The market is declining, the tariff advantages from the Free Trade Agreement brought to Vietnam are gradually decreasing; New export standards... are posing many challenges to Vietnam's export prospects to the Canadian market...

Vietnam's competitive advantage in the Canadian market is fading.

According to statistics from the General Department of Vietnam Customs, in the first 5 months of 2024, Vietnam's exports to Canada reached over 2.5 billion USD, an increase of 12.9% over the same period in 2023. Among them, some groups/items increased by up to 3 digits such as: machinery, equipment, spare parts, glass...However, there are still some industries that tend to decrease, including: textiles and garments, phones, means of transportation, handbags...

MARKET DEMAND DECREASES

A recent report from the Vietnam Trade Office in Canada said: Vietnam's export of key products to the Canadian market is facing many difficulties and challenges. The biggest challenge is the decline in market demand, due to many reasons.

First, economic recession, high interest rates and high food inflation will force households and businesses to reduce spending and shopping.

Second, to promote exports, Canada is maintaining a low exchange rate policy, making Vietnamese goods much more expensive than before (because they are quoted in USD). This exchange rate policy also makes businesses hesitant to invest, purchase equipment, store goods, etc., negatively affecting both Canada's exports and imports.

Third, Canada's consumption model in the coming time will be different from 2 years ago (massive shopping after Covid-19 due to excess savings; Canada's imports in 2021 increased by 21%; compared to 2020 and 2022 an increase of 16% compared to 2021) and is expected to fluctuate stably at the threshold of 450-500 billion USD. In other words, the Canadian market's import demand will decline in the coming years to return to normal consumption levels.

Fourth, Canada's growth structure is unlikely to change in a breakthrough direction in the next 2-3 years; Even with a change of Government, policy impacts will take time for the economy to grow in real terms. Meanwhile, the consequences of interest rate and immigration policies on the Canadian economy will take a long time to resolve. Currently, Canada's main growth driver is not manufacturing but from increased exports of goods and services and increased population size; while labor productivity is increasingly low compared to other G7 countries.

Fifth, when the economy is in recession and life is difficult, the wave of extreme protection and the use of defensive measures will be at increasing risk. Currently, Canada has initiated 18 cases in different fields and products against Vietnam, which has had the effect of immediately blocking exports of these product lines.

Ms. Tran Thu Quynh, Vietnam Trade Counselor in Canada, said recently; tariff advantages afforded by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); brought to Vietnam's exports has gradually disappeared because Canada has and is promoting the signing of free trade agreements (FTAs) with a series of South American partners; and in the Indo-Pacific region (such as Malaysia, India, Indonesia, Canada-ASEAN...). These are all countries with product structures quite similar to Vietnam.

“Canada calls on businesses to look to the South American economic bloc and to allied countries to build sustainable and reliable supply chains. This trend is negatively impacting the export of some products that Vietnam has strengths in, such as fruits, seafood, and textiles," Ms. Quynh said.

COMPETITIVE ADVANTAGE IS LOSING

In 2023, by monitoring data from the host country, Ms. Quynh said that Canada will especially promote imports from Ecuador, Argentina, Chile and Mexico - countries that have bilateral Free Trade Agreements with Canada. In ASEAN, Canada also increased imports from the Philippines, Malaysia and Indonesia (expected to sign a Free Trade Agreement with Canada at the end of 2024).

In addition to losing tariff advantages, high domestic logistics costs in Canada also make Vietnam's export prices less competitive compared to neighboring South American countries. High transportation fuel prices and slow loading and unloading at Canadian ports due to lack of workers are also reasons why Vietnamese goods are less competitive than South American exporters.

Regarding the textile and garment sector alone, Ms. Quynh said that Vietnam still faces a big disadvantage when it will no longer enjoy enhanced Universal Tariff incentives at the end of 2024. Meanwhile, the regular Generalized Preferences Program (GSP) will not impose additional social and environmental criteria. This is a big disadvantage for Vietnam's textile and garment industry when our major textile and garment competitors (such as Bangladesh, Cambodia, Haiti, Sri Lanka, Pakistan, Kenya; Egypt and El Salvador) will continue to enjoy GSP without not subject to social and environmental constraints; At the same time, enjoy simpler regulations on textile origin.

According to the Vietnam Trade Office in Canada, currently the structure of Vietnam's domestic industrial exports to Canada is mainly in the textile and garment industry; toys and wooden furniture (accounting for 40% of turnover value), this group of products is forecast to be unlikely to maintain high growth in 2024 and the coming years, except for Vinfast's electric car products. For the group of products such as phones, components, machinery and equipment and electronic products (accounting for 50% of total turnover), the Canadian market currently still has high demand for these products...

Source: VnEconomy Newspaper