10:24 | 03/01/2018 MUTRAP Corner
(VEN) - Vietnam is expected to attract an increasing number of leather and footwear outsourcing orders as soon as the EU-Vietnam Free Trade Agreement (EVFTA) takes effect in 2018. The question is how these domestic enterprises will take advantage of the opportunities provided by the agreement. Vietnam Economic News’ Viet Nga discussed the issue with Phan Thi Thanh Xuan, Secretary General of the Vietnam Leather and Footwear Association (LEFASO).
How will the EVFTA impact Vietnamese leather and footwear exporters?
The EU has traditionally been the biggest market of the Vietnamese leather and footwear industry. China remains the biggest rival of Vietnam in the EU market. Vietnamese footwear products currently benefit from a 3.5-4.2 percent tax in the EU and therefore have become more competitive. The tax will be zeroed as soon as the EVFTA comes into effect.
Particularly, the tax on sports shoes (accounting for two thirds of Vietnam’s footwear exports to the EU) will be zeroed immediately after the agreement takes effect, while the tax on leather shoes will be reduced gradually within seven years. Rules of origin will be applied in the same way as they are in the general system of preferences (GSP).
With these advantages, Vietnam is expected to attract an increasing number of orders when the EVFTA takes effect. A concern is how domestic enterprises will utilize the opportunities provided by the agreement.
Tariff preferences provided by free trade agreements (FTAs) in general and the EVFTA in particular are quite good. However, Vietnamese enterprises have hardly taken advantage of these opportunities. Why?
While domestic enterprises remain passive, their customers obtain information about related preferences and rules. In general, domestic enterprises only export to some markets that are no longer capable of production, but ignore other markets’ potential. Nowadays, more and more FTAs are being implemented, and countries and territories worldwide are making good use of FTAs’ preferences to increase exports to foreign markets, including Vietnam. In this context, if Vietnamese businesses do not change and improve their performance, they will lose their markets.
What do you recommend domestic enterprises do in order to boost exports to markets with which Vietnam has signed FTAs?
FTAs are expected to increase the number of orders for Vietnamese enterprises. Domestic businesses need to improve their production capability if they are to satisfy the growing demand. They should improve their workforce productivity and skills instead of making use of low labor costs.
Investment in material and accessory production is a rule-of-origin-related local content requirement. Some domestic manufacturers have expanded and developed material production. Vietnamese canvas and sports shoemakers have developed 80-90 percent of raw materials they need and have to import materials only for high-grade leather shoes. Many FDI enterprises have developed projects to form complete supply chains in provinces with rich land and human resources, such as Tra Vinh, Long An, Quang Nam, Quang Ngai, and Nghe An.
LEFASO is working with the Ministry of Industry and Trade and the Mutrap project to offer training in EVFTA regulations, focusing on rules of origin and certificates of origin to help businesses take advantage of FTA incentives.