UK Foreign Secretary Dominic Raab arrived in Vietnam this week to finalize a proposed trade deal, a priority for Britain as it exits the European Union (EU) and moves to notch new bilateral pacts in Asia.
Speaking from Hanoi on September 30, Raab said that Vietnam has offered to publicly support Britain’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an 11-member free-trade bloc that would give London an alternative to securing bilateral trade deals with each of its mainly Asian signatories.
“This is a significant step in taking the UK-Vietnam economic relationship to the next level, and demonstrating the UK’s commitment and value to the region,” Raab wrote on Twitter.
Raab’s two-day visit to Hanoi reportedly came after an invitation by his counterpart Pham Binh Minh and follows a recent flurry of interaction between the two nations, including Vietnam’s co-hosting of the UK’s first economic dialogue with the Association of Southeast Asian Nations (ASEAN) bloc last month.
Raab’s visit comes as panic rises in London that there are only a few weeks to go before a free-trade deal with the EU, its largest trading partner, needs to be agreed and signed. Yet talks appear to have stalled and even gone backward, meaning chances of a so-called “no-deal Brexit” are rising by the day.
More trade with Asia will thus be key to Britain’s post-Brexit prosperity. Once Britain formally leaves the EU, it must trade on “most favored nation” (MFN) terms under World Trade Organization (WTO) rules until it can ratify its own free trade agreements.
This wouldn’t affect trade with Vietnam so much, as trade was until very recently conducted on MFN terms and Britain will transition out of the EU before most of the tariffs are dropped under the EU’s recently ratified free trade deal with Vietnam, one of the few countries in the region expected to post positive growth in 2020.
Bilateral trade between the UK and Vietnam was worth US$6.7 billion last year, the majority composed of Vietnam’s exports to the UK. Vietnam is the second-largest Southeast Asian exporter to the UK after Thailand.
There’s optimism that pen will soon be put to paper on a UK-Vietnam trade pact. Terms for a free trade agreement with Japan were secured earlier this month, the first major post-Brexit trade pact the UK has agreed to in principle.
Analysts have noted that the terms of a future UK-Japan trade deal bear a striking resemblance to the free trade pact between Brussels and Tokyo that entered into force last year. Indeed, London has said for years that it can somewhat copy-and-paste existing EU trade deals in forging its own bilateral pacts.
Whereas the EU-Japan trade deal took almost a decade to negotiate, formal talks between the UK and Japan reportedly began in June and most terms were accepted by August, with a delay until September only coming after a small disagreement over Japan’s tariffs for cheese and farm imports from Britain.
The EU-Vietnam trade pact took many years to negotiate and was finally ratified by both sides on August 1. Britain’s talks with Hanoi will also likely be much quicker. The UK ambassador to Vietnam, Gareth Ward, said during a recent online conference that he expects a trade pact to be reached by the end of the year.
UK-Vietnam relations were upgraded to a “strategic partnership” in 2010. Six years later, David Cameron became the first British prime minister to visit post-war Vietnam. Relations were also helped by the arrival of experienced diplomat Tran Ngoc An as Vietnam’s Ambassador to the UK in 2017.
The UK is seeking to play a much bigger role in Southeast Asia’s affairs, part of its Brexit-inspired strategy of a “global Britain” that will look back “east of the Suez”, as current Prime Minister Boris Johnson said in 2016 when serving as foreign secretary.
The British navy has engaged in freedom of navigation exercises in the South China Sea in recent years and has been vocal in condemning China’s aggression against Vietnamese-claimed territory in the contested waters. It also retains a military garrison in Brunei and has access to a Singaporean naval base.
Reports from last year suggest the UK was planning on building a new military base in the region, with rumors initially suggesting another of its former colonies, Malaysia.
The UK also retains a good deal of soft power in the region. It was the second-most favored place for tertiary education, after the US, and the fifth most desirable destination for tourism, ahead of New Zealand and Australia, according to the latest “State of Southeast Asia” report from the ASEAN Studies Centre at the ISEAS-Yusof Ishak Institute in Singapore.
While Britain was only the 15th largest investor in Vietnam last year, it is the largest foreign investor in Vietnam’s education sector.
But there is still some hesitancy within Southeast Asia as to the UK’s intentions, despite it opening a new ASEAN Mission in Jakarta in January and petitioning to become a dialogue partner of the bloc.
In a recent survey of more than 1,000 policy experts from across Southeast Asia, only 42% thought that the UK should be made a dialogue partner of ASEAN, with Vietnamese sentiment slightly above the curve, according to the “State of Southeast Asia” report
The majority of respondents said that another form of engagement, such as the UK agreeing to a “Sectoral and Development Partnership”, should be agreed before a more formal partnership deal.
Closer relations between the UK and Vietnam would conceivably be mutually advantageous. Hanoi had expected its international trade to grow by 5% this year, but it will likely be much less than half that figure because of the Covid-19 pandemic.
Analysts suggest a free trade deal with the UK, as well as the newly-minted one with the EU, will boost Vietnam’s chances of rapid economic recovery in 2021 and 2022, especially if Hanoi gains near-zero tariffed trade with Britain before its Southeast Asian competitors.
Meanwhile, Vietnam has in recent years become a major regional powerhouse, rivaling Indonesia and Singapore as the country to set ASEAN foreign policy. It holds the chair of the ASEAN bloc this year – and potentially next year, if rumors are to be believed – and has a non-permanent seat in the UN Security Council until the end of 2021.
Hanoi’s pledge this week to support Britain’s bid to join the CPTPP, of which Vietnam, Malaysia, Brunei and Singapore are signatories, could prove vital. For Britain to join, it would require consent by all 11 existing CPTPP members. Britain’s historic allies Australia, New Zealand and Canada are also signatories.
After agreeing to terms with Japan earlier this month, the UK’s International Trade Secretary Liz Truss hailed the deal as an important step forward in the UK joining the CPTPP, which Tokyo played a massive part in reviving after the US pulled out of the original TPP-12 days after President Donald Trump took office in 2017.
“We have not yet confirmed our timeline for formal application, but any final application decision we make will depend on the progress of bilateral negotiations with CPTPP members,” she said.
Still, reports from London this week suggest talks for a free trade deal with Singapore have stalled over a dispute surrounding banking licenses complicated by the free trade deal the city-state agreed to with the EU last year.
Talks with another of Britain’s former colonies, Malaysia, are likely to be slower as Kuala Lumpur demands concessions for its palm-oil exporters, the reason why an EU-Malaysia trade pact is now on hold and why Malaysia has filed a complaint against Brussels to the WTO.
The EU wants to ban palm-oil imports for environmental reasons, which Kuala Lumpur argues is a protectionist move to defend Europe’s oil producers. London’s stance on the issue isn’t clear, but it is suspected that the governing Conservative party will put trade ahead of any environmental concerns.