Footwear industry loses preferential status.

The EU is removing Vietnam's footwear industry from its Generalized System of Preferences (GSP) for exports to the bloc by year's end after deciding that the sector has been highly competitive in European markets.

That's significant to Hong Kong footwear producers deciding whether to switch to Vietnamese factories from the increasingly expensive Pearl River Delta for exporting goods to the EU in the coming year.

The GSP provides developing countries with unilateral tariff preferences and a duty free quota regime.

The European Commission's office in Vietnam explained that if GSP-covered imports from a country such as Vietnam represent 15% of all imports into the EU from the total number of GSP beneficiaries, then that country's sector is competitive enough not to need preferential treatment.

Vietnam's GSP-covered exports of shoes represent an average of 19.9% of all EU GSP shoe imports for the two years to 2006. GSP-covered footwear represents an average of 49.1% of Vietnam's GSP-covered exports, marginally within the framework that the EU uses when deciding whether to remove a country from GSP status.

However, concerns have been expressed that in the context of Vietnam's current economic slowdown, the removal of the EU's GSP status will affect millions of Vietnamese workers, since the sector has doubled worker numbers over recent years.

Vietnam's footwear industry could also face an extension on the anti-dumping tariff imposed on shoes with leather upper parts, a Vietnamese industry source said.

The Association of Footwear Producers in Italy is to extend its anti-dumping tariff deadline, according to the Vietnamese leather body, the Leather and Footwear Association.

The anti-dumping tariff had been in force since 2006, and would have been automatically removed on 7 October unless an appeal was launched by EU industries by a deadline of 7 July this year.

With the Italian producers' body appealing, the European Commission will reinvestigate Vietnam's leather footwear products for 15 months. It means that the country's leather and footwear industry will continue facing an anti-dumping tariff over the period of investigation.

Vietnamese industry players have tried to re-assure its members that all is being done to affect a lifting of the anti-dumping measure and Vietnamese producers are urging the government to remove import tariffs on shoe materials and accessories as a boost to their competitiveness.

Currently, some 20% of Vietnamese shoes exported to the EU don't claim GSP benefits. This suggests that a growing number of shoe exporters are able to sell at competitive prices in the EU market without any privileges, leveraging on other factors, such as quality and branding.

Moreover, according to the EU, the number of workers in Vietnam's footwear industry has doubled over the past three years, which suggests that this component of the country's export trade is established and needs no GSP support.

On the other hand, Vietnam's footwear industry remains heavily reliant on imported materials, representing some 75% of its requirements.

The sector contributed export revenues of some US$3.9 billion last year, with the EU market expected to represent some 54% of footwear turnover at US$4.5 billion in 2008, an increase of 17% over last year. The sector is forecast to grow on export turnover of some US$6.2 billion by 2010.

from Tina Phan, Ho Chi Minh City Office

(Image courtesy of Xinhua News Agency)