EU trade pact to help Vietnamese firms build safe supply chains

Supply chain opportunities

The EVFTA, which took effect on August 1, provides opportunities for Vietnam to promote trade and investment, especially form new supply chains. Unlike the US, that has Mexico as a traditional supply market, the EU does not have an economy nearby to meet its needs for new supply chains. Luong Hoang Thai, Director of the Ministry of Industry and Trade’s Multilateral Trade Policy Department, said that as one of the first developing countries in the region that has signed an FTA with the EU, Vietnam is well suited to develop new supply chains.

The EU is the driving force for developing a global supply chain in Vietnam, being part of global value chains in the fields of design, manufacturing, marketing, distribution, and recycling, among other areas. Particularly, the EU is capable of sharing advantages of global value chains, including technology, data, information sources, skills and networks with foreign investors, which provides opportunities for Vietnam to develop new supply chains.

The Covid-19 pandemic has interrupted the global supply chain, and many countries around the world have to find new, safe and sustainable alternatives. EVFTA is an important foundation for Vietnam and the EU in that regard, said Vu Tien Loc, Chair of the Vietnam Chamber of Commerce and Industry.

EVFTA provides opportunities for textile-garment, leather-footwear and seafood businesses to export products to the EU. According to the Ministry of Industry and Trade’s Agency of Foreign Trade, authorized agencies granted 7,200 certificates of origin (C/O) form EUR.1 for goods exports to the EU worth US$227 million, including footwear, seafood, plastics and plastic products, coffee, textiles and garments, bags, suitcases, fruits and vegetables, and rattan and bamboo products. Importers included EU countries with seaports and distribution centers - Belgium, Germany, the Netherlands, and France.

Proper policies needed

While opportunities are available for businesses to participate in value chains, enterprises face many challenges. Vietnam’s support industries remain underdeveloped, and the number of Vietnamese companies joining the global value chain is small.

For example, according to a study by the Japan External Trade Organization (JETRO), Japanese companies in Vietnam buy about 32.4 percent of input goods and services they need from Vietnamese suppliers, compared to 67.8 percent in China, 57.1 percent in Thailand, and 40.5 percent in Indonesia. Vietnam has about 20 automobile assembly companies, but has only 81 level-1 suppliers and 145 level-2 and level-3 suppliers.

The average revenue of Vietnamese manufacturing enterprises was only US$2.9 million per year, while businesses are still required to have an annual minimum turnover of US$5 million in order to join the EU market.

Experts have therefore warned that many local firms remain content with participation in the lowest part of the value chain and are not willing to make greater investments to join the global value chain, says Ngo Chung Khanh, Deputy Director of the Multilateral Trade Policy Department.

Meanwhile, Vice President of the Vietnam Association for Supporting Industries Truong Thi Chi Binh said that in addition to business efforts, the government should create a more transparent business environment.