Vietnam - European Union Free Trade Agreement (EVFTA) was officially approved by the National Assembly and came into effect this summer. This is good news for the Vietnamese economy.
The implementation of EVFTA should be seen as a long-term strategy to help Vietnamese businesses, especially small and medium-sized enterprises, deeply participate in regional value chains, enhance production capacity, export and edge. pictures.
With the reduction of import duties on the EU, goods originating from Vietnam will be relatively cheaper, but sold or not is another story.
Textile - difficult rules from the fabric
When EVFTA takes effect, Vietnamese textiles and garments will have a competitive advantage over Chinese goods, competing on price with Cambodian goods, Bangladesh ... being entitled to 0% tax. But Vietnam has advantages over these countries in terms of high skills and quality assurance.
Specifically, when exporting to the EU, Bangladesh and Cambodia are entitled to the import tax exemption under the EBA program (duty-free for all items except weapons); Pakistan is exempt from import duties under the GSP + special tariff program.
Vietnam is also entitled to the GSP universal tariff preference, but only the "GSP standard - Standard GSP" at 9.6%. The application of GSP + and EBA preferential tariffs gives these countries a great competitive advantage in price compared to Vietnam.
As committed in EVFTA, textiles and garments into the EU will be immediately reduced to 0% about 42.5% of tariff lines, the remaining will be gradually reduced to 0% in 5-7 years.
Textiles and garments enjoying GSP preferential tariffs will continue to enjoy the full 2 years after EVFTA takes effect. Therefore, during this time, businesses can choose programs with more preferential tax rates to apply.
However, textile enterprises wishing to increase efficiency when exporting to the EU through tax reduction under EVFTA will have to implement relatively strict rules of origin with the requirement "from fabric onwards", that is, raw fabric. The materials used to make clothes must be woven in Vietnam or EU member states. At the same time, textile products need to meet specific processing criteria specified in the Agreement.
This is a significant challenge because Vietnamese enterprises currently rely heavily on the import of fabrics and raw materials due to the lack of initiative in domestic supply, while the orders are mainly on processing and using fabric and materials. as directed by foreign customers.
A big fulcrum to solve the problem of fabric shortage and to enjoy preferences is to use imported fabrics in Korea (also with FTA with EU) to cut sewing in Vietnam. However, the rate of importing fabric from Korea is not high, businesses are prioritizing the import of fabrics from China due to lower prices, and have more advantages in geography and diversified models.
In fact, the failure to welcome local textile and dyeing projects is a major barrier in the development of the supporting industry of the textile and apparel industry, making it difficult for the industry to be self-sufficient in raw materials to meet regulations on rules of origin and benefit from tax rates.
Footwear - external materials are not preferential
Immediately after applying EVFTA, 37% of tariff lines on leather and footwear will enjoy import tax of 0%, the remaining will be gradually reduced to 0% according to a schedule of 3-7 years depending on each item. Products with a tax rate of 0% as soon as EVFTA takes effect focus on sports shoes, canvas shoes and rubber shoes - strong export items of Vietnam.
Footwear products shall use materials not originating from outside the Agreement, with the exception of uppers attached to insoles or to other parts of the sole. This origin criterion is considered stricter than some other FTAs, but it is not a new criterion for the leather and footwear industry, since previously footwear enterprises have exported to the EU with the same criteria in the GSP.
However, technical standards and trade barriers for footwear of the EU market are very high and this is no small challenge for Vietnamese goods when penetrating the EU market. Many standards applied in the EU relate to the high level of safety for consumers' health, the level of environmental friendliness, corporate social responsibility, ways of labeling products and origin of goods. chemical ...
Fishery - non-tariff barriers
With EVFTA, the reduction of import tax increases the competitiveness of Vietnamese seafood. For example, shrimp products will have a clear advantage with frozen black tiger shrimp and white shrimp, because black tiger shrimp is reduced from 4.2% GSP tax rate to 0% as soon as EVFTA takes effect; Frozen whiteleg shrimp will gradually decline to 0% after 5 years (while Thailand does not enjoy GSP, no FTA, so there is a base tax of 12%; India has no FTA, subject to GSP tax of 4.2% ; Indonesia is subject to GSP 4.2%; Ecuador has a basic tax of 12%).
