Hong Kong reductions set for FTA

The Ministry of Finance is drafting a governmental decree on enacting a special preferential import tariff schedule to implement Vietnam’s commitments under the ASEAN-Hong Kong Free Trade Agreement (AHKFTA) in 2019-2022.

This decree will take effect on January 1, 2019, at the same time as the AHKFTA officially becomes valid.

In general, Vietnam will open its doors to 72 tariff lines from Hong Kong, equivalent to $658.7 million in import turnover. From 2019 to 2022, the average tax rate will be reduced from 6.97 to 4.98 per cent.

A slew of import items from Hong Kong will see strong reductions in import tax rates or tax exemption in Vietnam, such as metal and steel products (0 per cent in 2019), industrial machinery and equipment (2 per cent in 2019 and 0 per cent in 2022), plastics (0 per cent in 2019), assorted chemicals (2 per cent in 2019 and 0 per cent in 2022), and live animals (3 per cent in 2019 and 0 per cent in 2022).

However, many products from Hong Kong will find it difficult to compete with products that are the particular strength of Vietnam because of high import tariffs.

For instance, tariffs are expected to remain high for textiles and garments (16 per cent in 2019 and lowered to 12 per cent in 2022), fresh pork (20 per cent in 2019 and 15 per cent in 2022), and certain types of fish (8-10 per cent next year and 6-7 per cent over the next four years).

Pan-Asian consultancy firm Dezan Shira & Associates saw the AHKFTA as a good tool for Southeast Asian nations, including Vietnam, to attract more foreign investment, especially from Hong Kong which many foreign investors use as a third location to invest overseas.

According to Dezan Shira & Associates, in terms of business benefits, the agreement will offer four key advantages to stakeholders in the region, namely tariff reduction for trade in goods; better and fairer investment protection; fewer restrictions for trade in services; and a longer stay for business travellers.

Previously, only seven of the 10 Southeast Asian countries allowed business travellers from Hong Kong to stay in the country without a visa for up to 14-30 days. The free trade deal will allow Hong Kong business travellers to stay in any Southeast Asian country for up to 90 days, without requiring a business visa.

Dezan Shira & Associates said that with regards to trade restrictions, both Hong Kong and Southeast Asian countries will remove barriers on foreign capital participation and the number of foreign workers employed. Foreign ­businesses can benefit significantly from the AHKFTA as the agreement will extend Hong Kong’s network to cover all major economies in Southeast Asia.

Statistics from the Vietnamese Ministry of Foreign Investment showed that as of November 20, 2018 Hong Kong had 1,401 valid investment projects in Vietnam, registered at $19.35 billion. In the first 11 months of 2018, Vietnam attracted 137 new projects from Hong Kong, registered at $711.1 million. If stake acquisitions were included, total new investment from Hong Kong hit $1.73 billion.

According to Vietnam’s General Department of Customs, since 2016, Vietnam’s import turnover from Hong Kong has increased, from $1.495 billion in 2016 to $1.66 billion last year. The figure hit $781 million in the first six months of this year.

From Hong Kong, Vietnam largely imports materials for footwear and garments, machinery and equipment, steel and scraps, mobile phones and spare parts, laptops, and other electronics products.

The AHKFTA was inked by the economic ministers from ASEAN member states and the Secretary for Commerce and Economic Development of Hong Kong on November 12, 2017 at the side-lines of the 31st ASEAN Summit in the Philippines.

The negotiations of the AHKFTA were concluded three years after its commencement in 2014.