EVFTA opportunities for Vietnamese footwear products

Vietnam is the third largest footwear exporter in Asia and the fourth largest in the world. Notably, the number of footwear exported from Vietnam is only behind China. Every year, Vietnam exports more than 1 billion pairs of shoes of all kinds to hundreds of countries around the world.

The EU market accounted for the largest proportion of Vietnam's total footwear exports -  22% of Vietnam footwear export turnover in 2020. Of which, exports to Germany accounted for 23.5% of Vietnam's total footwear export turnover to the EU (The General Department of Vietnam Customs, 2020).

Germany is currently one of the largest footwear consumption markets in the world. In 2018, Germany ranked 7th among the countries with the highest consumption of this product with a total of 451 million pairs, equivalent to 2% of global footwear consumption (worldfootwear.com, 2019). The demand for footwear imports of Germany has also increased in recent years, from USD 8 billion in 2010 to USD 12.44 billion in 2020 (ITC Trademap, 2021).

According to ITC Trademap, before 2013, Vietnam's footwear exports to Germany only grew slightly, because Vietnam was not eligible for GSP preferential tariffs and also subject to anti-dumping duties up to 10% in the period of 2006-2009. From 2014 onwards, Vietnam's footwear export turnover to Germany increased continuously, reaching USD 2.12 billion in 2020. This impressive export figure helped footwear become one of major export products of Vietnam to Germany, and helped Vietnam occupy the second position behind China among Germany's largest footwear importers in 2020.

With the EVFTA, Vietnamese footwears exported to Germany were eliminated 37% of tariff lines at entry into force of the Agreement (August 1, 2020). Of which, there are many key footwear products exported from Vietnam to Germany such as sports footwear (tennis shoes, basketball shoes, gym shoes, etc.).  The remaining 63% of the footwear tariff lines will be eliminated after 3, 5 or 7 years. This will be a huge advantage for Vietnam's footwear compared to other major competitors such as China (subject to an average MFN tariff rate of 9.95% in 2021), or Germany's GSP beneficiary countries such as Indonesia (subject to an average GSP tariff rate of 5.99%).

EVFTA opportunities for Vietnamese apparel products

Germany is known as the EU's largest import market for apparel products (clothing from Chapters 61 to 63 in the HS System) with increasing import demand. According to ITC Trademap, German imports of apparel products increased from USD 36.17 billion in 2010 to USD 48.73 billion in 2020, with the average import growth rate of this period being 3.43%. In particular, in 2020, despite being affected by the COVID-19 pandemic, Germany's apparel imports still recorded an impressive growth of 12% compared to 2019.

For Vietnam, apparel is a key production and export industry, for which the EU in general and Germany in particular are the main export markets. In the past, despite being imposed a relatively high tariff (MFN or GSP) by Germany, Vietnam's garment exports to Germany still maintained a good growth rate. According to ITC Trademap, Vietnam's garment exports to Germany in the period of 2010-2020 nearly doubled, from USD 673 million in 2010 to USD 1.71 billion in 2020 with the average growth rate of this period being 10% - much higher than that of Germany's apparel imports from the world of 3.66%.

In the coming time, with the implementation of the EVFTA, Vietnam’s export of garment products to Germany is expected to continue to grow when enjoying advantages from the Agreement. Specific benefits that the EVFTA may bring to Vietnam's garment products include:

Benefits from tariff reductions: Germany currently maintains relatively high MFN and GSP tariffs on Vietnamese apparel products. Specifically, in 2021, Germany’s average tariff rate of MFN on apparel products is 11.27% and that of GSP is 9.02%. According to the EVFTA, the EU/Germany committed to eliminate 196/418 (equivalent to 47%) of tariff lines for Vietnamese apparel products at entry into effect of the Agreement (August 1, 2020). The remaining lines (about 53%) will be eliminated after 3, 5, or 7 years. This is a very high commitment that an FTA partner has ever granted for Vietnamese garment products, which creates a great competitive advantage for Vietnamese garment manufacturers compared to competitors from non-FTA partners as well as from GSP partners of the EU.

Benefits from Cumulation of Origin

Besides preferential tariffs, Vietnam’s apparel products also achieve a relatively favorable commitment on rules of origin in the EVFTA – the cumulation of fabric from a third party. Specifically, the main rule of origin for garment products in the EVFTA is "fabric forward", which allows Vietnam to import fibers from third countries. Although this rule is strict compared to the "cut and sew" rule of many previous FTAs, but compared to the "yarn forward" rule of the CPTPP, this is still an easier condition to meet.

