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Vietnam Waits on Free Trade Negotiations for Textile Export Boost

Despite having a solid 2014, Vietnam is pinning its hopes on the successful resolution of EU FTA and TPP talks in order to dramatically grow its clothing and yarn export sector, although a substantial number of legal hurdles remain a challenge.

Photo: Vietnam’s textile sector: The country’s biggest export earner.
Vietnam's textile sector: The country's biggest export earner.
Photo: Vietnam’s textile sector: The country’s biggest export earner.
Vietnam's textile sector: The country's biggest export earner.

According to the Bureau of Import and Export Statistics, Vietnam's textile exports from the beginning of 2014 to August 2014 were worth some US$13.65 billion, an increase of 19.7% over the previous year. In three continuous months – June, July, and August – textiles overtook electronics to become the most valuable export industry in Vietnam.

The volume of garment production also grew, rising to 274.6 million units – up 8.8% compared to the previous year. In more specific terms, the production of natural fabrics reached nearly 23.3 million square meters, up 3.9%, while the production of production of artificial fabrics totalled 67.4 million square meters, a 13% increase.

Overall, there was an increase in Vietnamese textile exports to the major markets, including the US, Europe, Japan and South Korea. Specifically, as of July 2014, exports to the US were US$5.6 billion, an increase of 14.2% year-on-year, while sales to Europe totalled US$1.9 billion, up 26.5%. Within the Asian markets, Japan imported US$1.4 billion (+12.3%), while goods worth US$900 million were shipped to Korea (+36.7%).

During a year-end business summary event for the Vietnam Textile and Garment Group (VinaTex), Do Thang Hai, the Deputy Minister of Industry and Commerce, said: "The Vietnamese textile industry has achieved exciting results, significantly contributing to the economic development of the country and creating more jobs."

Speaking at the same event, Le Tien Truong, Vice President of the Vietnam Textile & Apparel Association (Vitas) and General Director of VinaTex, said: "In 2014, the textile export turnover was over US$24 billion, up 19% compared to 2013. The Garment sector alone was worth US$21 billion, an increase of 17%. By the end of 2015, the textile industry is on course to have a turnover of US$28-28.5 billion."

Looking to the future, Vitas believes that further gains can be made following the likely signing of a number free trade agreements, notably the Trans-Pacific Partnership Agreement (TPP), and free trade agreements (FTAs) with the EU, Vietnam, South Korea, and the Custom Alliance of Russian, Belarus and Kazakhstan. As well as opening up export markets, the association believes such agreements will increase investor confidence.

A report from the Trade Promotion & Investment Center, analysing the business development opportunities in the sector, indicated considerable growth potential remains. It suggested that the textile sector could double its production within the next 10 years, partly as consequence of the new trade agreements.

With regard to the EU, for instance, Vietnam currently has a 1% share of its imported textiles markets. Following the signing of any FTA between Vietnam and the EU, the tax rate on imports from Vietnam would fall from 12 to 0%, greatly enhancing the competitiveness of Vietnamese products.

Photo: Will the TPP see Vietnam’s US exports soar?
Will the TPP see Vietnam's US exports soar?
Photo: Will the TPP see Vietnam’s US exports soar?
Will the TPP see Vietnam's US exports soar?
Photo: Haputex: Investing US$120 million.
Haputex: Investing US$120 million.
Photo: Haputex: Investing US$120 million.
Haputex: Investing US$120 million.

Similarly, the TPP is seen as offering a real opportunity for garment makers to expand their business in the US. Despite facing 17-18% import duties, US export turnover is still increasing by 12-13% annually, and is likely to grow even faster once the TPP is signed. TPP negotiations are expected to resume at the end of this month.

While some commentators believe trade agreements will benefit the industry as a whole – potentially increasing export turnover to the US alone to as much at US$22 billion by 2020 – certain individual enterprises take a more guarded view. For them, while the TPP offers considerable opportunities, it also imposes certain restrictions.

Signing up to the TPP means that export taxes to the other 12 signatories will be 0%, a clear benefit to businesses. In order to capitalise on this, however, these exports must use either materials sourced domestically or materials that have been imported from one of the other TPP member states.

The product localisation rate of the garment industry in any qualifying country must be higher than 55%. The rate in Vietnam is currently less than 25%, meaning that Vietnamese businesses would not be entitled to this reduced tax rate. There are also numerous technical barriers to be negotiated, with products having to be audited by an independent company to confirm compliance.

Addressing the issue, Le Tien Truong said: "Although Vietnamese companies keep working hard to increase the product localisation rate, it is still lower than the requirement. As a result, investment from overseas businesses is expected to increase greatly in the Vietnamese garment industry."

Offering his own solution, Dang Phuong Dung, General Secretary of Vitas, said: "The textile industry must put more energy into securing investment for ancillary industries, especially in terms of finishing and dying yarn, in order to self-supply its own raw materials. We need to proactively create a supply chain in the country and try to increase the localisation rate to 60-65%. We should take advantage of greater economic integration in order to make good quality final products at a competitive price."

Many businesses from other countries, particularly China, have invested in Vietnam in order to take advantage of the benefits of the looming TPP. Haputex Development (Hong Kong), for instance, has invested US$120 million in setting up the Southern Textile company in the Binh Duong Province, complete with a 12-hectare facility specialising in yarn weaving. Production is expected to start in 2016.

Photo: The Tal Group: New US$600 million plant.
The Tal Group: New US$600 million plant.
Photo: The Tal Group: New US$600 million plant.
The Tal Group: New US$600 million plant.

Similarly, the TAL Group (Hong Kong), a family-owned firm and one of the world's largest clothing manufacturers, has invested US$600 million in building factories in the Dai An Industry Zone, Hai Duong Province. These facilities will be primarily used to dye yarn and manufacture finished garments. In Nam Dinh, the Yulun Jiangsu Textile Group, a Chinese state-owned textile enterprise with US$400 million assets, has a license to build factories for producing and dying yarn, representing an investment of some US$68 million.

Pham Tuong Vi, Special Correspondent, Ho Chi Minh City

Content provided by Picture: HKTDC Research
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