Workers produce shoes for export at My Phong Co Ltd in the southern province of Tra Vinh. — VNA/VNS Photo Vu Sinh

The agreement between the Eurasian Economic Union (EAEU) and Viet Nam came into effect last month.

A representative of Ladoda JSC said the company had imported leather, equipment and machinery from India at zero per cent duty and was seeking foreign partners, including from Mexico. Ladoda had been exporting handbags and backpacks to the EAEU member countries, and it had now created 20 new designs for other markets in 2017, the representative said.

Phan Thi Thanh Xuan, general secretary of the Viet Nam Leather, Footwear and Handbag Association (LEFASO), said the localisation rate of the leather and footwear sector was about 40-45 per cent, while materials accounted for 68 to 75 per cent of footwear prices.

Once all the FTAs come into force, foreign investors will focus on material production so as to enjoy tax benefits offered on the basis of product origin. Meanwhile, Vietnamese firms are expected to raise their localisation rate and reduce their dependence on imports. Domestic leather and footwear companies have revamped their production operations to increase productivity and improve quality, even as they expanding business.

At the same time, investors from countries and territories such as mainland China, Japan and Taiwan have also built plants in Viet Nam to make the most of opportunities afforded by the FTAs. Foreign direct investment (FDI) businesses, which now make up more than 70 per cent of the sector's export turnover, are said to benefit the most from the deals.

Like garments and textiles, Vietnamese footwear will enjoy zero per cent tax in the EU and EAEU markets for seven years once the FTA is in effect. However, Xuan said, once the markets opened up, any business that met market requirements could benefit from the pacts.

Apart from the opportunities, the deals are also creating new challenges for the Vietnamese leather and handbag sector. The high labour rate for leather products and handbags of 70 per cent, has lowered profits and made the businesses less dynamic. Besides, technical barriers imposed by the EU and EAEU, together with commitments of social responsibility, environmental protection and procedures to enjoy tax preferences, will increase business costs.

Against this backdrop, the LEFASO has suggested that local enterprises roll out their own strategies and solutions in order to churn out high-quality products that can gain them a firm foothold in the home market and compete with their rivals in foreign markets. The association has also called for more tax and land incentives to encourage more investments in the sector. — VNS