New trade agreement

A new trade agreement came into effect in mid-December 2001, according to the Vietnam News Agency. Under the agreement, Vietnam is granted normal trade relations with the US, with US import duties on Vietnamese products falling to an average of around 3%, compared with 40% previously. This will allow Vietnamese products to become more competitive on the US market. Footwear is among the main Vietnamese exports to the United States. Domestic production of hides and skins in Vietnam is set to increase considerably. Local output of tanned leather will rise from the current 15 million sq ft to 40 million sq ft by 2005. This will mainly serve the footwear industry, which is the fourth largest export earner in the country. Output reached 265 million pairs of shoes in 2000, with export earnings of US$1.5 billion. By 2005, production targets are set at 410 million pairs with 351 million pairs for export purposes (worth US$3.5 billion). To remain competitive, once the bilateral trade agreement with the US is ratified and tariffs on footwear drop considerably and the US market becomes open to Vietnamese exports, the industry has to improve the overall quality of their output. To reach this target, about US$380 million are required for replacement, upgrading and modernisation of equipment and machinery between now and 2005. As the industry plans to expand production capacity substantially and to establish new production lines, another US$500 million will be required from 2005 to 2010. Given these massive investment plans, Vietnam's industry will increase its imports substantially during the next decade.