Vietnam has concluded the free trade agreements (FTAs) with South Korea and the Customs Union of Russia, Belarus and Kazakhstan, while negotiations on the Vietnam - EU FTA and Trans-Pacific Partnership (TPP) Agreement have also entered final rounds. FTAs are opening up opportunities for the Vietnamese garment and textile industry to leap forward thanks to tariff preferences, increased profit margins, increased export scale, investment attraction for perfection of supply chains, new market development, strengthened corporate governance capacity, and uplifted movement of global supply chains. However, apart from big opportunities, FTAs will also pose enormous challenges to the Vietnamese garment and textile industry.
Vietnam Business Forum interviewed Mr Le Tien Truong, Vice Chairman of the Vietnam Textile and Apparel Association (Vitas) and General Director of the Vietnam National Textile and Garment Group (Vinatex), on how to overcome obstacles and how to grasp opportunities from FTAs, particularly TPP, for the Vietnamese garment and textile industry. Hoang Tham reports.
The TPP, once adopted, will provide many export opportunities for the Vietnamese garment and textile industry. Apart from opportunities, the Vietnamese garment and textile industry will face certain challenges. How will Vinatex address those challenges?
Among key forex earners of Vietnam like garment-textile, leather-footwear and seafood, the garment and textile industry is the largest exporter, focusing on TPP-member countries with the US accounting for 49 percent of the share, followed by Japan with 13 percent. Hence, the sector will enjoy a lot of advantages when Vietnam joins TPP.
When TPP takes effect, trade in goods among member countries will receive tariff preferences, with many tariff lines being gradually reduced to zero. Currently, the average import tariff the US imposes on garments and textiles exported from Vietnam (based on FOB price) is above 17 percent. This significantly high tariff will be gradually cut under the agreement. But, to have TPP-based tax preferences, Vietnam’s garments and textiles must meet the rules of origin. Currently, concerned parties are negotiating on rules of origin called “yarn forward.” Thus, units with supply chains or administration capabilities taking part in yarn - dyeing - garment supply chains will have the best conditions to utilise benefits from tariff cuts according to this agreement.
Vinatex has long understood the importance of supply chain links, and has increased added value and raised localisation rates in its systems as Vietnam joined FTAs. Vinatex has focused on improving the quality of internal chain links constituted by its member companies (spinning, textile, dyeing and garment companies), combining with new investment projects to create synergic force and increase competitiveness of Vinatex in general and its member companies in particular, changing from the CTM (cut, make, trim) form to FOB (free on board) and ODM (original design manufacturer) method to increase the market share and export turnover. And, to do this, the Group must master technologies and materials. For that reason, pushing up new technological application to shorten production process is a priority of its development strategy. On the other hand, the Group should also concentrate on developing chain management capabilities and design processes, with first priority placed on technical design for ODM production method and then fashion design for market demands. The Group also has adopted solutions to improve labour productivity and increase incomes for workers to reinforce the loyalty of highly qualified employees.
How do you assess the potential export growth of Vietnam’s garment and textile to the US market when the TPP is signed? How will Vinatex seize opportunities from the US market?
The garment and textile industry of Vietnam exports a lot to TPP countries, with the US contributing 49 percent to its overall export earnings. Hence, when the TPP Agreement is passed, it will provide new favourable conditions for Vietnam’s garment and textile industry. For example, some 1,000 tariff lines on garments and textiles imported from Vietnam will be slashed from the Most Favoured Nation (MFN) rate of 17 percent at present to 0 percent.
Some typical lines in which Vietnam has high export value but face high tax rates, to be cut after the TPP comes into effect, are HS 61102020 (sweaters, pullovers and similar articles, knitted or crocheted of cotton, being imposed a tax rate of 16.5 percent), HS 61103030 (sweaters, pullovers and similar articles, knitted or crocheted of man-made fibres, subject to 32 percent of tax), HS 62046240 (women's or girls' trousers, breeches and shorts, not knitted or crocheted of cotton, currently imposed 16.6 percent of tax), and HS 62034240 (men's or boys' trousers, breeches and shorts, not knitted or crocheted of cotton, currently levied 16.6 percent of tax.)
