EVFTA opportunity for textile sector to grow by leaps and bounds

By Anh Minh   June 28, 2019 | 12:12 am PT
EVFTA opportunity for textile sector to grow by leaps and bounds
Women work at a garment factory in northern Vietnam. Photo by Reuters.
Vietnam's textile and garment exports to the EU could rise ten-fold to $40 billion after the EU-Vietnam Free Trade Agreement takes effect. 

"Vietnam could be exporting as much as $40 billion worth a year to the EU after the deal comes into force. The potential figure is $100 billion," said Truong Van Cam, vice chairman of the Vietnam Textile and Apparel Association (VITAS).

The EVFTA will be signed in Hanoi on June 30 after nine years of negotiations, and immediately afterwards 70.3 percent of Vietnamese products exported to the EU would be free of tariffs.

Textiles and garments are currently subject to an average tariff of 9.6 percent in the EU, but it would gradually reduce to 0 percent over seven years.

The EU is the second largest importer of Vietnamese textiles after the U.S. and its imports from Vietnam are growing by 7-10 percent a year. Last year they were worth $4.16 billion, accounting for 15 percent of Vietnam’s total textile exports, according to the General Statistics Office.

Securities firm Viet Dragon Securities said in a new report that major textile companies such as Saigon, TNG, May 10 and Viet Tien Garment will see orders increase dramatically when the trade deal comes into force.

Than Duc Viet, deputy general director of May 10, said his company plans to link up with domestic suppliers in the yarn-forward supply chain in order to comply with proof of origin rules and take advantage of the trade agreement.

Pham Hong Hai, general director of HSBC Vietnam, expects Vietnam’s GDP to increase by 0.1 percentage point a year because of EVFTA trade advantages. Besides, the high quality standards that are mandatory under the deal would boost Vietnam's pace of reform and international integration, he added.

But Nguyen Thi Thu Trang, director of the WTO and Integration Centre at the Vietnam Chamber of Commerce and Industry said grasping the opportunities arising from the EVFTA would not be easy since the tariff breaks are only for goods that meet quality standards and rules of origin. Domestic value must account for at least 40 percent of the final product, according to EVFTA rules. 

Stimulating growth in Vietnam’s weak raw materials and feedstock sector could be a problem, but the trade deal should bring more foreign investment in Vietnam’s supporting industries, Trang said.

Hai of HSBC also expressed concern about the fact that the textile industry imports most of its inputs, and only large local and foreign companies are able to meet the domestic percentage requirement.

"Vietnam needs to realize that it is necessary to build a truly domestic textile industry to take full advantage of these benefits."

Cam of VITAS said small and medium-sized enterprises must link up to form domestic supply chains, ensuring final products meet origin requirements.

They also need to familiarize themselves with the professional ways of the world’s most modern market, he added.

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