The EU also eliminated tariffs on fresh / frozen tuna products as soon as EVFTA came into effect (except for frozen tuna loin / fillet HS code 030487 according to the 3-year schedule); Tuna tenderloin / filet products (raw materials for the production of canned tuna) are eliminated tariffs on a 7-year schedule, from a base tax rate of 24%. Particularly for canned tuna products, the EU will exempt from the tax rate of 11,500 tons / year.
For Pangasius, EU tax rate for Vietnam in EVFTA will be reduced from 5.5% currently to 0% in the 3rd year after the Agreement comes into effect.
Some processed products are subject to a fairly high base tax rate (20%) such as oysters, scallops, squid, octopus, oysters, abalone ... may increase exports due to the tax reduction to 0% as soon as EVFTA effective. Vietnam has a significant opportunity for frozen squid and octopus products (from 6-8% to 0% immediately), surimi (from 14.2% to 0%), and other chilled / frozen (from 7.5% to 0%).
However, in order to enjoy the preferences, the criteria of origin with raw and processed seafood in EVFTA are pure origin: seafood must be born or raised in a member country of the Agreement. This criterion is considered more flexible than the GSP (seafood is considered to have a pure origin when it was simultaneously born and raised in the EU or GSP beneficiary country). Vietnam is also allowed to use squid and octopus raw materials from ASEAN countries (cumulative rules) to process squid, octopus and export to the EU.
Despite the advantages of the sea and the developed seafood industry, the application of the "yellow card" to Vietnam's exploited seafood since 2018 has adversely affected export activities.
Thus, if no further efforts are made, drastically implementing synchronous measures and solutions from the central to local levels, from state agencies to enterprises and fishermen, the results of the next EC inspection it is likely that it will adversely affect Vietnam's seafood export in particular and this seafood market to this potential market, leading to "neutralizing" the advantages gained from EVFTA.
In addition, strict regulations on labor and environment in EVFTA have also been causing difficulties for export activities. Non-tariff barriers SPS, TBT are used more when tariffs have been cut in EVFTA.
Wood and wood products - increased market access opportunities
Currently, the import tax of this item is low (0-6%), but the elimination of tariffs right after EVFTA takes effect still creates more favorable conditions for Vietnamese goods to access EU market.
With EVFTA, origin criteria are not too tight. Specifically, for wood raw materials in general and wood furniture, the criteria of origin are the conversion of commodity codes at the 4-digit level or the content value of non-originating materials involved in the production process. exceed 70%. However, some wood products such as wood veneers for plywood or veneer, close boards and burrs in the form of bananas, trunks, boxes, etc. have the origin criteria of specific processing stages. .
Voluntary Partnership Agreement (VPA / FLEGT) ratified by Vietnam and EU officially came into effect on June 1, 2019. Accordingly, Vietnamese businesses have the right to directly access the EU market, without having to go through cumbersome legality checking process. This is considered Vietnam's competitive advantage with countries that do not have a full VPA agreement.
The challenge is that EU consumers are demanding from the source of timber to ensure the implementation of environmental policies. 100% of timber exported to the EU must be legal timber. Whether the business uses domestic or imported wood materials, it still has to ensure adequate documents and papers proving the legality of the wood. As such, businesses must perform many steps to ensure traceability of clear timber, leading to increased costs. In the immediate future, this is a challenge for many Vietnamese wood enterprises to maintain seriously implementing VPA / FLEGT.
Vegetables - price advantage
EU committed to open very strong for Vietnam vegetables and fruits in EVFTA, namely abolishing right after the Agreement came into effect 94% of 547 tariff lines on vegetables and fruit and vegetable products, many of which are Vietnam's strengths.
Most of the EU tariff lines committed to abolish immediately are having an average MFN tax rate of over 10%, especially for fruit and vegetable products that are subject to tax of over 20%. Therefore, the level of EU commitment is considered to create a great price advantage for Vietnamese vegetables and fruits (especially in competition with countries with fruit and vegetable strengths without FTA with the EU, such as Thailand and China). Quốc ...).
However, post-harvest preservation technology with fresh fruits and vegetables in Vietnam is limited, not meeting the requirements of long distance transportation and export. Distributed production, large loss rates, high prices; production technology, harvesting, processing and storage are limited, uneven, so the quality is uneven, difficult to control and prone to warnings.
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