HCMCity (VNS/VNA) – Vietnam’s leather and footwearindustry should improve its supply chain performance to takeadvantage of the milestone trade deal that the country has signed with theEU and to recover from the effects of the COVID-19crisis, speakers said at a recent international footwear conference.

Diep Thanh Kiet, deputy chairman of the Vietnam Leather, Footwear and HandbagAssociation (Lefaso), said the domestic footwear industry hashad strong performance growth in recent years with increased consumerawareness about branded products.

Vietnam, the second-largest footwear exporter in the world, hassigned free trade agreements with a number of countries such as the Republic ofKorea, Russia, Kazakhstan and Belarus, among others.

In addition to the Europe-Vietnam Free Trade Agreement (EVFTA), thefootwear and handbag industry can benefit from many other FTAs signed byVietnam.

However, the supply and distribution chains of the industry have sufferedduring the COVID-19 pandemic.

“The pandemic has left thousands of labourers in the sector jobless sinceorders have been either cancelled or delayed by business partners, leadingto significant fall in revenues,” Kiet said.

Some businesses have reported unsold inventories piling up and are notsure if stocks will clear after the EU reopens.

“Supply chains as well as trade policies will play a major role inthe recovery,” he noted.

Beginning in 2022, the industry’s average growth rate is expectedto reach 10 per cent per year, he said. 

Kiet said the signing of EVFTA would enhance trade andinvestment in the footwear industry and that businesses would enjoyenormous tax incentives.

Thirty-seven percent of Vietnam’s total footwear export volume to theEU will immediately enjoy zero percent tariff, while the remainder willsee tariffs fall gradually from the current average of 12.5 percent tozero following roadmaps of three to seven years.

Vietnam’s biggest competitor in the industry is China. Its footwear productswill enjoy a tax difference of between 3.5 to 4.2 percent when exported to theEU, creating a huge competitive advantage, experts said.

The EU also offers unilateral incentives for a large number of goodsoriginating from Vietnam under the Generalised System of Preferences (GSP), whichwill help Vietnam’s footwear become more competitive than its rival Chineseproducts in the EU market. 

Many foreign footwear producers have shifted their businessesfrom China to Vietnam to benefit from the EVFTA.

Although the footwear industry has several advantages, its developmentstill faces challenges such as trade protectionism, rising labour costsand low labour productivity, and lack of application of advancedtechnology. 

According to the Import-Export Department under the Ministry of Industry andTrade, the ministry had recently signed a circular about rules of originin the EVFTA.

The circular will come into force on August 1, the day the tradedeal takes effect.

With five chapters and 42 articles, the circular is an important legalbasis for granting certificates of origin (C/O) for goods exported to theEU to enjoy preferential tariffs provided by the trade deal, the departmentsaid.

The early issuance of the circular on rules of origin, just a week after theNational Assembly approved the trade deal, was part of the ministry’saction plan to improve the domestic legal framework to implement the EVFTA.

Compared to other trade deals of which Vietnam is a member, the EVFTA’srules of origin have more new and complicated provisions.

The circular is necessary for Vietnamese footwear firms to be able to takeadvantage of preferential tariffs from the first day the trade deal comesinto force,” according to the department.

The ministry said that footwear enterprises must study the rules oforigin carefully to have a proper understanding.

Each year, Vietnam posts nearly 19 billion USD from footwear exports, withsports shoes holding a big proportion in the sector’s total export value.

Vietnam’s footwear and bag exports reached 22 billion USD last year, anincrease of 12 percent compared to 2018. 

According to a report assessing the implications of the EVFTAfrom the Ministry of Planning and Investment, EVFTA ratificationwill increase footwear exports to the EU. The sector is expectedto see a doubling of growth rate in exports to the EU by 2025, withtotal export value of footwear jumping by around 34 percent and that of thewhole sector by 31.8 percent.

After eight years of negotiation, the EVFTA was signed on June 30 lastyear in Hanoi. The European Council passed the trade deal on March 30 andthe Vietnamese National Assembly approved the trade deal on June 8./.