11:21 | 24/06/2015 Trade
(VEN) - The EU-Vietnam Free Trade Agreement (EVFTA) will boost investment and technological innovation in the leather and footwear sector. However, businesses will still have to cope with numerous challenges in the international integration process.
Vietnam is the third largest footwear exporter in the world
Vietnam Leather, Footwear and Handbag Association Secretary General Phan Thi Thanh Xuan said leather and footwear ranked fifth among the top exporting sectors of Vietnam, contributing nearly 8.5 percent to the country’s total export value. With 1,600 production lines capable to produce 800 million pairs of footwear, 120 million bags and other products annually, the leather and footwear sector has generated jobs for more than one million workers.
The EU is the largest export market for Vietnamese leather and footwear products. Last year, Vietnam exported US$3.6 billion worth of leather and footwear to the EU, a rise of 24.1 percent compared with 2013; US$3.3 billion to the US, and US$533 million to Japan. Vietnam is one of the top four footwear manufacturers in the world, and the third largest footwear exporter, behind China and Italy.
Economists believe when the EVFTA takes effect, the tax rates applied to Vietnamese footwear exports to the EU will gradually be reduced to zero percent, offering Vietnam great opportunities to increase footwear exports to the EU.
The EVFTA is also expected to contribute to promoting support industries. Currently, leather and footwear businesses still have to import most of their input materials. The EVFTA and other free trade agreements will encourage foreign investors to invest in material production in Vietnam to benefit from preferences under rules of origin. This will help Vietnam improve domestic material supplies and increase the local content of products.
With 70 percent of its total output created through contracts under which domestic businesses are hired to work as processing units for foreign firms, the Vietnamese leather and footwear sector cannot make high profits. Domestic leather and footwear businesses are still weak in marketing, market development, design, and product development. Technical barriers from the EU and requirements in terms of social responsibility, environmental protection, and procedures for benefiting from FTAs have increased business expenses.
The local content of export leather and footwear products remains at a low 40 percent. Support industries remain underdeveloped and domestic businesses have to import over 60 percent of materials for footwear production, mostly from China. These factors have hindered the growth of the domestic leather and footwear sector.
With 75 percent of their output being for export, foreign invested companies will benefit the most from the EVFTA as they invest in producing both finished products and materials. Meanwhile, domestic businesses benefit less from FTAs.
Many leather and footwear businesses have complained that existing policies which provide businesses with direct government support do not match EVFTA’s regulations. Under the EVFTA, the government can support businesses only through human resource training and support industry development policies, including preferences related to tax, land rent, and bank loan interest rates./.