MFN Tariff Phase-Out Could Favor the US Wheat to Vietnam?

Vietnam’s Tariff Impact on Wheat Trade

Beginning December 30, 2021, Vietnam reduced its (Most Favored Nation) MFN tariff rate on all classes of imported Wheat, including U.S. Wheat, from 3 percent to zero. The MFN is a Normal non-discriminatory tariff charged on imports (excludes preferential tariffs under free trade agreements and other schemes or tariffs charged inside quotas). This tariff phase-out is an opportunity for U.S. Wheat to expand in the Vietnam market in the long term. At the same time, other major competitors had already benefited from tariff-free entry, including Australia, Russia, and Canada. CY2021 recorded a strong return of Australian Wheat on a bumper crop, with its market share having increased from 22 percent in CY2020 to 67 percent and offsetting a reduction from all other suppliers.

According to Vietnam Customs, Australia was the largest supplier of feed Wheat, with 39 percent of all imports, followed by Eastern Europe (Ukraine, Bulgaria, Romania) and South America (Brazil and Argentina). Australia was also the largest supplier of milling Wheat, followed by the United States. As a hard-to-replace ingredient, U.S. Wheat is used for blending in cakes, confectionery, and bread production. However, high U.S. Wheat prices led to a contraction in sales to Vietnam in CY2021, with the export volume declining by 64 percent, from 528 TMT in CY2020 to 189 TMT in CY2021.

Australia has preferential tariffs on Vietnam through existing trade agreements. By reducing tariffs for other countries, the decree will reduce or eliminate Australia’s tariff advantage. Most importantly, Australia’s 3% Wheat tariff advantage over the US and Argentina was eliminated on 30 December 2021. However, according to the AgFlow data, Australia was leading Vietnam’s Wheat import market with 1.2 million tons in April – October of 2022, followed by Argentina (0.2 million tons), the United States (0.1 million tons), Brazil (22,000 tons), and Uruguay (9,000 tons).

The impact of this change on Australian Wheat exports will be partially mitigated in the short term. This is due to poor seasonal conditions and high Wheat prices in North America. High sea freight costs also highlighted the importance of proximity to market. Australia has a competitive advantage over North American exporters in Southeast Asia.