While the agreement will fully take effective for other ASEAN countries at later dates, the trade pact, which was signed by Hong Kong and the 10 members of the Association of Southeast Asian Nations (ASEAN) in November 2017, will prompt reduction on tariffs and facilitate free flow of services and investments within and across the corridor.
Accordingly, the participating economies will progressively reduce their tariffs over the coming years. Vietnam, in particular, will eliminate customs duties of about 75 per cent of their tariff lines within 10 years and reduce customs duties of another 10 per cent of their tariff lines within 14 years.
The Investment Agreement within the framework will ensure that onshore and offshore service providers will be equally treated while enabling a reduction of restrictions on foreign investment in service sectors.
According to Pham Hong Hai, CEO of HSBC Vietnam the AHKFTA is another peg in securing the trade liberalisation tent and it is a big win for ASEAN, and particularly Vietnam.
“With no end to the trade tensions, Hong Kong businesses are looking for wider investment opportunities and the FTA signals Southeast Asia as a fertile ground. The bilateral cooperation of Vietnam and Hong Kong has grown steadily over years and this FTA coming into force promises to open the door to more cooperation opportunities for Hong Kong and Vietnam,” noted Hai.
ASEAN was Hong Kong’s second largest trading partner in merchandise trade in 2018 and the fourth largest in services trade in 2017. As at end of 2017, ASEAN ranked fourth among Hong Kong’s destinations of outward direct investment. The association also ranked sixth among Hong Kong’s sources of inward direct investment worth some HK$628 billion.
Vietnam is considered as an attractive investment destination for foreign investors due to the country’s geopolitical advantages. This new AHKFTA will thus even open up more business opportunities for the Southeast Asia’s fastest growing country whilst bolstering the trade flow between the two markets.
In the first five months of this year, Hong Kong emerged as the leading investor in Vietnam with the total investment capital of $5.08 billion, accounting for 30.4 per cent of the country’s total investment.
The FTA is expected to provide a smoother access to the trade flow between Hong Kong and ASEAN, including Vietnam. The stronger trade flow would boost the country’s productivity and industrial capacity, enabling it to further take advantage of trade diversion.