Many Vietnamese leather and footwear firms have been implementing new production and business strategies to seize opportunities offered by free trade agreements (FTAs), especially a deal between the country and the Eurasia Economic Union (EAEU) which took effect last month.
A representative of Ladoda JSC said the company has imported leather, equipment and machinery from India with a 0% duty, and is seeking foreign partners, including those from Mexico.
Ladoda has exported its handbags and backpacks to EAEU member countries, the representative said, adding that the company has also designed about 20 new models for other markets in 2017.
Phan Thi Thanh Xuan, General Secretary of the Vietnam Leather, Footwear and Handbag Association (LEFASO), said the locally-made rate of the leather and footwear sector is about 40%-45% while materials account for 68%-75% of footwear prices.
Once the Vietnam-EAEU Free Trade Agreement and other free trade pacts come into force, foreign investors will focus on material production in order to enjoy tax preferences offered on the basis of product origins.
Meanwhile, Vietnamese firms are expected to raise their locally-made rate and reduce their dependence on imports.
Domestic leather and footwear companies have revamped their production, gearing towards higher productivity and quality, while expanding markets. At the same time, investors from such countries and territories like China, Japan and Taiwan (China) have also built plants in Vietnam in a bid to make the best use of opportunities afforded by the FTAs.
Foreign direct investment (FDI) businesses, which now make up more than 70% of the sector’s export turnover, are said to benefit the most from the deals.
Like garments-textiles, Vietnamese footwear will enjoy 0% tax in the EU or EAEU markets within seven years since the Vietnam-EAEU FTA took effect.
However, Xuan said, the trend will no longer exist following the market’s opening, any business which satisfies market requirements can benefit from the pacts.
Apart from opportunities, the deals will also generate a range of challenges for the Vietnamese leather and handbag sector.
The high manual rate of leather products and handbags at 70% has lowered profits and weakened the dynamism of the enterprises. Besides, technical barriers imposed by the EU or EAEU, together with requirements regarding social responsibility, environmental protection and procedures to enjoy tax preferences, have forced the businesses to cover more costs.
Against the backdrop, LEFASO suggested local enterprises roll out their own strategies and solutions in order to churn out high-quality products that can gain a firm foothold in the home market and compete with their rivals in foreign markets.
The association also called for more tax and land incentives to encourage more investors in the sector.