Businesses need to prepare early

The Carbon Border Adjustment Mechanism (CBAM) is a policy under the European Green Deal, the EU's new growth strategy to build a fair and prosperous society, promoting industries to develop on the basis of a clean and sustainable economy.

CBAM is expected to help the EU reduce carbon emissions by at least 55% by 2030 compared to 1990 levels. This mechanism is built on information transparency, will have a major impact not only on greenhouse gas emissions and climate change, but will also have a direct impact on businesses' supply chains. From October 1, 2023, CBAM will be piloted for the transition period and is expected to be fully implemented from 2026.

The issuance of CBAM is, in the simplest terms, an environmental trade policy that includes carbon taxes on imported goods entering the EU market based on the intensity of greenhouse gas emissions in the production process in the host country.

By 2030, it is likely that CBAM will be applied to footwear products. Photo: Can Dung

Ms. Phan Thi Thanh Xuan - General Secretary of the Vietnam Leather, Footwear and Handbag Association said that footwear is an industry that is assessed to cause large emissions during the production process, so it is also among the subjects affected by CBAM. The EU is currently a large export market of Vietnam with about 6 billion euros per year, so preparing to change and respond to this regulation is necessary for the industry.

The change is not simply a part of the production process but almost the entire production system of the entire factory must be changed. To do this, the enterprise must first thoroughly understand the information and processes to meet and comply with CBAM. At the same time, it is necessary to prepare large resources in terms of human resources, technology and finance to meet CBAM.

“ After 2030, CBAM is likely to be applied to footwear products exported to the EU, we only have 5-7 years left to prepare. This preparation cannot be done overnight, businesses need to start implementing it right now, ” Ms. Xuan emphasized.

Seize export recovery opportunities

In addition to the need to prepare early conditions to meet CBAM in order to maintain market share in the EU market, Ms. Phan Thi Thanh Xuan also said that production according to the sustainable development model has been implemented by domestic footwear enterprises according to customer requirements for a long time, but that is only voluntary. Currently, these regulations are gradually becoming mandatory in the industry's major import markets such as the EU, the US, etc.

The challenge of complying with these regulations is very clear when businesses have to carry out many activities to upgrade their internal capacity. The upgrade must come from technology, management, and input costs are increasing while output costs are increasing very low, which is extremely great pressure for businesses. However, in a world of equal competition, if we want to successfully participate in the supply chain, we must comply.

According to the leader of the Vietnam Leather, Footwear and Handbag Association, in 2024, according to the analysis of many experts, major economies are also potential export markets for the Vietnamese footwear industry to flourish. In addition, Vietnam has a number of significant competitive advantages compared to other countries that produce and export footwear and handbags.

Specifically, 15 free trade agreements (FTAs) have been signed with a short tax reduction roadmap to continue supporting domestic footwear enterprises to develop the market; good quality labor resources with more than 30 years of footwear production skills and the reputation of made-in-Vietnam footwear brands have been affirmed.

The above factors help the Vietnamese leather and footwear industry have a basis to improve export turnover and regain export growth momentum. Accordingly, in 2024, in addition to markets with FTAs, the Vietnamese leather and footwear industry will continue to expand and diversify markets, while focusing on maintaining traditional markets such as the US and EU due to their large purchasing power and capacity.

In terms of product segments, Vietnam is assessed to be able to produce footwear products of medium or higher quality and products with high difficulty. In the coming time, the industry will not aim to produce low-value products due to low profits and waste of resources, but will continue to focus on the mid- and high-end product segments.