There are major opportunities for Vietnamese exporters to further penetrate into the US and also more for them to be concerned about.
Vietnam has become the largest Southeast Asian exporter to the US, recording a record trade surplus of $24.9 billion in 2014, the highest since relations were normalized in 1995 and surpassing Malaysia and Thailand. According to the US Census Bureau, two-way trade reached $36.3 billion, of which Vietnam exported $30.6 billion worth of goods to the US in 2014 and imported $5.7 billion, increasing 24 per cent and 13.6 per cent, respectively, compared to 2013.
Since the US-Vietnam Bilateral Trade Agreement took effect in 2001 the US has become the largest single importer of Vietnamese goods, with annual growth of 15 per cent in Vietnam’s export value. According to Mr. Nguyen Hong Duong, Deputy Director of the American Market Department at the Ministry of Industry and Trade (MoIT), Vietnam exported $1.05 billion to the US in 2001 then $23 billion in 2013, and imported $416 million in 2001 then $4.8 billion in 2013. With such high growth the US will continue to be Vietnam’s most important export market for the foreseeable future. The market already holds great potential for Vietnamese exports even before the Trans-Pacific Partnership (TPP) is signed, accounting for 0.98 per cent of the US’s total imports at the moment. Vietnam was ranked 23rd among exporters to the US and 40th among its import partners.
The US is one of the largest markets for Vietnam’s major exports, such as textiles and garments, footwear and leather, computers, electronic products and spare parts, wood and wooden products, and seafood. In 2014 the US remained the largest export market for textiles and garments, with a market share of 8.4 per cent. According to the General Department of Customs, the industry’s export revenue to the US was $9.8 billion in 2014, an increase of 14.01 per cent compared to 2013. Export turnover to the market was $926.7 million, or nearly half of Vietnam’s total exports, in the first quarter of 2015 alone. Exports to the US for this year as a whole are forecast at $11 billion, representing a 13 per cent rise over last year. Once the TPP is signed, Dr. Vo Tri Thanh, Vice President of the Central Institute for Economic Management said, textiles and garments and footwear and leather will benefit the most.
The TPP will help increase Vietnamese exports as it will result in lower taxes, even zero per cent in some cases, and it will create favorable conditions for businesses to expand their market share. Textiles and garments are currently subject to tax rates of 18 per cent.
According to Mr. Le Tien Truong, General Director of the Vietnam National Textile and Garment Group (Vinatex), Vietnam’s market share in the US is growing strongly, partly due to the potential impacts of the TPP. 2015 will be a good year for export activities by the textile and garment industry if negotiations over the TPP conclude quickly.
Most of Vinatex’s subsidiaries have received orders from the US this year. The Garment 10 JSC expanded its exports to the US in 2007 as a contractor, and now accounts for 35 per cent of its export turnover. In the first quarter, despite the ongoing difficulties, it exported 2.68 million products worth $19.1 million to the US. The figures were higher than in the same period last year, of 2.33 million products worth $16.6 million. In 2014 export revenue to the market was $70.5 million out of a total of $200.8 million, with 8.5 million products out of 20.3 million. With the existing favorable conditions, the company expects to record growth of 15 per cent in value this year compared to last year.
In 2014 Vietnam became the second-largest footwear exporter to the US, behind China, with a market share of 13.8 per cent, according to US Customs. Total footwear imports to the US by all countries reached $25.74 billion, an increase of 4.5 per cent compared to 2013 and 24.2 per cent compared to five years ago, for an average of 6 per cent per year during the 2010-2014 period. In 2014 Vietnam’s exports to the US grew 26.71 per cent, reaching $3.2 billion, due to orders from major manufacturers such as Timberland, Nike, Adidas and Puma being transferred from China and Bangladesh to Vietnam. Mr. Oliver Ng, Sales Manager at Ever Rite International, based in Taiwan, said that the company completed the transfer of technology from China to Vietnam in March 2013. Other businesses are also diverting production to Vietnam as China’s labor costs are rising and its workforce is aging.
Meanwhile, Vietnam will also have more opportunities for market access from the trade agreements is has signed and will sign and they make the country more attractive to foreign investors. Mr. Scott Thomas from Wolverine Worldwide America said that China and Vietnam provided 81.7 per cent and 10 per cent of the company’s footwear products in 2007. The percentage fell in 2014 to 75 per cent for China and increased to 14.5 per cent for Vietnam, and is anticipated to be 33 per cent and 35 per cent, respectively, by 2020. According to the Vietnam Leather and Footwear Association (Lefaso), the industry’s competitive capacity has been enhanced by improvements in technology and equipment. It added that when the TPP comes into effect the current tax rates of 3.5 to 57.4 per cent will be slashed to zero per cent, which will support exporters looking to expand production and make better products. It forecast that the country’s footwear export value will reach $13.5-14 billion in 2015 and continue to grow into the future.
Vietnam’s wood and wooden product exports, meanwhile, are set to enter a golden period this year, expanding its global market share, especially in the US, according to the Handicraft and Wood Industry Association of Ho Chi Minh City (Hawa). Mr. Huynh Van Hanh, Vice Chairman of Hawa, said the forecast is based on prices of European products remaining high and Chinese products being subject to a high anti-dumping taxes in the US. Last year the country earned $6.2 billion from the export of wood and wooden products, a year-on-year increase of 11.5 per cent, and became the second-largest wooden product exporter to the US. Exports to the US have increased strongly in recent years, from $1.39 billion in 2010 to $2.23 billion last year. Major exports include bedroom, kitchen, and office furniture, with the recovery of the US economy boosting the consumption of furniture. Wood and wooden product exports are expected to grow by at least 15 per cent this year, reaching at least $7.2 billion. The upcoming TPP will also open up opportunities for Vietnam’s wood and wooden product exports to the US.
Prospects & Warnings
Last year the Target Group imported Vietnamese goods worth $800 million in the US. Major imports included textiles and garments, footwear, furniture, and toys. Target now has more than 1,800 shops in the US. Mr. Giovanni Rojas, representative of Target in Vietnam, told a recent conference in Dong Nai province that the company’s import turnover from Vietnam will be higher in 2015 than in 2014. He underlined, however, that Vietnamese suppliers need to meet standards on quality, safety, and product origin, such as information on manufacturing plants, environment protection in the garment industry in particular, and social security.
According to Mr. Dao Tran Nhan, Counselor for Trade in the US, opportunities for Vietnamese enterprises penetrating the market are huge as consumption is on the rise. Enterprises need to approach major retail groups such as Walmart, Kroger, Target, Tyson Foods, Sisco Food and US Food, and attend specialized fairs in Las Vegas, Boston and Chicago. The competitive capacity of Vietnamese enterprises is weak compared to other countries exporting to the US, and high logistics costs and long shipping times as well as technical barriers in the US are all challenges for enterprises in seizing opportunities. They must also research whether their products meet US standards, whether export orders can be met, and what partners or distribution channels are needed to penetrate into the US.
Mr. Duong from MoIT said that the US market tends to produce and consume products sustainably through policies to protect consumers and enhance corporate social responsibility among businesses. The US may also establish more non-tariff barriers, mainly in product safety standards, to protect its own industries. This will be a major challenge for exporters. To overcome the barriers, enterprises must remain up-to-date on policies and market information, as the US has different standards and rules.
- US-Vietnam Bilateral Trade Agreement