KVFTA creates new textile and garment investment wave

15:06 | 01/07/2015 Investment

(VEN) - In a talk with Vietnam Economic News reporters, Korea Chamber of Business in Vietnam Secretary General Hong Sun commented that, “The signing of the Korea-Vietnam Free Trade Agreement (KVFTA) will lead to strong increases in investment flows from the Republic of Korea (RoK) into the Vietnamese textile and garment sector. Interest in Vietnam has never been so high among Korean businesses as it is today.”

KVFTA creates new textile and garment investment wave

This year Vietnamese textile and garment exports to the RoK are expected to grow 27-30 percent compared with 2014

Major attraction 

Hong Sun said that the KVFTA allowed materials for garment production to be imported from the RoK to Vietnam at very low tax rates, so it would encourage RoK businesses to increase investment in manufacturing garments in Vietnam for export back to the RoK or other markets. New policies related to work permit are also believed to encourage more South Koreans to seek business opportunities in Vietnam.

RoK businesses have taken the initiative in expanding their operations in Vietnam to make the most of opportunities from the KVFTA. In the early months of 2015, Vietnam attracted a range of textile and garment investment projects from the RoK.

In late March, the Quang Nam Province People’s Committee granted an investment certificate for the US$6 million Onewoo Garment Factory based in the Ha Lam-Cho Duoc Industrial Zone. PanKo Tam Thang Company’s US$30 million Tam Thang Dyeing, Textile and Garment Factory based in the Tam Thang Industrial Zone, Tam Ky City, Quang Nam Province, also received an investment certificate.

On April 21, the Thanh Hoa Province People’s Committee accepted In Kyung Vina Co., Ltd.’s plan for a US$5.1 million In Kyung Apparel Co.Kr garment factory. When it comes into operation, the plant will employ some  1,400 workers and produce 11 million products per year.

The 100 percent Korean-owned Poong In Vina Company,  a specialist clothing manufacturer with four factories in Vietnam, has invested US$4 million in building its fifth factory in Binh Duong Province. The company plans to build an additional two factories in Vietnam in the future.

On May 6, the Dong Nai Province People’s Committee handed over an investment certificate for a US$660 million plan from Hyosung Dong Nai Company to construct a yarn, fabric and spandex material production facility. The Korean-owned Hyosung company is investing in this group via a subsidiary based in Turkey. This is Hyosung’s second project in Vietnam and most of its products will be for export.

New impetus for export growth

The KVFTA should benefit the textile and garment sector as Vietnam imports fabrics from the RoK and exports garments to this market.

Data from the General Statistics Office show that the RoK is a major export market for Vietnamese textiles and garments, accounting for over 10 percent of the total export value of Vietnamese textiles and garments. Textiles and garments ranked only behind seafood in the list of Vietnamese exports to the RoK, while the RoK supplies nearly 20 percent of fabrics needed for garment production in Vietnam, behind only China.

Since the free trade agreement between the Association of South East Asian Nations and the RoK took effect in 2009, Vietnamese textile and garment exports to the RoK have tended to grow. The Vietnamese textile and garment sector has benefited the most from this FTA as the RoK’s rules of origin are based on stages of production (cutting, sewing) instead of the content of materials (yarn, fabric) used to make garments. Therefore, the signing of the KVFTA has been considered as the final step towards opening the RoK market to Vietnamese textile and garment exports. Economists expect this year Vietnamese textile and garment exports to the RoK will grow 27-30 percent compared with 2014.

Vietnam Textile and Apparel Association Vice President and Secretary General Dang Phuong Dung believes the textile and garment sector will greatly benefit from the KVFTA when South Korean businesses invest in fields where Vietnam has high demand, for example material supply. Therefore, she argued that Vietnam needs to attract more investment in support industries, especially weaving and dyeing, so that domestic garment manufacturers can be self-sufficient in terms of materials.

To develop, the Vietnamese textile and garment sector needs to integrate more deeply into the global arena, increase the local content of products, form complete supply chains covering all stages from design to material supply, garment production, and distribution, and build the competitiveness for the entire chains.

The KVFTA will officially take effect soon and bring both opportunities and challenges for businesses of the two countries. Bui Huy Son, Director of the Vietnam Trade Promotion Agency under MoIT, said MoIT would publicize the full content of the KVFTA in the near future./.

Huong Phuong

Theo ven.vn