Vietnam is integrating further into the world economy, with two free trade agreements already signed this year with South Korea and the Euroasia Economic Union, a finalised negotiation for the FTA with EU, and many more trade commitments to come. These agreements have opened up huge opportunities for Vietnamese goods to enter the world market, but also a range of challenges.
Only some 30% of exported Vietnamese goods currently enjoy the reduced tariff offered by the current FTAs Vietnam has with its partner countries. The remaining 70% of goods have failed meet the requirements of foreign markets – especially rules of origin requirements – to benefit from reduced tariff rates.
For example, thousands of sports apparel like this will be shipped to the EU in a few days. The company has signed a contract with its EU partners until 2016.
When the Vietnam - EU FTA takes effect, tariffs will be reduced to 0% for these kinds of products. However, 80% of input materials for a shirt like this were imported from China, which means that it will not satisfy the rules of origin requirements to enjoy the reduced tariffs.
Tran Thi Thu Huong, Director of the Centre for Certifying Commercial Documents, Vietnam Chamber of Commerce and Industry, said: "The EU currently applies the Generalised Scheme of Preferences or GSP for Vietnamese goods. According to GSP, textile products can only go through 2 processing stages – which means we can import fibre, which will be weaved into fabric, which will be used to make clothes. This is why Vietnamese products can’t enjoy the preferential tariffs.”
The Commercial Document Certification Centre at the Vietnam Chamber of Commerce and Industry receives hundreds of businesses every day. However, many of them are denied rules of origin certificates due to the unmet requirements.
In addition, GSP only allows products to have imported materials from EU or other countries where GSP applies such as Thailand or Malaysia. This increases the costs for businesses. Raw materials currently produced in Vietnam can’t meet the large demand.
Phan Minh Chinh, General Director, Pro Sports Giao Thuy Company: “If we can’t resolve the problems of input materials and rules of origin, the FTA that we have signed will not mean anything to the textile sector. We will still have to pay the old tariff rate.”
Global integration means stricter rules. The rules of origin are a requirement that textiles, leather and footwear industry must meet, which means that producers need to look into the country’s input materials problem.
