As a non-European Union member, the United Kingdom will no longer enjoy the preferential trade terms available in EU free trade agreements.
Vietnam - European Union Free Trade Agreement (EVFTA) is one of them. With this agreement, traders in Vietnam and the European Union will enjoy lower tax rates, preferential market access for service providers and other beneficial trade terms.
So with trade between the UK and Vietnam: What will happen?
EVFTA will apply to territories defined as part of the EU territory or the territory of Vietnam. After Brexit, the United Kingdom will no longer be considered a member state of the EU and therefore outside the territories protected by EVFTA.
It is still possible that trade between the UK and Vietnam would benefit from EVFTA in the following cases: (1) Brexit transition period; (2) The United Kingdom continues to be a member of the EU customs union; or (3) a separate Vietnam - UK free trade agreement based on EVFTA provisions.
If the EU and UK successfully negotiate the Brexit deal, the agreement will include a transitional period in which the EU and the United Kingdom will continue to trade under the pre-Brexit provisions while preparing for leaving the United Kingdom ("Transition period").
If EVFTA takes effect during the Transition Period, EVFTA will temporarily apply for trade between the UK and Vietnam. The latest negotiations on the Draft Withdrawal Agreement have a Conversion Term scheduled to end on December 31, 2020.
Similar to the Brexit transition period, it is possible that the United Kingdom and the EU will reach agreement in which the UK is still part of the EU customs union.
According to the customs union, the United Kingdom and the EU will apply a common external tax rate and eliminate all internal tariffs. Such a customs union could be recognized in the EVFTA for the commercialization of goods, which would allow the United Kingdom and Vietnam to trade goods for EVFTA tariff treatment.
It is currently not clear how such an alliance will impact non-tariff barriers, technical barriers to trade standards, sanitation, phytosanitary measures and potential barriers to trade, even within a customs union.
The UK and Vietnam can negotiate bilateral FTAs, effective anytime after the UK leaves the EU. An Anglo-Vietnamese FTA can be negotiated during the Transition Period or after the UK withdraws completely from the EU. Whether Vietnam can provide similar trade provisions for the UK alone when it is offered for the entire EU market.
In addition to the above three possibilities, trade between Vietnam and the United Kingdom will take place under the terms of the Most Favored Nation (MFN) of the WTO, which is the default trading rule for any two WTO member countries that do not have preferential deals. Trade between the EU and Vietnam is currently under the terms of MFN, until EVFTA takes effect.
Another proposal was made that the United Kingdom joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), effective from December 30, 2018 for the first six members to ratify and from January 14, 2019 for Vietnam. The CPTPP does not require the right to be Pacific nations, but if the UK wants to join, it will need the consent of all 11 existing CPTPP members.
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