Tariff preferences in the UKVFTA Agreement

The UKVFTA Agreement is expected to help Vietnam and the UK maintain preferential trade conditions and economic benefits through market opening commitments already in the EVFTA Agreement. Basically, the import tax on export goods in general, and textile goods in particular, from Vietnam to the UK will be equal to the import tax on goods exported from Vietnam to the EU at any time. Which point starts when UKVFTA comes into effect? Specifically: UK will eliminate tariffs on 42.5% of tariff lines from January 1, 2021; Eliminate remaining tariffs after 2, 4 or 6 years. At that time, compared to Vietnam, competitors such as Bangladesh, Cambodia, and Pakistan will no longer have a competitive advantage in terms of tariffs.

Items with a 0% tax rate as soon as the UKVFTA takes effect focus on raw materials and garment products such as underwear, bathrobes, nightwear, loungewear, swimwear, handkerchiefs, and towels. Capes and ties (except silk), gloves, tights, children's clothing, knitted blouses or shirts for women or girls, some suits, suits, jackets...

In fact, if including the period of tax incentives under the EVFTA Agreement, Vietnamese goods exported to the UK have enjoyed tax incentives for more than 2 years. During these two years, the import tax rate for some textile and garment products is still higher than the 9.6% GSP tax rate currently enjoyed. However, the UKVFTA Agreement will bring long-term benefits to Vietnam's textile and garment industry.

In addition, similar to the EVFTA Agreement, when a country currently receiving the GSP mechanism from the UK signs an FTA with the UK, the GSP mechanism will automatically end.

According to the UKVFTA Agreement, Vietnam has a 6-year roadmap to convert from GSP to UKVFTA. Accordingly, by the end of 2022, Vietnamese exports to the UK are allowed to choose to apply one of two preferential tax rates from the GSP or the UKVFTA Agreement and apply the corresponding origin certification mechanism.

In the next 4 years, Vietnamese exports to the UK will still be allowed to choose to apply one of two preferential tax rates from the GSP or the UKVFTA Agreement, however, they must meet the rules of origin in the UK. UKVFTA Agreement. After 6 years from the date the UKVFTA Agreement takes effect, Vietnam's exported goods to the UK will enjoy tax rates and apply rules of origin completely according to the UKVFTA Agreement.

Jacket product groups, depending on the material, have different tax reduction schedules. Wool jackets are on schedule A, a group that will enjoy 0% tax immediately after the Agreement takes effect; jackets from other textile materials are on roadmap B2, which is the group that will have tax reduced to 0% after 2 years from the date the Agreement takes effect; Jackets made from cotton/synthetic fibers are on roadmap B4, which is the group that will have tax reduced to 0% after 4 years from the date the Agreement takes effect.

The shirt product group, most of which belong to roadmap B6, is the group that will have tax reduced to 0% after 6 years from the date the Agreement takes effect.

The group of T-shirts and pants items, depending on the material and description, also have different tax reduction schedules. Some product lines enjoy 0% tax immediately after the Agreement takes effect, some lines reduce to 0% after 2 months. -4 years from the date the Agreement takes effect.

The underwear product group belongs to roadmaps A and B4, which is the group that will have tax reduced to 0% as soon as the Agreement takes effect or after 4 years of the Agreement taking effect.

The group of labor protection clothing items belongs to roadmap A, B2, B4, B6 depending on the material and description of the item.

Need to improve production and deep processing capacity

The UKVFTA Agreement stipulates that the origin criteria for textile products are two-step criteria, meaning that the weaving stage and the sewing stage of finished products must be carried out in Vietnam or the UK. With such origin regulations, the fabric used for tailoring must originate from Vietnam or the UK.

In the publication "Developing the UK market for the textile and garment industry" compiled by theAgency of Foreign Trade , it was mentioned that this is a big challenge for the Vietnamese textile and garment industry because the textile and garment industry is currently not proactive in supplying countries, still have to rely mainly on imported fabrics and raw materials (70%), while orders are mainly processed and the use of fabrics and raw materials as specified by foreign customers.

The big fulcrum to solve the fabric shortage problem and enjoy incentives from the Agreements is the commitment to accumulate fabric materials from Korea, Japan and the EU. In addition, Vietnam can use imported fabrics. from countries that have and will sign FTAs with the UK for tailoring in Vietnam.

According to the Agency of Foreign Trade , in the immediate future, the UKVFTA Agreement's rules of origin are still a challenge for the Vietnamese textile and garment industry. Therefore, in the short term, the UKVFTA Agreement has not created a strong "push" for Vietnam's textile and garment industry like the period of joining the WTO or signing the BTA with the United States. In the long term, with a large enough market scale, the UKVFTA's "fabric onwards" rules of origin combined with the CPTPP Agreement's key principle of "yarn onwards" will continue to promote the formation of into a closed production chain from upstream to finished products, increasing added value for the industry and gradually reducing dependence on imported raw materials.

The UKVFTA Agreement is expected to bring long-term benefits to Vietnam's textile and garment industry in increasing export market share to the UK market, helping to diversify the market, and limiting risks when the US market fluctuates. because the US-China trade conflict has not ended.

In the coming time, to effectively take advantage of UKVFTA and expand garment market share in the UK, according to the Agency of Foreign Trade , Vietnamese businesses need to improve production capacity, deep processing, and find raw material sources. across regions or develop domestic raw material sources. At the same time, businesses need to proactively learn and participate in in-depth training activities to be able to clearly understand, correctly understand and confidently apply regulations on rules of origin.

Businesses also need to grasp the needs of each market in each specific situation to develop and produce appropriate products.

In addition, in the context of high inflation in the UK region, UK consumers are tightening their spending, causing a temporary decline in orders. Businesses need to closely monitor the situation, choose appropriate orders, and maintain products. export, ensuring jobs for workers in the immediate future, do not be too worried about signing long-term orders at low prices.

Minh Toan