Vietnam has puts high hopes on EVFTA, but the COVID-19 pandemic may make the path to realize its benefits a bumpy one.
The news that EVFTA may be ratified and take effect in July did not cheer up Nguyen Liem as Covid-19 severely hit woodwork enterprises, including Lam Viet JSC, where Liem is director.
Vietnam’s economy returned to a ‘new normal’ after the social distancing policy was lifted, but woodwork export markets remain frozen.
“We have just regained 30-40 percent of the production capacity,” Liem said.
“If the distributors with 200-300 shops in Europe and America do not returned to normal business, our production activities cannot run as usual,” he explained.
|Vietnam has puts high hopes on EVFTA, but the COVID-19 pandemic may make the path to realize its benefits a bumpy one.|
Asked about EVFTA, Liem said the FTA only helps cut tariff and won’t be able to stimulate demand, which is nearly zero in the company’s major export markets.
In the most optimistic scenario, if other countries can contain the epidemic, Liem predicted that it would take foreign wooden furniture shops at least 6-7 months to consume all the inventories and products at ports.
“Only after they sell the inventories will they think of placing new orders with us,” Liem said.
Do Xuan Lap, director of Tien Dat Furniture Corporation, said EVFTA won’t help enterprises at this moment. To be able to enjoy the preferential tariff, enterprises will have to standardize the production process and cut the import value in products by 20-25 percent.
At present, enterprises have to import many kinds of materials from China, Malaysia and Indonesia. It will take enterprises time to reduce the import content in the products.
The footwear industry is in the same situation as its exports target the US and EU markets.
According to Diep Thanh Kiet, deputy chair of the Vietnam Leather, Footwear and Handbag Association (Lefaso), the exports in May dropped by half compared with the last year as the major exporters are still struggling to fight the epidemic.
Kiet said EVFTA will be brought into play only when Vietnamese and EU economies are strong. Enterprises cannot get benefits from the agreement if the EU is still busy struggling with the epidemic.
Nguyen Thi Thu Trang from VCCI, said Vietnam’s export depends on two factors – the purchasing power of the global market and the level of competition with major rivals, including China, Philippines, Myanmar and Bangladesh.
Meanwhile, demand remains very weak because of the pandemic. In Q1 2020, Vietnam had advantages over its rivals which were in economic stagnation because of Covid-19. However, in Q2, its exports also slid because of weak demand from the US and Europe.
Vietnam will be able to reap fruit from the EVFTA if it can improve the legal framework and enhance implementation capability.
Starting from this year, investors from EU member states will for the first time be allowed to tender for many types of public projects in Vietnam under EU-Vietnam Free Trade Agreement commitments.