Vietnam Leather and Footwear Industry

VIETNAM LEATHER AND FOOTWEAR INDUSTRY –OPPORTUNITIES & CHALLENGES ON THE WAY OF VIETNAM ENTERING WTO

VIETNAM LEATHER AND FOOTWEAR INDUSTRY -OPPORTUNITIES & CHALLENGES ON THE WAY OF

VIETNAM ENTERING WTO

Speech of: Dr. Nguyen Thi Tong –General Secretary of LEFASO Vietnam


I. OVEREVIEW OF VIETNAM LEATHER & FOOTWEAR INDUSTRY:

I.1. Specifications:

I.2. Overewiew of Vietnam Leather and Footwear Industry:

I.3. Disadvantages and difficulties:

I.1. Specifications:

Leather and footwear industry attracts a huge amount of employment of society

Beside getting a lot of priorities from exporting, also has export potential

It has to face direct pressure from the regional and international economic integration. Therefore, the industry gains a lot of opportunities as well as facing with more challenges.


I.1. Specifications (continue):

In the industry, operate enterprises from all economic sectors, the numbers of State - Owned enterprises are being narrowed with the privatization process

The industry are now taking advantages and opportunities together with countries in Asia region for development. Vietnam today is one of the top 10 leading countries in footwear production and exporting in the world.


I.2. Overwiew of Vietnam Leather and Footwear Industry:

I.2.1. Production Capacity and fact figure:

a. Different kind of footwear: 520.0 million pairsIncluding:

- Sport shoe: 290.50 million pairs - Canvas shoe: 45.00 million pairs - Ladies shoe : 100.20 million pairs - Other (slippers and sandals) : 84.30 million pairs

b. Different kind of bags and handbags: 45.0 million Pieces

c. Finished leather: 45.0 million sqft

VIETNAM LEATHER AND FOOTWEAR INDUSTRY –OPPROTUNITIES & CHALLENGES ON THE WAY OF VIETNAM ENTERING WTO


Table 1. Production capacity by economic sectors(Updated at the end of 2004)

50,00022,00020,0008,0001.000 Sqft

3.Finished leather

45,00018,00020,0007,0001.000 pieces

2.Different kinds of bags and handbags

520,00034,000227,526147,474111,0041.000 pairs

1. Different kinds of Footwear

TotalJoint venture compan

ies

FDI compani

es

Non – State owned

Companies

State owned

companies

Unit


Table 2: FACT FIGURE THROUGH THE YEARS from 2000 - 2004

39,00032,00025,00015,1001.000 Sqft

3. Finished leather

41,00035,00033,70031,3001.000 pieces

2. Different kind of bags and handbags

69,82970,77467,43375,220“- Others

93,40082,42371,71054,710"- Ladies shoe

21,89628,64531,42834,080"- Canvas shoe

256,125234,802189,429126,470"- Sport shoe

441,250416,644360,000302,8001.000 pairs

1. Different kind of Footwear

2004200320022000Unit

Note:: Others including leather shoe , sandals, slippers


I.2.2. Economic sector structure:

Table 3. Numbers of enterprises by economic sectors

14014- Joint Venture companies

14504141- FDI Companies

19526169- Non - State Owned companies

37235- Center State – Owned companies and Local State -Owned companies

Include:

39132359Total

TotalTanneriesFootwear, bags and handbags, Accessories

Companies

Enterprise divided by economic sectors


I.2.3. Export Turnover of the Footwear Industry:

Table 4 . Contribution of the industry to the country Export 2000 - 2004

Unit: Million USD

10.0011.0011.0510.4310.16Ratio %

26,503.0020,600.0016,700.0015,100.0014,448.12The country

2,640.262,267.001,846.001,575.001,468.12The Industry

20042003200220012000Export turnover


Table 5. Output and Export turnover by category in the period 2000 -2004

Quantity: 1000 Pairs Value :1000 USD

2,640,260420,2382,267,381392,9811,846,132333,1501,575,157291,8341,468,000276,600Total

153,.60866,502133,74168,19688,90258,531213,81768,176187,81075,220Other

575,.91188,953438,12878,681262,31366,690283,94264,189231,84054,710Ladies shoe

83,45620,85456,27925,78189,16627,97175,64431,582155,71030,670Canvas shoe

1,827,285243,9291,638.025220,3221,392.775179,9581,001.753127,887892,64116,000Sport shoe