In addition, the EVFTA also allows the cumulation with fabric imported from Korea for garments. Specifically, fabric originating in Korea (a country that has an FTA with the EU) will be considered as originating in Vietnam when such fabric is used as a material for processing or manufacturing in Vietnam for garments under Chapter 61, 62 when exporting to the EU. Currently, Vietnam has also imported a fairly large amount of fabric from Korea for the garment industry, so this is also a very favorable commitment for garment products to meet the EVFTA rules of origin.

EVFTA opportunities for Vietnamese coffee beans

Germany is known as the largest coffee consumption market in Europe. According to Eurostat, in 2019, Germany accounted for 26% of the total European coffee consumption with an average of 6.5kg/person/year (higher than the European average of 5.2kg/person/year). In addition, Germany is also the largest importer of green coffee beans (ungrounded coffee) in Europe. In 2019, Germany's imported green coffee beans reached 1.1 million tons, equivalent to 2.3 billion euros, accounting for 34% of the total imports of this product of the whole Europe.

Meanwhile, according to the World Coffee Organization, Vietnam is the second largest coffee growing and producing country in the world after Brazil with an output of 29 million bags (60kg/bag), accounting for 17% of total coffee globally in 2020. Vietnam is also the 5th largest coffee exporting country in the world with export turnover reaching USD 1.98 billion in 2020 (ITC Trademap, 2021).

With the advantages of Vietnam's coffee production and Germany's large coffee consumption demand, for many years, Vietnam has always been one of Germany's biggest coffee suppliers. However, Vietnam's coffee exports to Germany were not stable and tended to decrease in recent years. Specifically, Vietnam's coffee bean exports in the period 2010-2017 fluctuated with an increasing trend, from 286 million USD in 2010 to 567 million USD in 2017, but then decreased continuously to 385 million USD in 2020. However, Vietnam is still the second largest exporter of coffee beans to Germany (after Brazil) in 2020.

Benefits from tariff reduction: The EU is currently applying the average MFN and GSP tariff rates for Vietnamese coffee beans of 4.15% and 2.4%, respectively. In the EVFTA, the EU committed to eliminate 100% of the tariff lines for coffee beans imported from Vietnam at entry into force of this Agreement on August 1, 2020.

Benefits from protection of Geographical Indication

In the EVFTA, Germany committed to protect 01 geographical indication of Vietnam's coffee, that is Buon Ma Thuot Coffee. This will help increase the value and brand name of this product when exported to Germany.

EVFTA opportunities for Vietnamese fruit and vegetable products

Vietnam is known as a country with many advantages in the production and export of tropical, subtropical and temperate vegetables and fruits. Currently, Vietnam has about 120 types of vegetables and hundreds of types of fruits. Thanks to advances in science and technology, more and more out-of-season vegetables and fruits of Vietnam are grown and harvested, not only meeting the needs of domestic consumption but also serving for export. According to the General Department of Vietnam Customs, Vietnam's fruit and vegetable exports had a strong increase in the 2010-2020 period, from USD 460 million in 2010 to USD 3.27 billion in 2020, with the average growth rate for this period of 30.1%.

Meanwhile, Germany is a country with large and stable demand for fruit and vegetable products, and increasingly prefers tropical fruit and vegetable products. Germany has a year-round import demand and its imports are increasing as German consumers tend to shift to trying and consuming exotic fruits and vegetables from non-EU regions. According to Statista.com, in 2020, Germany imported about 126,000 tons of pineapple and more than 98 thousand tons of mango and guava.

Although Vietnam's vegetables and fruits exported to Germany are not much, the export turnover has grown well over the years. According to the General Department of Vietnam Customs, Vietnam's fruit and vegetable exports to Germany increased from USD 5.8 million in 2010 to USD 19.9 million in 2020 with the average growth rate of this period being 12.8%/year. Some of Vietnam's fresh fruit and vegetable products that are favored by EU people as well as German consumers are: mango, pineapple, dragon fruit, passion fruit, rambutan... With certain advantages and benefits from implementation of the EVFTA, Vietnam's fruit and vegetable exports to Germany are expected to grow more in the future.

The benefits that EVFTA brings to Vietnam's fruit and vegetable industry include:

Benefit from tariff reduction

Vegetables and fruits are one of the product groups that the EU/Germany still maintains relatively high MFN and GSP tariffs. The average MFN and GSP tariff rates applied by the EU to Vietnam's vegetables and fruits are 13.17% and 9.33%, respectively. In the EVFTA, the EU had a relatively high level of commitment to eliminate tariffs on fruit and vegetable products from Vietnam, specifically:

- Eliminate tariffs on 514/547 fruit and vegetable tariff lines (equivalent to 94%) at entry into force;

- Eliminate ad valorem tariff at entry into force, but still keep the absolute tariff  for 24/547 tariff lines (equivalent to 4%);

- Reduce tariff gradually to 75 EUR/ton from 2025 onwards (for Bananas, excluding leaf bananas, fresh (HS code 08039010);

- Apply tariff quotas on 03 products (8/547 tariff lines) including garlic, sweet corn, mushrooms, with the tariff rate in the quota of 0%.

