HCMC - EU trade in goods:

Opportunities and challenges from EVFTA

(VLR) As an economic motive force of the country, HCMC-EU trade in goods has had many achievements for the past few years. According to many experts, when EVFTA takes effect, it will have impacts to groups of import - export goods HCMC has advantages of. If they can catch the opportunities, it will be a chance to gain a breakthrough in trade in goods for the city and for the country as well.

Opportunities

EU is the third largest export market of HCMC, after those of the U.S and China, with the yearly turn-over of USD 4.5bn and it is one of the most hard to please market of the world. Although HCMC’s main products have been Europe’s markets as food, textile, leather and furniture… However, as market analysis experts said, although trade turn - over to Europe has increased for the past 20 years, trade barriers are slowing down the speed and enterprises are facing difficulties when entering the market.

The number of Europe consumers having needs for Vietnam’s products has been increasing, showed by yearly growth of agriculture- food products exported from HCMC to EU market.

EU is a large stable market. Therefore, exporting goods to the market will help HCMC’s export enterprises have a stable market in turn-over and a great source of foreign currency without export crisis. In addition, EU is having a strategy of shifting to Asia. Vietnam and HCMC are in the area, so they have strategically important positions.

With EU’s 500m consumers and GDP of over USD 17,000bn, the signing of EVFTA is an important push for HCMC in trade and economic relationship to EU. HCMC is able to approach easily EU market for FTA framework allow to remove tariff to over 90 kinds of tax for mutual sustainable benefits- . HCMC’s benefits is greater. Tariff cut will make goods exported to EU increase 30% - 40%. Sectors having great benefits from EVFTA includes textile, footwear, food processing… The service sector is expected to remarkably expand thanks to EVFTA, which will probably enhance the whole economy’s efficiency. FTA with EU contribute in creating open environments of business and investments, which will boost up direct investment. EU’s export goods to HCMC will also increase, creating competitions in local market. It will benefit HCMC’s consumers: they have better products with competitive price.

Challenges

When EVFTA takes effect, HCMC’s enterprises will have pressure right at their home ground. EU’s goods easily enter HCMC market with more competitive price for having no import tax. The consumption of local product will surely face difficulties. Some have to narrow their productions for they are unable to compete. Besides, EU’s enterprises easily form 100% foreign capital enterprises operating in HCMC and take part in fields HCMC has not strength yet or the fields in its initial developments as logistics, seaports… HCMC’s enterprises will surely be underdogs.

EU’s standards are strict and hard to achieve. Strict regulations on environment and animal welfare are always challenges to developing countries in general and to HCMC in particular. When export activities to EU boost up, enterprises will have risks of dealing with anti-dumping charges more frequently and in wider scale.

Average tax applied on EU’s export goods to HCMC is basically low (mechanic 3.4%, medicine 2%, optical and medical devices 1.3%, plane 0%). However, they are calculated on average, ceiling tax level of these above products is relatively high, from 10% to medicine and 90% to automobile. Therefore, EVFTA will be affected more or less due to affected import taxes.

Some enterprises hesitate to approach EU market- a hard to please one. However, they should change their minds. If their products meet standards of EU’s markets, they surely can approach other ones.

Solutions

EU’s market and consumers are strict with quality, origin and product equality. To meet these requirements, enterprises should be more active in doing market research, having awareness of its barriers and technical standards… and particular preferential tariff for each sector. To take advantages from EVFTA, enterprises should pay attention to these matters:

First, a look from the demand side should be taken- it is the angle of view from EU market on purchasing power, diversity, taste, and market segmentation, population as well… And awareness and adaption are important things. Taking part in EU export market, especially in the time of post-WTO, enterprises should change their awareness: having adaption to standards that the market requires and taking market requirements an indispensable part of their business activities. At the same time, they should approach information and learn from lessons in the past from other countries and from Vietnam as well.

Second, enterprises should accept and improve their adaption abilities with food safety barriers, anti-dumping laws and other technical barriers of the market. And they should have measurements to deal with right at the beginning to control their market, which will create a new process of strategy ideas and management of production business activities.

Third, many HCMC’s enterprises did not understand clearly EU’s related principle, not taking cooperation to improve competition abilities serious. HCMC Union of Business Association (HUBA) has been appreciated for its suggestions of planning and policy adjustments to the Government… To help enterprises to make good use of development opportunities, HUBA should lead the way in training tasks: disseminating policies to each enterprises on time.

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