In recent years, Vietnam has become one of the few countries in the world with prosperous import and export. With imports and exports booming, Vietnam has “pursued its victory” and signed a free trade agreement and an investment protection agreement with the EU. According to the agreement, the two sides agreed to gradually reduce tolls on 99% of products in bilateral trade in goods until they are eventually eliminated.
It is reported that Vietnam is the second Southeast Asian country to sign a free trade agreement with the European Union after Singapore, which makes investors more confident in Vietnam’s economic growth. Economist Erwin has previously pointed out in a report that Vietnam’s GDP growth rate is expected to remain between 6% and 6.5% in the next 10 years. At this growth rate, Vietnam’s GDP will surpass Singapore in 2029.
After signing the free trade agreement with the European Union, the garment industry, which accounts for 10% of Vietnam’s exports, has also shown a thriving scene recently. Foreign media reported that the agreement has brought a large number of orders to Vietnam’s garment industry, and in order to cope with this surge in orders, Vietnamese garment manufacturers are planning to rapidly expand the scale of their companies.
Data show that the EU has long become Vietnam’s second largest clothing export market, accounting for 15% of its total clothing exports in 2018, second only to the United States. Therefore, Vietnam’s garment industry will become one of the industries that will benefit the most after the agreement is signed. The optimism of Vietnamese clothing manufacturers can also be clearly seen from the reports. These manufacturers believe that the agreement will be a game changer and pave the way for Vietnamese clothing to dominate the European market.
Obviously, after this agreement, the whole country in Vietnam believes that the country has not only become one of the key links in the global manufacturing supply chain, but is also likely to Take over China and become the next world manufacturing center. However, Vietnam’s prosperous garment manufacturing industry is facing a major test.
It is reported that the agreement stipulates that in order for Vietnam’s clothing exports to the EU to be exempt from “tolls”, its raw materials must be completely produced in Vietnam or a country that has signed a free trade agreement with the EU , because the EU does not want to see China’s cheap raw materials taking advantage of the Vietnamese market.
However, official data shows that nearly 70% of the raw materials currently used in Vietnam’s garment manufacturing industry need to be imported. Most of them come from China. Clothing manufacturers said that if they cannot import from China, the cost of clothing manufacturing will become higher and the profits will be smaller. This means that Vietnam’s manufacturing industry cannot do without China for the time being, and the agreement with the EU will make It’s in trouble.
Careful consideration for raw material problems
70% of raw materials are imported from China, so Vietnam’s textile and garment industry is facing the crisis of being unable to enjoy preferential tariff treatment in EVFTA. Pham Xuan Hong, president of Saigon Textile Company No. 3, said that currently, Vietnam’s textile and garment industry still mainly imports raw materials from China that are not on the list of countries that enjoy EVFTA preferential treatment. The cumulative origin rules in EVFTA allow Vietnamese companies to use raw materials originating in South Korea or third countries where both parties have signed free trade agreements, such as Japan and other ASEAN countries. However, the prices of raw materials in the above-mentioned countries are relatively high and the varieties are not abundant.
Some other companies have changed their strategies to buy more domestic fabrics, but after adding 10% value-added tax, their prices are higher than those of imported goods. Expensive, resulting in the benefits brought by tariff reduction and exemption treatment being insufficient to lower the selling price and compete with products from other countries.
In addition to the difficulties in raw materials, weaving and dyeing is also a weak link in Vietnam’s textile and apparel supply chain. Nguyen Van Kam, vice chairman of the Vietnam Textile and Apparel Association, said that there was a large-scale weaving and dyeing project that was unable to obtain an investment license from the local government due to environmental issues, so it was announced that it would withdraw from the Vietnamese market. If the initiative cannot be created in this link, textile and apparel companies will not be able to benefit from it.
Before the EVFTA officially takes effect, the textile and apparel industry will still have to face various difficulties that cannot be solved with the goal of becoming a beneficiary of the agreement. Specifically, in view of the EVFTA, the import tax rate for 100% of Vietnamese textiles and clothing will be reduced to zero within a maximum of 8 years after the agreement takes effect. The EU will eliminate tariffs on 77.3% of Vietnam’s textile and clothing exports after five years and the remaining 22.7% of exports after seven years. Thanks to its tariff advantages, the competitiveness of Vietnamese textiles and apparel against products from other countries such as Bangladesh, Cambodia, and Pakistan may increase. EVFTA is expected to increase Vietnam’s textile and apparel exports by US$157 million in the first year after it takes effect, and by more than US$1 billion in 2025.