ValueQuantityValueQuantityValueQuantityValueQuantityValueQuantity

20042003200220012000


Table 6. MARKET SHARE OF VIETNAM EXPORT FOOTWEAR IN 2004

Unit: USD 1000

100.02,640,260.0Total13.2348,514.0Other markets42.872,964.0Japanese market3

16.0423,110.0US market268.01,794,576.0EU countries1

%ValueExport turnover by main markets

No


68%

16%

3%

3%10%

EU Market United States Japan Asia countries Other countries


Table 7. Export turnover by economic sectors 2000- 2004Unit: mill USD

100,002.640,26100,002.267,38100,001.846,00100,001.468,00Total

6,40169.566,60149,196,70123,405,6083,09- Joint venture enterprises

52,41.383,0648,401097,5745,40838,6541,30605,96- FDI enterprises

58,801.552,6255,001.246,7652,10962,0546,90689,052. 100% foreign capital enterprise-(FDI), joint venture enterprises

26,80721.3928,00636,8329,10536,2226,73392,34- Private companies

13,6366.2517,00383,7918,80347,8626,37386,61- State companies

41,201.087,6445,001.020,6247,90884,0853,10778,951. Vietnamese enterprises, includes:

%2004%2003%2002%2000Enterprises by economic sectors


Table 8. EXPORT TURNOVER BY PROVINCEUnit: USD million

100.002,640.00Total4.71124.27Others81.2432.87 Da nang City71.4438.06Vung tau, Ba ria Province62.9377.45 Hanoi City5

10.47276.46 Hai Phong City416.09424.67 Binh Duong Province322.44592.36 Dong Nai Province240.681,074.00Ho Chi Minh City1

%ValueCity, ProvinceNo

1.2.4. Labor forcesUp to the year of 2004, there are nearly 600,000 workers working in the industry, consist 6.5% from the whole industry sector labor force.

The main labor force of the industry are mainly at lower level of skill, variable and frequently moving. The variety of labor forces was very high since late 2004 to early 2005, in some particular companies this rate was at 35- 40%.

The main part of labor forces was trained in the production line. Most of them are women - 85%. Immigrant employment take the ratio of 70% from the whole labor force of enterprise.


1.3. Disadvantages and difficulties:Most of companies are operating at the processing contracts, therefore they have less interests as well as dynamic.

Value - added of footwear still at low rate (less than 40%). The uncomprehensive development between raw material production and footwear production. A lot of raw materials still have to import, especially materials for the upper shoes

Facing with pressure from labor force: lacking, unstable, low level of skill and technique, lack of high tech workers, engineers, and management staff.


1.3. Disadvantages and difficulties (continue):

Marketing, market development, shoe designing and products development are also at the poor situation. The potential markets can not be approached because of companies marketing capacity.

Infrastructure and service works still limited, not all meeting requirement of importers and consumers

Companies also have to deal with competition in term of products price, processing cost are narrowed when high input cost (cost of materials, other issues as: production cost, transportation cost...)

Other limited of Enterprises


II. OPPOTUNITIES & CHALLENGES OF THE INDUSTRY ON THE WAY OF VIETNAM ENTERING WTO:

II.1. Opportunities:

The demand of footwear from most of countries in the world is now highly increasing because of the living conditions improved with the time being.

The ratio of products exporting into US market has been increasing since 2002. There are many of companies focus their production to this potential market, specially FDI and joint venture companies


II.1. Opportunities (continue):

Most enterprises recognize the important of being equip with knowledge of technical requirements, production management, business morals, good working conditions,... In order to meet requirement of importers and consumers.

The government issues, policies on promoting to speed up export and production, giving more advantages to the leather and footwear companies, specially exporting companies.

Non trade barriers will created more favor conditions for business onproducts of industry



II.1. Opportunities (continue):

The infrastructures of production are being concerned and improved day by day giving more good conditions for working environment.

Continuing process of production transfer from countries to countries in the region

Other opportunity from inside of country and enterprises

II.2. Challenges:

Competitive capacity of footwear enterprises is at low level. Therefore they have to face a lot of difficulties with stronger competitors from the region and China. The main reason could be understood as lacking resources of raw materials and low price of products from other competition countries.

Staffs for shoe designing and product development are also limited. Companies don’t have enough talented and skilled staff for its production management as well as to develop the potential markets.

Advantage of Vietnam regarding labor forces still is factor of competition, but there are some difficulties and have big changes. Training labor forces and skillful workers are not meeting requirement of demand of production.


II.2. Challenges (continue):

Numbers of enterprises have small capacity, not active with changing of the markets, they must receive processing contracts via thirdpartners, so effective of production is very limited, production face with difficulties because of without potential customers. Numbers of enterprises in the industry still not ready and prepare for integration process

Pressure with non – trade and technical barriers (Technical barriers, Protection policy from potential footwear import countries, CSRrequirement, Good working place and environment requirements….)

