08:21 | 28/05/2017 MUTRAP Corner
The Vietnam-EU Free Trade Agreement (EVFTA) will come into force in early 2018. Accordingly, tax on Vietnamese garments and textiles exported the EU will be reduced to zero percent over the next seven years.
|The growth target of Vietnam's garment and textile sector in 2017 is 10 percent - Illustrative image, source: VGP|
This is expected to open opportunities for Vietnam’s garment-textile sector to expand its markets.
However, to make use of opportunities offered by the pact, experts suggested local enterprises prepare to meet rules set by the deal, especially those regarding product origin.
Vice President of the Vietnam Textile and Apparel Association (VITAS), Truong Van Cam described rules of origin as the most important thing in the agreement.
He said, Vietnamese garment-textile firms must ensure that their products originate from Vietnam or use materials imported from the EU or the bloc’s trade partners.
The local garment-textile industry is still heavily dependant on imported materials, mostly from China, the Republic of Korea (RoK) and Taiwan (China), with the fabric sector, for example, importing up to 86 percent of materials for production and export.
According to VITAS Deputy Secretary General Vu Thi Phuong, apart from strict rules, the agreement also offers an open mechanism to the Vietnamese side, saying that products using materials from the EU’s partner countries will also enjoy the tariff breaks.
Phuong suggested domestic enterprises review their investment and business strategies to catch up with the transformation from the cut-make-and-trim production model to free-on-board and original design manufacturing (ODM) practices.
Under the agreement, fabrics from the RoK, which has a free trade agreement with the EU, are considered as having clear product origin and are eligible for the tax reduction.
VITAS statistics show that the garment-textile sector spends more than 10 billion USD each year on importing fabric, with more than half from China, about 18 percent from the RoK and 15 percent from Taiwan (China). If Vietnamese firms continue to import materials from China, they will find it hard to benefit from the EVFTA, the association said.
Experts from the EU market proposed Vietnamese enterprises learn the rules and the roadmap for tariff reductions in order to better access the market.
Europe is a promising market for Vietnamese garments and textiles with export turnover reaching 3.5 billion USD in 2016, just behind the US.