Given the current growth rate, Vietnam is expected to earn US$28.3 billion from garment and textile exports in 2015, up 16 percent over 2014. Vietnam’s garments and textiles will continue to expand their presence in major markets like the US, the EU, Japan and South Korea. In 2015, Vietnam may take US$11.5 billion from garments and textiles exported to the US, up 15.5 percent year on year. The shipments to this market will continue to be expanded 15 - 20 percent a year in a few years after the TPP comes into force. With the evenly rapid growth in recent years, Vietnam’s market share in the US - the second largest - will narrow with China, which is currently the biggest garment and textile exporter to the world’s largest economy.
Vietnam National Textile and Garment Group has carried out many measures to increase investment in material manufacturing, raise localisation ratio and enhance the sector competitiveness to grasp opportunities from TPP. Specifically, in 2014, the Group deployed 51 projects with a total investment capital of VND8,037 billion (US$400 million), of which US$1,151 billion (US$50 million) was disbursed. Of the total, 14 yarn projects and 15 textile projects cost a total of VND4,469 billion, of which VND859 billion was disbursed. These projects are expected to add output by 3,800 tonnes a year. Key projects included Vinatex - Hong Linh 3 Yarn Factory (output of 30,000 spindles of yarn a year), Tam Quan Binh Dinh Wash Factory (4.5 million products a year) and Southern Yarn-dyed Fabric Production Project (10 million metres a year. In 2015, the Group planned to add 10 fibre projects, six knitted fabric projects, five woven fabric projects, two knitted fabric projects (25.4 million products a year) and nine woven garment projects (34.9 million products a year).
How do describe the development of the Vietnamese garment and textile industry after Vietnam opened its market, especially after the important milestone in 1995 when Vietnam and the US normalised their relations?
Looking back on the process of market opening, highlighted by the normalisation of relations (1995), the Bilateral Trade Agreement (BTA 2001), the Bilateral Textile Agreement (2003), the Garment Textile Monitoring Mechanism (2007), Vietnam’s entry to the WTO, FTA negotiations (ASEAN, ASEAN+, TPP, Vietnam - South Korea FTA, EVFTA, Vietnam-EU FTA, and Vietnam - Customs Union of Russia, Belarus, Kazakhstan, Vietnam’s garment and textile sector has striven to complete strict standard requirements from international customers. These requirements specify quality, quantity, price, delivery schedule, working policies and conditions, social responsibility and environmental protection. To meet these requirements, Vinatex in particular and garment and textile businesses in general have actively identified weak elements and proactively reached international customers and partners.
With its effort and creativity in investment and market access, Vietnam’s garment and textile export turnover has been sharply rising, from US$5.9 billion in 2006 to US$24.5 billion in 2014, representing an average annual growth of 19.4 percent. Vinatex contributes 15-16 percent to the country’s garment and textile export value. Presently, Vietnam is a top producer of garments and textiles in the world, the second exporter of this merchandise to the US and Japan and the Top 5 exporter in the EU.
As Vice Chairman of the Vietnam Textile and Apparel Association (Vitas), do you have any proposals for the Government to support the sector in boosting exports to the US market?
To enable Vietnam's garment and textile industry penetrate more deeply into the US market, Vietnam National Textile and Garment Group and the Vietnam Textile and Apparel Association have suggested the following proposals:
Firstly, the Government needs to plan the place, scale and position of the garment and textile industry in the national economy and perfect policies and mechanism in support of garment and textile industry and supporting industries.
Secondly, the Government needs to place the garment and textile industry on an important position in the process of TPP negotiations, create the best mechanism for Vietnam's garment and textile sector to enjoy tariff preferences but still satisfy the rules of origin requirements and restrict non-tariff barriers.
Thirdly, the Government needs to formulate mechanisms to facilitate and support enterprises to engage in FTA negotiations and implementation.
Fourthly, Vietnam should support trade promotion agencies with the US, access customers, organise delegations to famous garment and textile trade fairs in the world like "Sourcing at Magic" in the US.
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