However, in addition to meeting the rules on raw materials and excipients in the EVFTA Agreement, the issue of proving the origin of the product is more complicated. Currently, the agreement allows for the simultaneous implementation of two mechanisms, namely the general Certificate of Origin (C.O.) and the Certificate of Origin (CERTIFICATE OF ORIGIN). Accordingly, any exporter is allowed to self-certify the origin (similar to the current GSP regulations) for shipments with a value of less than 6,000 euros.
In Vietnam, the mechanism for self-certification of origin is provided for by domestic law. Before implementing the above mechanism, Vietnam will notify the EU and issue implementation details domestically. The EU will monitor shipments with questionable origins. For shipments with a value of more than 6,000 euros��The mechanism for issuing certificates of origin by institutions and organizations authorized by the Ministry of Industry and Trade. However, there are many risks of fraud hidden in the mechanism of self-certification of origin. In the long term, it can have a negative impact on the company.
Vietnam has actively introduced policies to promote the development of supporting industries, and Chinese companies also need to prepare for rainy days
In order to enjoy EVFTA To bring preferential treatment, over the years, various companies have worked hard to build a complete supply chain. Le Jin Chang, president of Vietnam Textile and Apparel Group, said that the group has concentrated on negotiations with Uniqlo, H&M, Zara and other suppliers to shift the supply of raw and auxiliary materials to Vietnam, aiming to meet the requirements of the origin of EVFTA and thereby benefit from it.
In the short term, No. 10 Garment Company also focuses on ordering raw and auxiliary materials from domestic manufacturers, aiming to meet the requirements of EVFTA regarding the origin of raw and auxiliary materials in the region. In the long term, the company also plans to develop a domestic raw material supply source development strategy, which will help the company optimize the benefits brought not only by EVTFA but also by other new generation free trade agreements. At the same time, risks arising from concentration on certain raw material and excipient supply markets are reduced.
Recently, Vietnamese Prime Minister Nguyen Xuan Phuc signed a resolution No. 115/NQ-CP to promote the development of supporting industries and will create 2,000 companies that can directly supply multinational companies within ten years. parts companies to ensure that these large companies can operate in Vietnam.
The goal proposed by the resolution is: by 2025, Vietnamese enterprises will be able to produce highly competitive supporting industrial products and meet 45% of the basic needs of domestic production and consumption. Accounting for about 11% of industrial output value, it is expected that about 1,000 companies will be able to directly supply products to assembly companies and multinational companies.
By 2030, supporting industrial products will meet 70% of demand and account for about 14% of industrial output value. About 2,000 companies will be able to directly supply assembly companies in Vietnam and supply products to multinational corporations.
In order to achieve the above goals, the resolution formulates incentive measures, including specific mechanisms and policies for effective and simultaneous formulation, improvement and implementation, creates favorable conditions for the development of auxiliary industries, and formulates preferential treatment interest rate. Other measures include effectively attracting investment, strengthening business ties between Vietnamese enterprises and multinational enterprises, and domestic and foreign production and assembly companies; building centralized supporting industrial parks; developing the materials industry to increase the autonomy of raw materials, etc. The resolution also emphasizes promoting the development of domestic and foreign markets, improving scientific and technological capabilities to achieve breakthroughs in technological infrastructure, technology transfer, and improving the ability to absorb technology, emphasizing through national skills upgrading projects and links between training institutions and enterprises. Develop human resources.
In addition, the resolution also calls for the establishment and improvement of a statistical system to promote connections between Vietnamese suppliers and multinational companies; improve the effectiveness and efficiency of national management and support for industrial policies; and Improve statistical quality to ensure timely, complete and accurate information.
Some Vietnamese media said that after the relevant policy agreement takes effect, it will help Vietnam reduce its dependence on single markets such as China. For multinational companies that plan to move their production lines out of China, Vietnam will be more attractive. For our country’s foreign trade companies, future competition from the Southeast Asian market cannot be underestimated, and companies should prepare in advance! </p
