08:20 | 10/07/2016 Industry
(VEN) - The Vietnamese garment and textile sector is forecasted to enjoy the largest benefits after the EU-Vietnam Free Trade Agreement (EVFTA) comes into force. However to realize opportunities, garment and textile businesses need drastic changes.
Nearly 75 percent of garment and textile businesses are involved in outsourcing
Fabric forward rules reveal Vietnam’s weakness
According to EVFTA commitments, the EU would eliminate import tariffs for Vietnamese garments and textiles in the next seven years after the agreement takes effect. The current import tax rate applied to Vietnamese garment and textile exports to the EU is 9.6 percent.
The EVFTA establishes relatively strict rules of origin. Vietnamese garments and textiles must ensure a double transformation, meaning that Vietnamese producers may use imported yarn to manufacture fabric (first transformation), with the final product (second transformation) eligible for the EU preferences.
The EU also allows the application of cumulative rules of origin, meaning that goods originating from EU partners are able to enjoy incentives. The EVFTA clearly states the allowance of using fabric produced in the Republic of Korea thanks to the EU-Korea Free Trade Agreement.
“Vietnamese garments and textiles are not subject to an import quota. Therefore, it must be strict in rules of origin as the EU signed a free trade agreement with Vietnam, not other countries nearby,” Minister Counselor of the EU delegation to Vietnam Jean Jacques Bouflet said.
These requirements reveal the weakness of the Vietnamese garment and textile sector as nearly 75 percent of businesses in the field are engaged in outsourcing.
Large businesses operate alone
Domestic large garment and textile businesses have planned to expand scale and build material production plants.
The Vietnam National Textile and Garment Group (Vinatex) has strongly invested in yarn, weaving and dyeing with 51 projects for more than VND8 trillion since 2013. After being put into operation, projects will meet 50-60 percent of material demand.
The Phong Phu Corporation has determined to pour VND1 trillion a year into expanding production capacity since late 2014 with key products covering knitwear, jeans and sewing thread, while actively improving product quality and designs as well as exploring market entry methods.
The Hanoi Textile and Garment Joint Stock Corporation (Hanosimex) has invested nearly VND500 billion, with more than 90 percent of this used for yarn production projects. Two of them are expected to be put into operation by the end of this year.
Garment 10 Joint Stock Company Deputy General Director Than Duc Viet said that the company was eager to boost exports to the EU. The shirts produced by the company are valued at US$10 with imposed taxes of 12 percent. After the EVFTA takes effect, if the company proves the fabric forward rules of origin, these products will not subject to taxes, so prices will fall by 10 percent, leading to higher competitiveness.
Focusing on the contents of the EVFTA, the company has identified bottleneck in the supply of fabric. Therefore, the company has invited Indian and Chinese businesses for joint-venture in textiles.
In addition to paying attention to raw materials for production in order to meet the rules of origin, domestic large garment and textile businesses has focused on increasing capacity. With export turnover of US$550 million in 2015, of which export structure to the EU accounting for 45 percent, the Nha Be Garment Joint Stock Corporation has attached much importance to its market for many years. The corporation has actively invested in the construction of the Nha Be-Hau Giang Garment Factory valued at more than VND300 billion. The factory will achieve capacity of 15 million pieces a year in the first phase and stands at 30 million pieces a year when completed.
Small businesses promote links
Investing in a textile factory needs more capital than a garment plant. Therefore, small and medium-sized enterprises should promote links based on the supply chain. They should actively seek material producers or cooperate with partners to invest in material sources in order to minimize imports, contributing to complying with the rules of origin and ensuring competitive prices.
Vietnam Textile and Apparel Association Secretary-General Truong Van Cam said that the Vietnamese textile sector produces one billion meters of fabrics a year on average.
According to estimates, nearly 75 percent of garment and textile businesses are engaged in outsourcing. To make most of opportunities provided by the EVFTA, they should shift to freight on board (FOB) or original design manufacturing (ODM) models.
The TNG Trade and Investment Joint Stock Company is a typical example. The company has actively promoted cooperation with France to build a textile factory in Vietnam to be active in material sources instead of fabric imports serving outsourcing for Decathlon.
The EVFTA has had positive impacts on ways of thinking and acting of Vietnamese garment and textile businesses. Most of them have taken action to welcome the agreement.