Vietnamese garment firms stitched up by export tariffs

July 8, 2016 | 05:14 am PT

The country’s garment sector is unlikely to reach its export value target of $31.5 billion this year.

Vietnam’s garment and textile industry export growth fell in the first six months of the year, especially in March and April.

Vietnam, the world’s fifth largest garment exporter, earned $12.8 billion from garment exports in the first six months of 2016, up 5.8 percent against the same period last year.

However, the Vietnam Textile and Apparel Association (Vitas) said that the growth rate was significantly lower than figures from previous years, when in 2015, Vietnam’s export value increased by 9.5 percent on-year and 18.9 percent in 2014.

The Vietnam News Agency quoted a company in the garment industry as saying that their export contracts collapsed by 30 percent on-year in the first five months.

Vu Duc Giang, chairman of Vitas, said that for the past few years, orders have been moving to Cambodia and Laos, as these two countries are given tax incentives by the U.S. and the E.U., the two largest export markets for Vietnam's garment sector.

Specifically, Cambodia’s garment exports are exempt from tax duties in the E.U. under preferential rules for the least developed countries, while Vietnam, a developing country, pays 9.6 percent.

In the U.S. market, Lao products pay a tax rate of 10 percent, but Vietnam pays about 17-18 percent in import duties.

Vietnam has joined the Trans-Pacific Partnership Agreement and signed a free trade agreement with the E.U., which will benefit the country’s garment industry, but tax incentives from these agreements will only take effect in mid-2018.

“It’s quite easy to understand why many partners swap to Laos and Cambodia,” Vitas said.

The gap in tax rates between Vietnam and the two countries has driven many Vietnamese firms to face difficulties in searching for new export order, especially in some kinds of products like shirts, pants or jackets.

The Vietnam National Textile and Garment Group has adjusted the target export value in 2016 to $29.5 billion from $31.5 billion.

Experts said that local companies should find a way to improve their productivity and cooperate to boost export value and take back export orders from nearby countries.

> Vietnam's textiles: Low productivity could eat up TPP benefits

> TPP offers promising new world for Vietnam's textiles sector