EVFTA and UKVFTA

There are so many similarities between the 2 agreements that the UK-Vietnam Free Trade Agreement (UKVFTA) might as well be called a direct copy of the EU-Vietnam Free Trade Agreement (EVFTA).

UKVFTA – EVFTA: What’s the difference and similarities?

In 14 areas of UKVFTA, the United Kingdom allows Vietnam to export at a 0% tax rate with a certain quota: egg yolk and poultry meat, garlic, sweet corn, milled rice, tapioca starch, tuna, surimi (crab stick – fish ball), sugar and products containing a lot of sugar, mushrooms, ethanol, mannitol, sorbitol, dextrin, and other modified starches.

In the field of banking services, Vietnam has agreed to an agreement allowing British credit institutions to increase their foreign ownership ratio up to 49% of charter capital in a joint-stock commercial bank in Vietnam. Similar to EVFTA, this commitment is only valid for 5 years (after which Vietnam will not be bound by this commitment) and does not apply to 4 joint-stock commercial banks with controlling shares of the Government which are BIDV, VietinBank, Vietcombank, and Agribank.

The signing ceremony of UKVFTA. Source: tapchicongthuong

In addition, the implementation of the above commitment will have to fully comply with regulations on merger and acquisition (M&A) procedures, as well as safety and competition conditions, including the limit on ownership percentage. Vietnam allows EU financial institutions to buy up to 49% at 2 domestic private banks while allowing the UK to raise the same rate, even higher for one bank (mainly HSBC and Standard Chartered Bank), raising their holdings to the ceiling.

Under the EVFTA, one of the signatories can provide subsidies as needed to achieve a public policy objective. The Parties acknowledge that certain subsidies have the potential to distort the normal functioning of markets and undermine the benefits of the trade liberalization mechanism. In principle, a party may not subsidize businesses that supply goods or services, if they negatively affect or are likely to affect competition and trade in general.

The signing ceremony of EVFTA. Source: vietnamnews

For UKVFTA, the policy is less lenient: “In principle, a party may not subsidize businesses that supply goods or services, if they have a negative effect or likely to have a negative effect on the trade between the two parties”.

In some areas, EVFTA is more specific than UKVFTA. For example, there are some notes on fruit and vegetables under the common customs tariff outlined in the European Commission’s Implementation Regulations and Legacy Acts, setting out detailed rules. Binding Vietnam to more specific rules is a perceptive strategy of UKVFTA to ensure high-quality products and prevent substandard products from entering the UK.

A globalizing Britain

After the decision to leave the European Union, Britain faced many challenges, specifically, the most important object in EU’s policy nowadays is how to manage trade relations with countries that have previously benefited from EU trade agreements. As a huge trading section consisting of 27 European countries, in terms of trade policy, the EU is a powerful player in the market that can assert its interests strongly.

Of course, a single medium-sized country like Britain does not have this power. Therefore, the UK must offer “concessions” that a giant like the EU does not need to make. However, the sheer size of the EU means that the individual benefits and sometimes, the member states’ conflicting interests must also be taken into account. As a result, decision-making processes are sometimes protracted, as can be seen in the decades-long negotiations on the EVFTA.

Britain has the advantage of being very agile and professional. This means that FTAs ​​can be launched in a much quicker, more flexible way. In addition, existing agreements, such as the very comprehensive and modern EVFTA, can be used as a model.

“Globalizing Britain” is the UK Government’s post-Brexit foreign policy goal. This policy was outlined by Prime Minister Theresa May (term 2016-2019) in her first major speech as Prime Minister at the Conservative Party conference. This signals that the UK will not look inward after Brexit, but on the contrary, will take a global vision, beyond the European territory.

As stated in the joint agreement between Vietnam and the UK in December 2020, UKVFTA “is also an important step for the UK to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – CPTPP”. The UKVFTA is therefore only one, but an essential building block of post-Brexit UK free trade policy. Many other potential deals may take this example into consideration and adjust their policy accordingly.

From Vietnam’s POV

For Vietnam, to reposition the country after the Covid-19 pandemic, both EVFTA and UKVFTA are important factors on the road to economic recovery. After the pandemic shook the global economy, Vietnam took advantage of a very good opportunity to assert its position thanks to effective epidemic control.

In addition to the above two free trade agreements, Vietnam has made many other strides, especially the new Investment Law, helping the country emerge stronger from the crisis. Vietnam’s goal in economic repositioning is not to achieve a “V-shaped” economic recovery curve as many other countries hope. Rather, it lies in the “square root recovery” where not only pre-crisis levels are reached but overcome to continue to grow to higher levels.

Vietnam’s efforts will be wildly successful, and most international analysts are optimistic about Vietnam’s prospects. EVFTA, UKVFTA represent Vietnam’s liberal and open politics and these agreements are important factors for Vietnam – especially together with the new Investment Law and the EU-Vietnam Investment Protection Agreement (EVIPA) – transforming Vietnam to become a more attractive destination for foreign investors.

Expert opinions about the 2 agreements to the future of Vietnam market

Nguyen Canh Cuong – Vietnam Commercial Counselor in the UK has closely followed the negotiation process of the EU-Vietnam Free Trade Agreement and the UK-Vietnam Free Trade Agreement and he said that the commitments to reduce import tax according to the roadmap in EVFTA and UKVFTA are the same. However, the UK’s quota-free commitment to 12 agricultural products of Vietnam is different from the EU’s commitment of the same type in the EVFTA. The Vietnamese negotiating team made great efforts and achieved a breakthrough in tariff quotas for fragrant rice. This tariff quota will help Vietnamese rice have a competitive advantage and expand its market share in the UK in the near future. In addition, Vietnam’s commitment to open the service market to British businesses is not quite the same as in the EVFTA because the strengths and needs of British businesses to access the Vietnamese market are not the same as those of the EU. In general, Vietnam has no more commitments in UKVFTA compared to EVFTA.

Subtle differences between EVFTA and UKVFTA
Subtle differences between EVFTA and UKVFTA

Commercial Counselor Nguyen Canh Cuong said that UKVFTA is a timely and meaningful gift from the Governments of the two countries to the business community amid a difficult and challenging winter 2020. This agreement not only removes tariff and non-tariff barriers to trade between the two countries but also is a sure guarantee of the Government to help businesses confidently choose markets and partners for their strategic business investment – production – distribution plan in both countries and neighboring markets. UKVFTA has become one of the tools to help Vietnam strengthen its open-door policy and integrate Vietnam into the international economy. Together with other FTAs ​​and industrialization policies, UKVFTA will help Vietnam develop and modernize its economy, create more new jobs, increase workers’ incomes, promote social progress and environmental protection.

Lastly, Nguyen Canh Cuong said that to take advantage of opportunities brought by UKVFTA, Vietnamese businesses need to accelerate digital transformation, apply science and technology and improve their professional trade. British businesses will make strong adjustments to markets and partners to take advantage of UKVFTA if and only if Vietnamese businesses meet their expectations of expertise and confidence. He said that nearly 100,000 Vietnamese graduates from UK universities are a valuable resource that Vietnamese businesses cannot ignore if they want to develop cooperation with the British. Besides learning the laws and methods of doing business in the UK, Vietnamese businesses also need to understand the business culture in the UK to avoid unnecessary misunderstandings and division.

ASL LAW is the top-tier Vietnam law firm for doing business in Vietnam. If you need any advice, please contact us for further information or collaboration.

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