The ASEAN-Hong Kong, China Free Trade Agreement (FTA) and Its Effect on Vietnam

The ASEAN Hong Kong Free Trade Agreement (FTA) is expected to promote the trade between Hong Kong and other ASEAN countries, including Vietnam. Read more.

The ASEAN-Hong Kong, China Free Trade Agreement (FTA), with its acronym AHKFTA, is expected to promote the trade between Hong Kong and other ASEAN member states substantially. The AHKFTA became effective on June 11, 2019 for Vietnam, Thailand, Laos, Singapore and Myanmar. The rest of the member states will confirm the enactment by the end of 2019.

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Built on the already strong economic foundation between both parties, the agreement was agreed and signed earlier in November 2017 with an effort to reduce taxes, enhance economic cooperation, and augment investment between Hong Kong and the regional markets in the ASEAN zones. This agreement will also help counter the intensifying US-China trade war, with Hong Kong’s intention to expand its investment opportunities in Vietnam.

In this article, we will go into details on how AHKFTA affects Vietnam’s market and overall economy.

Trade between Vietnam and Hong Kong

Just in 2018 alone, there were more than 1,300 projects in Vietnam invested by Hong Kong’s investors, particularly in real estate sector and textiles and garments industry. The number is expected to grow significantly with the effect of AHKFTA.

On the other hand, Vietnam is the largest export market in ASEAN regions and the third biggest trade partner for Hong Kong. Hong Kong has a total investment in Vietnam amounting to US$5 billion during the first 5 months of 2019. This investment amount from Hong Kong is approximately 30.4% of the total foreign direct investment in Vietnam.

Vietnam has benefited from the re-exports of goods from mainland China to ASEAN through Hong Kong. The re-export is growing at an average 3.7% each year thus Vietnam has also become the 6th largest destination for Hong Kong’s exports.

In addition to the thriving trade between Hong Kong and Vietnam, the AHKFTA allows Vietnam and other ASEAN countries to take advantage of Hong Kong’s financial, professional, financial, legal and commercial services. Vietnam and other member states will also benefit from expanding investment inflows in sectors such as manufacturing, service industry and real estate.

The ASEAN-Hong Kong, China FTA

The AHKFTA addresses four main areas, namely traded goods’ tariff reduction, restrictions reduction for service trade, prolonged business stay period and more secured investments.

With trade reduction came into force under this agreement, custom duties on goods from Hong Kong will either reduced or eliminated by most ASEAN member countries. Malaysia, Thailand, Brunei Darussalam and the Philippines will abolish custom duties on 85% of goods traded with Hong Kong in the next 10 years and decrease another 10% of tariff lines the next 14 years.

On the same note, all products entering Hong Kong from ASEAN states including Vietnam are tariff-free under the AHKFTA.

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Business Opportunities for Vietnam

Just like Vietnam, Hong Kong has long been known as an ideal destination for Southeast Asian corporations for investments.

Under the AHKFTA along with its flexible tariff regime, outstanding infrastructure, dynamic financial hub and strong legal system, Hong Kong has now possessed a huge potential to raise and facilitate its investments and trade in Vietnam.

Effect of the AHKFTA on Vietnam

The enforcement of the AHKFTA has positive effects on Vietnam and one of those being Vietnam’s improvement on its competitive trade agreement network. It helps Vietnam to transform significantly from just exporting low-tech products to exporting high-tech products including vehicles, machinery, medical devices and electronics.

The AHKFTA will definitely level the playing field and widen the market access for business leaders and investors from both Hong Kong and Vietnam. Better market access means new business opportunities led by the AHKFTA.

Hence, business leaders and investors in Vietnam should put in effort to get familiar with the current market conditions, and consider if their business operations can benefit significantly and sustainably from the AHKFTA.

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Tomas Svoboda - Cekindo - Vietnam Country Manager

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Ing. Tomas Svoboda

Tomas is an expansion manager responsible for Vietnam. His role is to define the key potential of the Vietnamese market and to ensure that Cekindo branch in Vietnam provides its clients with smooth and hassle-free market entry solutions.