Pressure for footwear enterprises regarding labor, works, salary and income of workers…


III. EFFECT OF ANTI – DUMPING CASE OF CERTAIN SHOES WITH UPPERS FROM LEATHER ORIGINETED FROM VIETNAM AND CHINA EXPORT TO EU COUNTRIES:

III.1. Reasons:

Because of China became full – fledged member of WTO China footwear export to EU countries without quota and without anti – dumping duty.

Export turnover of footwear exported to EU countries with very low average price per pair (Even lower than production cost per pair), because of processing production, footwear enterprises receive only labor fee (Processing fees), not participate in process of distribution and trading the products, so with mention fact footwear enterprises fall into indeliberating situation of anti – dumping case


III. 2. Anti – dumping happenings:

Starting from July 7, 2005, with Notice of Initiation of an anti –dumping proceeding concerning of imported of certain footwear with uppers of leathers originating in People’s Republic of China and Vietnam

At the end of October, 2005, the investigation experts finished directly investigation works with 8 footwear enterprises (Mention enterprises from all economic sectors)

Base on result of direct investigation, pressure, requests and comments of interesting parties:


III.2. Anti – dumping happenings (continue):

* November 18, 2005, EU Commission has sent letter to all interesting parties regarding excluded STAF footwear from the scope of proceeding

* November 23, 2005, EU Commission had conclusion: all 8 enterprises of direct investigation are not meeting 5 criteria of market economy status (Note Verbal D/14110 dated November 23, 2005) because of :

. Some of enterprises can’t approve that they are operating under market economy status


III.2. Anti – dumping happenings (continue):

. Some enterprises are counting that their Accounting system is not following International Accounting Standardization (IAS)

. The using land right of some enterprises are counting not suitable the condition of market economy status….


III.3. Effect of anti – dumping case:

As a result, although the case is under the process of investigation, the footwear industry of Vietnam has to bear considerable consequences:

The most serious one is that partners have reduced orders and are considering to move factories to other countries since footwear of Vietnam are at risk of being applied anti- dumping duty by EU. Order for 2006 still not sign because of most partners waiting result of investigation

In this circumstances, Vietnamese footwear industry are at risk of huge decline since 70% of total volume of the industry is exported to EU in which up to 60% are the objects of complaints.

VIETNAM LEATHER AND FOOTWEAR INDUSTRY - OPPORTUNITIES & CHALLENGES ON THE WAY OF VIETNAM ENTERING WTO

III.3. Effect of anti – dumping case:

Psychology effect makes enterprises, workers and partners in the industry worry, if the anti – dumping duty be the enterprises will meet more difficulties, effect in living conditions of nearly 600.000 workers, to raise social problems and impact on export development and country economy

Export turnover into EU countries will reduced compare with planning at beginning of 2005


III.4. LEFASO Vietnam points of view:

This is the second anti – dumping case for Vietnam footwear products with specifications and essence very different.

Through the time of the past EC investigation, all enterprises have cooperated very active with EC experts.


III.4. LEFASO Vietnam point of view (continue):

Leather and footwear Industry play very important role in the country economy, if being applied anti – dumping duty by EU, the social problems will raise and strong impact on the industry andcountry economic development

In fact, footwear enterprises really operating at market economystatus, they in charge of result of their production and trading and to assume responsibility for workers living conditions according to the law in force.

Vietnam Leather and Footwear Industry develop in recent years, still very weakness, numbers enterprises are very small, weakness in technical, management, technology, low effectiveness of production, high input cost of production…so they can’t dumping


III.4. LEFASO Vietnam point of view (continue):

Main points written in the documents of complaint and conclusionof not to acknowledge market economy status for 8 enterprises unreasonable, wrong with targets of participating in free trading process (Vietnam is trying the best for early entering into WTO)and equality of competitiveness in the globalization process, expanding with the time being.

Any impose anti – dumping measure ill annul legitimate benefits of 450 million consumers of the EU who are entitled to access to cheap and good quality products and at the same time, will be able to make negative result towards sectors participating in European market including designers, importers, wholesalers and retailers.


III.5. Solutions and comments regarding reserve problems relating anti – dumping case:

To assume responsibility for equality, LEFASO Vietnam requested EU Commission reconsider the conclusion on market economy status for 8 enterprises before final decision regarding Vietnam footwear enterprises fall in dumping or not?

EC consider possibility to stop the anti – dumping investigation because most of Vietnam footwear enterprises are operating underprocessing contracts.


III.5. Solutions and comments regarding reserve problems relating anti – dumping case:

Enterprises must have knowledge of international and region integration, knowledge on commercial dispute in order to act in their own initiative

LEFASO Vietnam and footwear community ready to cooperate with EU Commission and interesting partners to find objective, clearly and right solutions in order to protect benefits of enterprises of two sides



Thank you very much

Vietnam Leather and Footwear Industry

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