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Aug 07, 2018 / 07:00

Vietnam a top spot for foreign garment-textile firms

Free trade agreements (FTAs) are the driving force to help Vietnam emerge as one of the top spots in the world for investors in the garment and textile industry.

Vietnam’s garment-textile lured US$2.8 billion of FDI capital in H1 2018
Vietnam’s garment-textile lured US$2.8 billion of FDI capital in H1 2018
According to Chairman of the Vietnam Textile and Apparel Association (VITAS) Vu Duc Giang, Vietnam’s garment-textile lured US$2.8 billion of foreign direct investment (FDI) in the first half of this year, bringing the total FDI in the sector to nearly US$17.5 billion.

FTAs, particularly the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) - although they have yet come into force - have created great attraction to foreign investors as they will bring huge opportunities for Vietnam’s garment-textile sector, Giang said.  

Once the CPTPP takes effect, Vietnam can increase shipments to CPTPP member countries, which spend up to US$40 billion on garment and textile products every year.

The EVFTA, which is expected to take effect at the end of this year, will also offer ample opportunities for Vietnamese textile and garment products to ship to the European market thanks to tariff preferences.

According to Nguyen Thi Tuyet Mai, VITAS’s secretary general, the EU is Vietnam’s second largest export market. Given the current tariffs ranging between 10 percent and 12 percent which will be slashed to zero, it will boost Vietnam’s goods to this enormous market.

Traditionally, China, Taiwan (China) and South Korea lead the way as far as textile and garment projects implemented in Vietnam. However, Mai forecasts, South Korea is likely to pull ahead in the competition as besides the bilateral FTA with Vietnam, the country has also inked a cooperation agreement with the EU. When choosing Vietnam as a destination for investment, Korean investors will further enjoy the benefit.

According to EU-MUTRAP team leader Claudio Dordi, only “EVFTA originating” products will benefit from preferential tariffs for a maximum of seven years after entry into force. Investors from other countries thus may wish to relocate sufficient stages of textile and garment manufacturing to Vietnam to benefit from market access offered by the EVFTA.

Environmental concerns

The foreign investment will definitely help develop Vietnam’s textile and garment industry, however, officials are also concerned that the inflow, especially in the dyeing, might cause adverse impacts on the local environment.

According to Truong Van Cam, VITAS’s vice chairman, several provinces and cities had stayed watchful and rejected some textile and dyeing projects for fear of the environmental pollution. For instance, authorities of Vinh Phuc Province has recently turned down for a fourth time a US$350 million dyeing project by Hong Kong’s TAL Group.

So far, the bulk of foreign direct investments in the textile and garment industry are in the fields of fiber manufacturing, garment and accessories. The dyeing sector accounts for only around 9 percent of the total investment.

However, according to VITAS, if localities refuse all dyeing projects, the hope that Vietnam could engage in the supply chain to meet the rules of origin to benefit from EVFTA (fabric-forward) and CPTPP (yarn-forward) would be faint.

Acknowledging that the dyeing process may cause pollution, Cam suggested that projects having decent water-treatment systems had to be licensed. Local governments should create favorable conditions for dyeing projects with priority given to those that bring in modern technology in wastewater treatment.

Minister of Industry and Trade Tran Tuan Anh also proposed that local governments should come up with more consistent and friendly policies on textile, dyeing and finishing projects.

It is possible to deal with the environmental pollution via high standards applicable to wastewater, he said, adding that the current allergy to textile and dyeing project should be avoided.