Vietnam is facing both internal and external challenges in the integration process. Vietnamese garment and textile companies must resolve these challenges to operate effectively. Vietnam Business Forum interviewed Mr Diep Thanh Kiet, Vice Chairman and Secretary General of Ho Chi Minh City Association of Textile, Garment, Embroidery and Knitting, on this issue.
What are some advantages and difficulties of Ho Chi Minh City-based garment and textile companies when Vietnam implements its WTO entry commitments?
In my opinion, we have more opportunities and wider markets. However, import tariffs on garments and textiles will be lowered, which will harm some and benefit some. For example, when the import tax on textile products is slashed from 50 per cent to 12 per cent, domestic textile companies must make changes to survive, and garment companies will have more options to import cheaper materials for production.
Another issue is the increased presence of Chinese readymade garments in Vietnam, when import duties are reduced from 60 per cent to 20 per cent. According to the association, low grade garments will be overwhelmed by Chinese products because they have large scale production and cheaper products. Meanwhile, high grade lines will be dominated by famous foreign brand names. Hence, Vietnamese garment and textile companies need to seek out their competitive advantage in medium grade product lines.
To date, several companies have gone on the right track and succeeded. Vietnamese firms have become familiar with the AFTA tax cut roadmap. At that time, cheaper products from Thailand and Indonesia did not overwhelm Vietnamese medium-grade garment producers. Many Vietnamese brand names, like An Phuoc, Viet Tien, Viet Thang, Nha Be and Vera, have developed even faster.
Unresolved challenges remaining are workshops, materials and labour quality.
From January 1, 2007, the US removed the quota policy imposed on Vietnamese enterprises. In your opinion, how will Vietnamese companies take advantage of this chance?
According to the Ministry of Trade, in the first two months of 2007 garment and textile export generated US$1.016 billion, which was only US$44 million less than the largest export, crude oil, and US$365 million more than footwear, in the third position.
This showed that, as experts forecast, the eradication of quotas has given strong momentum to Vietnamese garment and textile growth. At the same time, Vietnamese companies have made good preparations to grasp the new opportunities.
Vietnamese garment and textile companies taking advantage of this opportunity to increase export turnover are likely to face antidumping taxes or the reapplication of export quotas. What should Vietnamese enterprises do to avoid these outcomes?
According to the proposal from the association, the Ministry of Trade and relevant agencies should carry out the following measures:
- Analysing in detail the growth of every economic sector (state, private, joint stock and foreign-invested) to grasp a more accurate view. Possibly, the quick growth in the first two months of 2007 principally came from foreign-invested sector.
- Analysing the proportion of imported material value in the total export value of the garment and textile industry of the country
- Announcing in detail export earnings in all export markets, especially figures related to the US market. The export data to the US must be the same as those released by the US customs offices to calculate the growth against 2006. Then, early warnings are issued for enterprises to self-adjust.
- Publicizing export measures of garments and textiles applied to the US market, including those controlling quantity, and average price within each category
- Although we know the US unilateral application of import management mechanisms on Vietnamese garment and textile products is against the WTO spirit, we should have band-aid solutions to reassure domestic companies as well as foreign partners, until we have been able to persuade the US end the mechanism.
For domestic companies, unlike previous worries of quota, price and production capacity, they now have to worry about delivery, environment, social responsibility and especially transparency. These will be advantages in case of antidumping lawsuits.
WTO entry widens markets for Vietnamese companies. So, where are potential markets for them?
The main export markets for Vietnamese garment and textile products are the US, the EU and Japan. Although the growth of exports to the US is great, Vietnamese companies are also very keen on expanding in the EU market, which accounts for some 30 per cent of Vietnam’s total garment and textile export revenues. Japan is also another potential market, applying no barriers to Vietnamese exports. In addition, they can extend to potential markets like North Africa, South Africa (as import taxes have been lowered). The Middle East market only applies one-line tax and it doesn’t have domestic production, hence there is no threat of antidumping cases. Latin America is also a profitable market if Vietnamese companies have sound business plans to compete with Central American nations. Finally, the domestic market is also a potential market.
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