The deal offers Vietnamese businesses opportunities to increase and boost their growth but poses an urgent need to outline proper business strategies to fully tap the new opportunities.
The EVFTA creates opportunity for Vietnamese enterprises to boost exports to potential markets and import equipment and materials of high quality at low prices. But domestic businesses must meet the regulations on origin and technical barriers, and change production models in order to improve competitiveness.
Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), said “Domestic businesses should re-orient their markets based on the new integration map in which we have defined with the most favorable tariffs. Vietnamese businesses must satisfy the standards set by these markets. Based on the market re-orientation plans, they should diversify to avoid potential risks.”
Under the EVFTA, 99% of tariffs will be eliminated. As soon as the trade deal comes into effect, many items will even enjoy a tax rate of zero.
Agricultural products including seafood, rice, sugar, honey, and vegetables, are expected to benefit from the new export opportunities. But the deal will also require Vietnamese enterprises to strictly control the quality from the beginning to ensure the export regulations and standards are being met.
The EU is currently Vietnam’s second largest garment and textile market after the US with an annual growth between 7% and 10%. Last year Vietnam earned 4 billion USD from textiles and garment exports to the EU.
Phi Ngoc Trinh, Director General of the Ho Guom Garment Joint Stock Company, said the industry expects to see an export growth of 40 billion USD when the EVFTA takes effect. But Vietnam will face fiercer competition from foreign and FDI enterprises, and from the domestic market as well.
Trinh said “Once the EVFTA is approved, Vietnamese enterprises and the garment and textile industry in particular will have new opportunities to increase export to the European market. At that time, Vietnam’s garment and textile products will enjoy a tax rate of almost 0% against the current average rate of 9.6%. During the approval period, Vietnamese textile and apparel enterprises need to raise their competitiveness, attract workers, and improve standards to meet the EU’s quality control.”
Nguyen Hai Minh, Vice Chairman of Eurocham Vietnam, said “The textile, leather and footwear industries will benefit most from the EVFTA. But Vietnamese enterprises must pay special attention to the principles regarding origin of materials which include favorable provisions for Vietnamese enterprises.
These include the principle which states that if Vietnamese garment and textile enterprises use the fabrics made in Vietnam or in countries that sign trade deals with the EU such as the Republic of Korea, Vietnamese products can enjoy the tax incentives. This will help Vietnamese enterprises change their production model and become more attentive to the origin of materials.”
Vietnamese enterprises should study the agreement thoroughly to take advantages of opportunities created by new trade deals and keep updated as to the information on the tariff reduction schedule set by the EU and Vietnam.
Through professional associations, domestic enterprises should strengthen cooperation with industrial clusters to make the most of the socio-technical infrastructure, save on logistics costs, improve product quality, and lower product costs to increase competitiveness in demanding markets like the EU.