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OLIVER MASSMANN - Partner, General Director

DUANE MORRIS VIETNAM LLC

HOW THE EVFTA IMPACTS SUPPLY CHAINS

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AGENDA:

• Rules of Origin (“RoO”) in the EVFTA

• Impacts on supply chains

• Sector study

• Recommendations

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RoO in the EVFTA

• Products are considered originating under the agreement if they

meet one of the following requirements:

– wholly obtained in the EU Member States or in Vietnam

– products produced in the EU or in Vietnam incorporating materials which

have not been wholly obtained there, provided that such materials have

undergone sufficient working or processing within the EU or Vietnam.

• There are prescribed set procedures for certain goods that must be

completed within the EU or Vietnamese borders to be qualified as

originating goods.

• Procedures such as breaking-up and assembly of packages; simple

painting and polishing operations or sharpening, etc. are exempted

areas of working to obtain originating status.

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Global Supply Chain

Distribution

- Forecasting

- Customer service

- Finished Goods Inventory

- Outbound transportation

Operation

- Product Planning

- Production scheduling

- Work in progress inventory

Supply

- Sourcing

- Purchasing

- Inbound Transportation

- Raw material and part inventory

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Source: Supply Chain Management (the basic and beyond), Copacino, W.C (1997).

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Impacts on supply chains

• Imported materials and intermediate goods are mainly used for

final exported products.

Companies will have to better structure their supply chains to take

advantage of preferential tariff treatment under the EVFTA for goods

exported to EVFTA countries, both on the sourcing of components

and raw material side and on the final destination of the end products

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Impacts on supply chains

• The RoOs will encourage

investment in untapped part of

the value chain in Vietnam

• The RoOs will also improve the

technical and technology system

complete the manufacturing value

chain in Vietnam

Encourage the use of materials in

Vietnam, stimulate import-export

and investment in Vietnam

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Textile sector

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EVFTA – Fabric-forward rule

• Requirement of the use of fabrics produced in Vietnam, with

the only exception being of fabrics produced in South Korea,

another FTA partner of the EU.

• Tariff elimination within seven years for Vietnam’s textiles,

apparel and footwear products, from the existing duty rate of

12.4 per cent.

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Imported fabrics by source (per cent of fabrics

import value)

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Source: Rules of Origin, labor standards and the TPP

(David Vanzetti and Pham Lan Huong, 2014)

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Impact on Vietnam’s textile industry

• Current status and Issues:

– Around 6,000 textile companies in Vietnam

– Vietnam’s role in the global supply chain does not occupy an

important position

– Domestic production of materials has not met the demand

– Yarn production must go together with weaving and dying but

environment protection is currently an issue.

– There is a risk that clothing goods from Vietnam will very often

not meet the requirements for preferences and will have to be

imported under normal conditions.

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Impact on Vietnam’s textile industry

• What to do next?

– More foreign investment in textile industry with investment value

of up to USD1 billion.

– Sourcing managers are looking for alternatives due to rising costs,

labour shortages, strict compliance and environmental regulations

and a move to production of high value products in China

– Establish domestic supply chain

– Bring into operation domestic yarn production factories

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Footwear sector

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EVFTA – RoO for footwear

• Export duties for footwear from Vietnam to EU will be totally cut

down to 0% after 7 years after effective of EVFTA.

• Most of sport, canvas and protective shoes will have 0% duty right

after effectiveness, but leather shoes will have 0% after 5-7 years

• About 60% of materials and accessories for footwear production

in Vietnam are imported from China, Korea, Taiwan… Vietnam is

a processing partner and relies heavily on imported materials for

exported products.

• In 2014 FDI occupied 77% of total export turnover of Vietnamese

footwear.

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Recommendations

• Each multinational company assesses impacts of the EVFTA on

their own global supply chains and develops a plan accordingly

• Source for materials and intermediate goods for exported products

in Vietnam and within the EVFTA region

• Carefully study RoOs for each type of products produced and

exported by the company to capitalize on the EVFTA

• Promote trade in new goods having high processing / technology

value in traditional markets

• Diversify markets to minimize risks

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Questions & Answers

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DUANE MORRIS VIETNAM LLC

Thank you very much!

HANOI OFFICE HO CHI MINH CITY OFFICE

Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower

83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1

Hanoi, Vietnam Ho Chi Minh City, Vietnam

Tel.: +84 4 39462200 Tel.: +84 8 3824 0240

Fax: +84 4 3946 1311 Fax: +84 8 3824 0241

Contact email:

omassmann@duanemorris.com

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References (1)

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References (2)

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References (3)

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References (4)

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