Benefits from protection of Geographical Indication

Of the 39 geographical indications of Vietnam that are automatically protected under the EVFTA, 20 are of fruits and nuts, including:

1. Doan Hung - Pomelo

2. Binh Thuan - Dragon fruit

3. Thanh Ha - Lychee

4. Vinh - Orange

5. Luc Ngan - Lychee

6. Hoa Loc - Mango

7. Dai Hoang - Banana

8. Bac Kan - Seedless persimmon

9. Phuc Trach - Pomelo

10. Trung Khanh - Chestnut

11. Ba Den - Custard apple

12. Ninh Thuan - Grapes

13. Tan Trieu - Pomelo

14. Bao Lam - Seedless persimmon

15. Bac Kan - Mandarin

16. Yen Chau - Mango

17. Binh Minh - Pomelo

18. Luan Van - Pomelo

19. Vinh Kim - Star apple

20. Cao Phong - Orange

Vietnamese fruit and vegetable products protected by geographical indications will have the opportunity to increase their value and brand when approaching the German market.

EVFTA opportunities for Vietnamese seafood products

Germany is a market with relatively stable demand for seafood products, with salmon, fish fillets and shrimp being the most consumed in Germany. In 2020, Germany's per capita seafood consumption was 5 kg/person/year, increased from 14.3 kg/person/year in 2019 (Statista.com, 2021). Germany is also one of the largest seafood importers in Europe, its seafood imports are mostly from non-European countries (75%) of which 59% from developing countries. In 2020, Germany’s import turnover of seafood from developing countries reached USD 1.4 billion with the main imported products being fish fillets (USD 542 million), processed and preserved fish (USD 402 million), shrimp products (USD 122 million), other crustaceans (USD 223 million) (cbi.eu, 2021).

Meanwhile, Vietnam is a developing country with strengths in producing a variety of seafood, of which frozen shrimp, tuna, and squid are the most exported items to Germany. However, Vietnam's seafood export turnover to Germany in recent years is still limited, not commensurate with the potential of Vietnam’s seafood and the needs for seafood of the German market. Specifically, Vietnam’s export turnover to Germany reached USD 209 million in 2010, however, in the later period it fluctuated and decreased to only USD 189 million in 2019.  In 2020, due to the impact of the COVID-19 pandemic, the turnover of Vietnam’s seafood export to Germany was only 180 million USD (General Department of Vietnam Customs, 2021).

However, with the implementation of the EVFTA Agreement, Vietnam's seafood will have the opportunity to increase exports to the German market thanks to the following outstanding benefits:

Benefit from tariff reduction

The EU/Germany currently maintains relatively high MFN and GSP tariff rates on seafood products imported from Vietnam. Specifically, Germany’s average MFN and GSP tariff rates in 2021 on Vietnamese seafood products are 11.9% and 7.26%, respectively. In the EVFTA, the EU/Germany committed to eliminate tariffs for seafood products imported from Vietnam as follows:

- 50% of the tariff lines are eliminated at entry into force of the Agreement;

- The remaining of 50% tariff lines will be eliminated after 3, 5 or 7 years;

- Particularly for canned tuna and fish balls, tariff quotas are applied with 11,500 tons/year and 500 tons/year, respectively.

Benefits from Cumulation of Origin

The EVFTA allows the cumulation of squid and octopus originating in ASEAN. Specifically, squid and octopus materials (under HS codes of 030741 and 030751) originating from an ASEAN member that has an FTA with the EU will be considered as originating in Vietnam when determining origin for processed squid and octopus products (under HS codes of 160551 and 160555) exported to the EU (including Germany). Although currently in ASEAN, only Singapore has an in-effect FTA  with the EU, in the future if the EU signs FTAs ​​with  other ASEAN countries where Vietnam also imports a lot of seafood materials such as Indonesia, Thailand, and Malaysia, Vietnam will also benefit from this cumulation mechanism.

Benefits from protection of Geographical Indication

Of the 39 Vietnamese Geographical Indications that are automatically protected in the EVFTA, there are 02 seafood products: Ha Long Grilled chopped cuttlefish and Quang Ninh Clam. This automatic geographical indication protection under the EVFTA will help the above seafood products when exported to the German market have the opportunity to increase their brand and product value.