New-generation Free Trade Agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU-Vietnam Free Trade Agreement (EVFTA) are considered to bring huge opportunities for Vietnam’s textile and apparel sector to boost exports and expand markets. However, these FTAs also pose challenges, forcing the textile and apparel sector to make changes in many aspects including investing in sustainable production that meets market standards.
Mr. Vu Duc Giang, Chairman of the Vietnam Textile and Apparel Association (VITAS), said that the export of the textile and apparel sector in the first seven months of 2019 continued to grow at 10.5% year-on-year, amounting to USD 18.34 billion, but the growth is slowing (a year-on-year increase by over 16% in 2018) given the impacts of the US – China trade war, and protectionism and unilateralism in some countries.
Regarding to the export forecast in the last months of this year, Mr. Pham Xuan Hong, Chairman of Ho Chi Minh City Association of Garment Textile Embroidery and Knitting expressed his concern that it is difficult to predict textile and apparel sector’s performance in the last months of 2019 given the trade war that causes the market to decline and labor pressure to compete with other sectors.
In this context, VITAS stated that new-generation FTAs such as CPTPP and EVFTA are highly expected. CPTPP has been in effect since the end of 2018 and stipulates that CPTPP member countries such as Japan, Canada and Australia,… have abolished 95 – 98% of tariff lines for textile and apparel products with remainders being reduced within 5 – 7 years. The recently signed EVFTA, which is expected to come into effect in early 2020, is also considered bringing many opportunities for Vietnam’s textile sector to penetrate the EU market.
The reason EVFTA is highly expected and appreciated is that according to the Ministry of Industry and Trade, as soon as EVFTA officially takes effect, textile and apparel sector will enjoy the most benefits. Accordingly, within 7 years, the current tax rate (15%) will be gradually reduced to 0%. It is worth noting that if in the CPTPP “yarn forward rules of origin” was deemed as challenge to textile and apparel sector, this rule would only apply to fabric in accordance with EVFTA. That is, the fabric used for textiles exported to the EU only needs to meet the production requirements in Vietnam.
While Vietnam’s textile and apparel products are still subject to a 16% import tariff in the EU market, countries like Malaysia and Bangladesh,… are only subject to about 4 – 5% to their advantage over Vietnam. Therefore, when EVFTA comes into effect, the textile and apparel sector will bring much higher tax competitive advantage than ever before.
With the practical experience of integration from FTAs that Vietnam has signed, VITAS representatives pointed out that FTA agreements have recently played an important role in the growth of textile and apparel sector. Specifically, when the Vietnam – Korea Free Trade Agreement (VKFTA) took effect in 2015, Vietnam’s textile and apparel’s export turnover to South Korea reached US $2.6 billion, up by 9.5% in 2016 compared to 2015. Export turnover to this market reached US $2.9 billion, up by 11.8% compared to the previous year and US $3.3 billion, up by 24.9% compared to the previous year in 2017 and 2018 respectively. Therefore, with CPTPP and EVFTA, it is reasonable that the textile and apparel sector can promote further growth in the coming periods.
According to experts, the textile and apparel sector is now developing rapidly but still has certain weaknesses in terms of environmental protection and compliance with rules of origin of products. Therefore, in order to make the most of the tariff incentives from FTAs, one of the steps that Vietnam businesses needs to do immediately is to invest in enhancing the product value and quality, and ensure compliance with labor and environmental standards to enhance product competitiveness.
In this regard, Mr. Vu Duc Giang said that Vietnam has committed to fully implementing 17 sustainable development goals in the 2030 Global Agenda; Paris Agreement on Climate Change at COP 21 in 2015. Therefore, the textile and apparel sector will not be an exception to the implementation of these sustainable development goals. According to the 2019 plan, the sector aims to export $40 billion, and is committed to complying with the program of greening the textile and apparel sector and saving water resources. To do so, the sector will continue to work out solutions concerning technology and management, promote a vision of the integration development strategy and develop based on the internal assessment of Vietnam’s textile and apparel sector in particular and the economy in general.
From the businesses’ perspective, Mr. Pham Van Viet, General Director of Viet Thang Jean Company Limited shared, in Vietnam’s current textile production and export, the heavy technology investment from EU countries is considered as an advantage helping businesses increase their competitiveness. Compared to traditional products that have not yet applied high technology to production, products made with EU technology are highly recommended and could be sold at 30% higher prices. Not only has the product added high value, this product has a more competitive advantage when exporting to the EU because the member countries always give priority to importing technology-based textiles and ECO – certified raw materials. “Currently, we are maintaining exports to the EU at about USD 20 million, but in the near future we expect to grow by at least 30%,”, optimistically said Mr. Viet.
Mr. Pham Xuan Trinh, General Director of Phong Phu Joint Stock Company, said that Phong Phu aims to narrow down a number of areas that are not their strengths to react quickly to the market, and at the same time, take supply and supply chains “Yarn – Weaving – Dyeing – Finished Sewing” as a foundation and focus on the strength of the yarn used for the textile and sewing sector,… Besides, Phong Phu has carried out many activities to strengthen internal resources through internal management, investment in high automation, application of new technologies to production, cost savings, investment in environment-associated production, fast delivery and reduction of reliance on labor.