Britain’s recent vote to leave the European Union (EU) will impact trade in Asia but Vietnam looks likely to be least affected due to its export structural change, ANZ Bank said in a report.

In the Asia macro strategy weekly released on July 4, ANZ said financial markets look to have digested the Brexit shock in an orderly manner, no doubt with some assistance from central banks providing calming words and ensuring adequate global liquidity.

Asia’s direct trade exposure to the UK is small, at only 2.1% of its total exports. The actual exposure of Asia’s gross domestic product (GDP) to exports to the UK is even smaller, ranging from less than 2% in Vietnam to less than 0.2% in the Philippines and Indonesia.

However, Asia has a much larger exposure to the rest of the EU, and it is the indirect impact of Brexit on the rest of EU growth that is more significant. Although the share of Asia’s exports to the rest of the EU has declined over the last decade (except for Vietnam), the uncertainty of the EU-UK relationship could put a dampener on external demand from that region, ANZ said.

According to the report, Vietnam is likely to suffer less from Brexit than other Asian markets because structural changes to its export product mix to the EU mean that Vietnam will continue to register positive growth, albeit at a lower rate.

Meanwhile, export-reliant economies face the most downside risks. These include Singapore, South Korea and Taiwan. Policymakers have already responded in South Korea and Taiwan, and there is a chance of the same from Singapore later in the year.

The EU is Vietnam’s second largest export market reaching 19.2% in 2015. It is the number one destination for several of Vietnam’s key exports.

Of the US$162-billion total export turnover last year, around 2.9% was shipped to the UK. Among the countries in emerging Asia, only Vietnam reported an increase in the share of its export exposure to the EU over the last decade as the products of the EU and Vietnam are strongly complimentary.

As a foreign direct investment (FDI) magnet, Vietnam rapidly changed its export product mix. However, the cumulative FDI from the EU is only 5.3% of registered FDI in Vietnam.

Companies from some 25 EU member states have set up shop in Vietnam, with the Netherlands taking the lead. Trade relations with the EU are expected to strengthen further after the negotiations for the EU-Vietnam free trade agreement (FTA) were completed in December last year.

The trade pact is expected to be ratified by the remaining members of the EU by early 2018. EU market access will greatly benefit the apparel and footwear industries, as well as agricultural products like rice and fish.

On the other hand, almost all EU exports of machinery and appliances will be fully liberalized once the FTA comes into force. Car parts from the EU will face no duties after seven years of FTA enforcement.

The ambitious EU-Vietnam FTA took 44 months of negotiations before the text of the FTA was published. The UK will likely need to face a similar timeline to sell its capital goods duty-free to the country.

Experts: No instant Brexit impact on wooden goods exports

Experts have forecast that wooden products exports to the United Kingdom (UK) will not be much affected in the next two years by Britain’s June 23 Brexit vote to pull out of the European Union (EU).

To Xuan Phuc, a wood expert and a member of Forest Trends Organization, told the Daily that the UK would leave the EU when the exit process is completed within a two-year period. During these two years, the UK will remain an EU member, so its import policy will stay unchanged, including for Vietnam’s wooden products.

However, he called for local exporters to be well-prepared for possible changes to tax and  customs procedures, and volatile exchange rates.

Brexit has led sterling to fall and would trigger economic difficulties for the UK, leading the European country’s demand to decline, including for wooden products from Vietnam.

Nguyen Ton Quyen, general secretary of the Vietnam Timber and Forest Products Association (Vifores), said sterling and euro have weakened significantly against the U.S. dollar as a result of Brexit while the Vietnam dong has edged down slightly against the dollar.

Last year, Vietnam shipped US$270 million of wooden products to the EU, up from US$180 million in 2012. Forest Trends figures showed that the UK is the EU’s largest importer of Vietnam’s wooden products, accounting for 35-40% of the total.

Local wood products exporters may have to lower prices to retain a competitive edge in the European market. Quyen predicted the export prices of Vietnamese wooden products to the EU would be reduced by 5-7% compared to the current prices.

Data of the Ministry of Agriculture and Rural Development showed outbound sales of wooden products amounted to US$3.17 billion in the first half of this year, down 0.1% year-on-year. The U.S., Japan and China remained Vietnam’s largest three importers, accounting for nearly 68% of the total. The EU comes fourth.

Markets with export growth in the six-month period include the U.S. with 7.66%, Japan  with 1.33%, South Korea with 17.7% and the UK with nearly 10%.

SGT