Vietnamese Government and corporate representatives have voiced concern about the European Union's (EU) removal of Generalized System of Preferences (GSP) for footwear imports from Vietnam in 2009-2011. Speaking to The Saigon Times Daily Antonio Berenguer, trade counselor of the Delegation of the European Commission (EC) to Vietnam, elaborated on the action and its possible impact on two-way trade between the EU and Vietnam. Excerpts:

Local officials and footwear producers have expressed concern about the EC's decision not to continue the GSP for footwear imports from Vietnam. What's your comment?

We do of course understand the initial worries of Government officials and the industry regarding the GSP graduation for Vietnamese footwear. However, the graduation process is not a decision taken by the EC, but the result of the review of import statistics that takes place every three years in accordance with the EU GSP regulations and WTO rules. It is therefore undertaken irrespective of specific circumstances in a given country, lobbying efforts by the governments or industry...

All developing countries are, in principle, eligible for GSP benefits and, in fact, more than 50% of imports from Vietnam will continue to benefit from GSP preferential tariffs as in the past. Similarly, any sector from any developing country, as it is the case for Vietnam's shoe sector today, when it represents more than 15% of all EU GSP-covered imports, no longer benefits from GSP preferential tariffs. Already today, 25% of exporters in the footwear sector do not even apply for GSP benefits and still successfully export to the EU without such preferential treatment.

But it is said that the EC's GSP graduation will cause big revenue losses to Vietnamese footwear exporters and hurt their competitiveness?

Vietnamese footwear does represent over 15% of all GSP-covered footwear imports, and does not constitute 50% of all Vietnamese GSP-covered imports any longer. Consequently, GSP benefits have to be graduated, but we are confident that the industry, as it happened two years ago when anti-dumping duties were imposed on some 20% of Vietnamese shoes, will adjust and continue to increase its exports to the EU market as it has done well in the last two years.

We are convinced that Vietnamese shoe producers will continue to be one of the most competitive in the world and perform well after the GSP graduation. We believe the shoe exporters will remain competitive in Europe just like there are on other markets such as the U.S. where they do not receive preferential treatment. Tariff preferences are only one among many factors influencing the competitiveness of exports.

Are companies right when they say that higher tariffs on the EU's footwear imports from Vietnam will result in a slowdown in EU-Vietnam bilateral trade?

The GSP graduation does only affect footwear, and all other Vietnamese GSP eligible exports will continue to enjoy preferential tariff treatment. Given the strong growth of other exports, particularly garments and textiles, coffee, seafood and furniture with growth rates of up to 36% year-on-year, and the consequently decreasing share of footwear exports, we think that the graduation will encourage further product diversification.

Vietnamese footwear exporters will be able to quickly adapt to the new tariff structure, and continue to be competitive on the European market. We do therefore not foresee either a decrease in footwear exports or a slowdown in two-way trade in general between the EU and Vietnam.

Do you think the GSP removal will also affect European consumers as they will have to pay more for footwear imported from Vietnam?

Again, given that tariff preferences are only one of many factors influencing the price of a certain product. We are convinced that Vietnamese exporters will stay competitive without preferential treatment, and trust that European consumers will still benefit from reasonably priced Vietnamese footwear products. Of course individual purchase decisions depend on the respective consumer, and while the price does certainly play an important role, it is by far not the only factor.

Do European consumers know much about Vietnamese products?

While European consumers might not always be aware of the origin of a product, the continued increase of Vietnamese imports shows they are happy with both price and quality and are very willing to buy more products from Vietnam.

The EU is Vietnam's second largest importer, absorbing 19.32% of Vietnamese exports, worth US$9.97 billion in 2007. EU imports from Vietnam concentrate on labor-intensive products. Footwear continued to be Vietnam's biggest export to the EU last year with total revenue of 1.97 billion euro. Others are continuously catching up.

Garment and textile exports grew by 10.57% to over 1.16 billion euro last year, followed by coffee with a record growth rate of 36.72% and an export value of nearly 835 million euro. Seafood exports increased 22.76% to over 575 million euro, and furniture grew at 13.23% to exceed 738 million euro.

So, what's your advice for Vietnamese companies on boosting their exports to the EU market?

Vietnamese producers should seek to fully exploit the sectors where they are already competitive, while trying not to focus on labor-intensive products as Vietnam is quickly approaching the status of a middle-income country, and wages will go up.

Therefore, other factors aside from cheap labor will become more and more important, and Vietnamese companies should focus on the development of their own brands that European consumers will recognize and appreciate.