16:11 | 11/09/2015 Trade
(VEN) - The EU-Vietnam Free Trade Agreement (EVFTA) is expected to bring major benefits to the Vietnamese leather and footwear sector after it is signed. However, domestic businesses will benefit less from the agreement than companies with foreign direct investment (FDI) as 77 percent of the sector’s export value comes from FDI businesses.
77 percent of the leather and footwear sector’s export value comes from FDI businesses
According to Jean-Jacques Bouflet, Head of the Trade and Economics Section of the EU Delegation to Vietnam, after the EVFTA is signed, 99 percent of tariff lines will be eliminated. Vietnam will be exempt from 65 percent of export tariff lines as soon as the agreement takes effect. Taxes imposed on Vietnamese textiles, garments, and footwear will be gradually reduced to zero percent within seven years.
Under the Generalized System of Preferences (GSP), the EU has reduced the import taxes applied to Vietnamese textiles and garments by 3.5-4 percent. Bouflet said these preferential tax rates would continue to be applied until the EVFTA takes effect, and they would be further reduced if the agreement offered Vietnamese footwear new preferences.
In fact, together with the US and Japan, the EU is a major export market for the Vietnamese leather and footwear sector. Vietnam Leather, Footwear and Handbag Association (LEFASO) Secretary General Phan Thi Thanh Xuan said two thirds of Vietnamese footwear businesses have exported their products to the EU. Data from LEFASO show that in 2014, Vietnam ranked third among footwear exporters to the EU in terms of export value with US$4.88 billion. In the first half of this year, Vietnam exported about US$2 billion worth of footwear to the EU.
Under the EVFTA, the Vietnamese leather and footwear sector will face no difficulties in terms of rules of origin because domestic businesses supply over 50 percent of materials themselves, surpassing the 40 percent threshold. Notably, 77 percent of the sector’s export value comes from FDI businesses, while Vietnamese companies mostly do the manufacturing work ordered by reputable global brands. The export value of Vietnamese branded products remains very low. This means FDI businesses will benefit much more from the EVFTA than Vietnamese companies.
Along with opening its market, the EU will set up non-tariff barriers such as product quality and social responsibility regulations that are compulsory to businesses. Under existing conditions, these barriers will create more difficulties for Vietnamese businesses.
Phan Thi Thanh Xuan warned businesses of the need to be aware of the importance of technology and invest in technological innovation to overcome non-tariff barriers. Notably, the EU pays great attention to product safety related to chemicals through its REACH Regulation. In Xuan’s opinion, doing the manufacturing work ordered by foreign firms is a suitable choice for Vietnamese businesses in the context of the domestic leather and footwear sector remaining weak in terms of technology, human resources and management capacity. However, domestic businesses need to look towards becoming self-sufficient so that they can gradually escape the predominance of FDI companies.