Two-way benefits through EU deal

Vietnam is poised to occupy a favourable position regionally, with a EU trade deal that is still years away for the likes of Thailand, Photo: Le Toan

Gabriella Marchioni Bocca, president of Italy’s National Association of Manufacturers of Footwear, Leather Goods, and Tanning Technologies (Assomac), said that Italian companies are paying special attention to Vietnam as a promising business destination, especially in the footwear sector.

Last week, a delegation of 32 Italian firms ­participated in the Shoes & Leather Vietnam 2019 event in Ho Chi Minh City to explore market ­opportunities in the field. At least two ­Assomac members, which have a large customer base in ­Vietnam, are mulling over the idea of establishing factories here.

According to Bocca, Vietnam is now the world’s second-largest footwear exporter by volume, thanks to huge investment capital inflows into the sector. A slew of footwear and leather producers are looking to invest in the country, so Assomac’s members hope to boost their sales of equipment and machinery, in order to help Vietnam meet the rising demand.

She also noted that her company, Lamebo, has been supplying the leather industry with splitting band knives for nearly 15 years. Over the past years, the firm has recorded a growth in sales, but is still performing below their potential. Bocca expected that the signing of the EU-Vietnam Free Trade Agreement (EVFTA) will help her company achieve better results in the future.

Meanwhile, Paolo Lemma, director of the Italian Trade Commission (ITC) in Vietnam, said that Italian multinational companies are relocating their businesses to Vietnam amid the ongoing trade war between the US and China, which will create additional demand for advanced technology and machinery from Italy.

Italy is Vietnam’s second-largest supplier of machinery and equipment for the footwear and leather sector, behind China. The value of Italian machinery ­exports has climbed nearly 10 times over the past five years, from €3.4 million ($3.8 million) in 2013 to €31.7 million ($35.7 million) in 2018.

In addition to footwear, European companies are keen on the pharmaceutical field. Peter Harasimowicz, manager of the Polish Investment and Trade Agency, told VIR that pharmaceuticals will be one of the most enticing sectors for foreign investment from Polish companies. Specifically, through the EVFTA, almost half of EU pharmaceutical products will be exempt from customs duties upon the agreement’s entry into force. The remaining duties will be gradually eliminated over a period of seven years. Currently, the duty rate sits at 8 per cent.

Poland produces over $3 billion in pharmaceutical products annually and is the largest pharmaceutical manufacturer in Central Europe, sixth in the EU, and 22nd in the world. More than 8 per cent of Poland’s total exports to Vietnam are pharmaceuticals. In fact, Poland’s largest investment in Vietnam comes from pharmaceutical company Adamed Group.

Meanwhile, the EVFTA also opens the door to new opportunities for agricultural producers in both countries. Vietnam and Poland are both major producers and exporters in the agricultural sector, and related products are a key marker in bilateral trade between the two. In 2018, Vietnam exported $226 ­million worth of agricultural products to Poland, ­accounting for 12 per cent of total ­exports. Meanwhile, the EU member nation exported $132 million to Vietnam, accounting for nearly 50 per cent of total ­Polish exports to this country.

Vietnam is focusing on improving its agricultural technology, by investing in specialised agriculture fertilisers and machinery. Poland imports many products produced in Vietnam such as rice, citrus fruits, bananas, and coconut oil. Dairy products are also one of the largest export product groups from Poland to Vietnam.

Harasimowicz said that trade and investment ­between the two has been ­developing well in recent years. Poland’s projects in Vietnam are mainly 100 per cent Polish-owned, focusing on real estate business, manufacturing, the processing ­industry, and IT. This trend is expected to grow in the future, following the signing of the EVFTA on June 30, 2019.

Ultimately, the agreement assumes the elimination of over 99 per cent of duties on commercial goods. When the agreement comes into effect, Vietnam will abolish 65 ­per cent of its import duties on goods from the EU. The ­remaining duties will be gradually eliminated over a period of 10 years.

The provisions of the agreement are expected to boost European investment in Vietnam. Swedish packaging company Tetra Pak recently opened its first factory for carbon packaging materials in the southern province of Binh Duong.

Covering a total area of 100,000 square metres, the project has a total investment capital of €120 million ($135.3 million). The new factory will put Vietnam on Tetra Pak’s global supply chain map, and it will not only serve food and beverage producers within the country, but also across Southeast Asia and Oceania.

Meanwhile, German technology firm Bosch Vietnam announced its plan to invest €86 million ($100 million) to expand its factory in Vietnam within the next five years. According to Guru Mallikarjuna, managing director of Bosch Vietnam, the country is a growing automotive market for the group.

In 2018, the firm established a regional hub for its two-wheeler and power sports division in Vietnam, to address the fast-growing market in Southeast Asia.

According to the Vietnamese Ministry of Planning and Investment, investors from 23 out of 28 EU member states have registered more than $24 billion into nearly 2,200 projects over the course of the past 28 years. An increasing number of European companies are establishing in Vietnam to set up a hub to serve the Mekong region.

In the ASEAN, Vietnam is the second country after Singapore to have signed a trade agreement of such size and stature with the EU. Thus, Vietnam is likely to surpass other regional peers in the race to attract FDI from European companies.

As reported by the Bangkok Post, Pimchanok Vonkorpon, director general of the Thailand Trade Policy and Strategy Office, warned that automotive suppliers in Thailand should prepare for many car makers to relocate manufacturing facilities to Vietnam.

Meanwhile, production of computers, related components, and electric circuits also faces relocation to ­Vietnam because the country is now competitive enough to develop its own electronics industry. Other sectors that could see a positive impact include garments and textiles, jewellery and accessories, rice, and processed seafood.