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Aug 05, 2019 / 15:28

Vietnam’s textile and garment under pressure to qualify for EVFTA’s rules of origin

Nearly 90% of the input materials for the industry is currently being imported from countries which are not members of the EU or those which the bloc has signed trade deals with.

The lack of local suppliers for input materials is proving to be a major challenges for Vietnam’s textile and garment industry to enjoy preferential treatment from the EU – Vietnam Free Trade Agreement (EVFTA), as it fails to comply with the rules of origin, according to expert. 
Illustrative photo.
Illustrative photo.
Nearly 90% of the input materials for the industry is currently being imported from countries which are not members of the EU or those which the bloc has signed trade deals with, said Nguyen Thu Trang, director of the WTO center under the Vietnam Chamber of Commerce and Industry (VCCI).

Trang made the comment at a conference discussing opportunities and challenges for Vietnam’s textile and garment industry from the signing of the EVFTA on August 2. 

For instance, the EVFTA requires the fabric from which garments are made to be woven in Vietnam, the EU, or South Korea, which has FTAs with both Vietnam and the EU. This emphasizes the need for Vietnam to fully develop its own textile manufacturing industry to take full advantage of the agreement’s benefits.

The EU is a major market for Vietnam’s textile and garment products with export turnover of US$5.6 billion in 2018. The figure, however, only accounted for 2.02% of total garment imported to EU, indicating huge potential for Vietnamese companies, Trang said. 

According to Trang, the textile industry is not considered the most beneficial sector from the EVFTA in terms of growth in quantity and exports to the EU, but rather in terms of joining the global production and supply chain. 

This would be a major driving force to promote more investment from both local and foreign investors, Trang stated. 

Director General of Multilateral Trade Policy Department under the Ministry of Industry and Trade Luong Hoang Thai said the removal of 77% of import tariffs for Vietnam’s textile and garment products into the EU would present opportunities for local companies, but at the same time requiring those companies to enhance their competitiveness to grasp these opportunities. 

Raising production cost could be a decisive factor for investors shifting production to another country, Thai said, adding Vietnam is experiencing rapid growth in labor costs. 

Thai expected a more stable market to be the foundation for Vietnam’s companies to further integrate into the global supply chain and create greater added-value. 

Nevertheless, the bottleneck for the sector remains the dyeing and weaving process, Thai suggested. 

Vu Duc Giang, chairman of the Vietnam Textile & Apparel Association, said given strict requirements in the EVFTA’s rules of origin for garments, it is vital for the government to draft up clear master plan towards the formation of a global supply chain. 

Vietnam is facing fierce competition from countries such as China, India for greater market shares in the EU market, so an efficient strategy is essential to access this market, Giang added. 

Giang stated the signing of multiple trade deals has brought wave of investments into Vietnam, addressing the lack of supply and creating higher added value during the process of production. 

Giang also rebuffed concern from many provinces and cities in Vietnam that the dyeing process could cause environmental pollution, thanks to the advancement of the technologies.