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Jun 27, 2019 / 16:43

Vietnam’s textile, garment and footwear to benefit the most from EVFTA

The agreement will increase an average of 0.1% in annual real GDP of Vietnam purely due to trade impacts, HSBC estimated.

Vietnam’s industries like textile & garment and footwear are expected to benefit the most from the signing of the EU – Vietnam Free Trade Agreement (EVFTA), according to Pham Hong Hai, CEO of HSBC Vietnam. 
 
Illustrative photo.
Illustrative photo.
Exports of textile & garment and footwear from Vietnam to Europe reached around US$9 billion in 2018 while the average tariff applied by Europe on these products is at 9%. 

These tariffs will be eliminated within three years or right after the EVFTA coming into force for less sensitive products, Hai said. 

Additionally, the strong commitment to an open, fair and rules-based trade of the agreement will further widen export markets for Vietnam, especially in textile and garment, agriculture and fishery, and wood furniture.

The European Commission considers the agreement the most ambitious one that EU has signed with a developing country, reflecting the strong position of Vietnam being the second largest trade partner in ASEAN of EU, only after Singapore, Hai suggested. 

The bilateral trade of the two sides has increased 20 times over the past two decades with annual trade value reaching EUR50 billion, making Europe the second largest export market of Vietnam, following the US.

Under the agreement, EVFTA will remove 99% of the tariffs between the two sides, in which 65% of export tariff from EU to Vietnam would be eliminated right after the agreement comes into force. The remaining tariff would be phased out in 10 years. 71% of export tariff from Vietnam to EU would also be eliminated and the remaining to be reduced within 7 years. 

Being a modern agreement, EVFTA includes content relating to intellectual property protection, freedom of investment and sustainable development.  

“We expect the agreement will increase an average of 0.1% (with range of 0,0 – 0,3%) in annual real GDP of Vietnam purely due to trade impacts,” Hai said. 

Upon complete effect, the high standards of EVFTA will accelerate Vietnam’s pace of reforms and global integration. The European Commission estimates that exports from Vietnam to Europe will increase at around 18%, hence widening Vietnam’s trade surplus with the bloc. 

The agreement is also expected to bolster foreign direct investment flow from Europe to Vietnam, which would accelerate the development of Vietnam. The average investment from EU to Vietnam reached around US$800 million in the period from 2010 to 2017.

Challenges ahead

Besides benefits, there are still many things to do so that Vietnam can fully gain from the agreement, Hai continued. 

According to the CEO, Vietnam needs to build a strong domestic textile and garment industry with lower import components to be able to capture all the benefits. 

“Strict requirements on certificate of origin towards all apparels imported to Europe can lower the benefits for Vietnam when a majority of main materials are imported from other markets,” he stated.
 
At the moment there are some companies with large production scales and FDI businesses that have capabilities to ensure a strong domestic ratio of materials and accessories compliant to certificate of origin required by the agreement.

Apart from organic growth of enterprises which should be a priority, guidance and initiatives of the government to provide knowledge and improve awareness of businesses are necessary. 

Some good examples include projects to develop supporting industries, guidance on Vietnam’s commitments to members of EVFTA, what companies need to do, commitment to the environment, intellectual property protection, certificate of origin, among others.

Moreover, thorough administrative reforms to simplify im-export procedures and improve legal frameworks to meet the requirements of international and European standards about labour conditions, intellectual property should be also a priority.  

“EVFTA is one of the most expecting agreements of Vietnam and I believe Vietnam will take actions to capture most of the benefits while tackling challenges to further boost the development of the country in a sustainable way,” he concluded.