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VIETNAM TEXTILE AND GARMENT BUILDING NEW POSTURE
With an export target of US$40 billion set for 2019, this year is considered an important year for Vietnam's textile and garment industry in two potential export markets: Canada and Australia. Vietnam currently holds 4-5% market share in these markets. However, there are still many hurdles that the industry needs to overcome to capitalize on opportunities in CPTPP.
CPTPP – a great opportunity for the textile and garment industry
According to statistics of the General Department of Customs, textile and garment export turnover in the first three months of 2019 recorded encouraging development steps. Specifically, textile and garment export turnover in March 2019 reached US$2.7 billion, up 106.4% compared to February 2019 and up 15.9% compared to March 2018. Accumulated export turnover of this item in the first three months of 2019 reached US$7.3 billion, up 13.3% compared to the same period in 2018. Of which, the largest market is the U.S, accounting for 46.6% of total turnover, raking in US$2.14 billion, up 9.4% over the same period in 2018.
Dr. Tran Toan Thang, Director of the World Economic Affairs Department of the National Cener for Socio-economic Information and Forecasting (NCIF - Ministry of Planning and Investment), said that the CPTPP agreement is to bring huge advantages for the textile and garment industry. The export growth rate of the textile and garment industry is expected to increase from 8.3% to 10.8% thanks to greater price competitiveness in new markets in CPTPP, while the growth rates in the main markets of the US and EU are maintained.
According to the Vietnam National Textile and Garment Group (Vinatex), the number of orders that the industry has received from foreign partners is very positive. Mr. Vu Huy Dong, General Director of Damsan Textile Joint Stock Company, said that Vietnamese textile enterprises’ orders from foreign partners have grown stably at the rate from 8% - 10% compared to the same period in 2018. Some businesses even have attained enough export orders for the second and third quarter of 2019. However, Mr. Le Tien Truong, General Director of the Vietnam National Textile and Garment Group, said that, in addition to the positive signals from the market, businesses also need to take initiative in solutions to deal with the fluctuations of world situation.
By the end of the first quarter of 2019, the textile and garment industry maintained positive development, unaffected by the U.S-China trade war. Textile and garment are not on the U.S. tax list. Therefore, partners still place orders normally in both China and Vietnam markets.
Currently, yarn manufacturers and textile enterprises who own closed supply chains will benefit directly by meeting the requirements of origin from trade agreements, while tariff reductions will help them improve competitiveness in the market. Enterprises with a large proportion of revenue in the stable market in the EU such as Garment 10 (36%), Vinatex (17%), Garmex Saigon (32%), TNG (58%) and Song Hong Garment (30%), will benefit indirectly due to the growth of orders from fashion partners.
For two major markets including Australia and Canada, the textile and garment industry aims to earn US$1 billion. These two developed markets have a textile and garment demand of about US$10 billion per year. Nevertheless, the export market share of Vietnam textile and garment industry in these two markets are still very modest with only about US$500 million.
CPTPP is expected to create opportunities to boost exports to these two markets and contribute to the growth target of over 10% of the industry. In fact, in nearly 30 years, the textile and garment industry has made breakthroughs as export turnover has grown from only about US$52 million in 1990 to US$36.1 billion in 2018, accounting for 15% of the country's export turnover.
Ms. Bui Kim Thuy, a former member of Vietnam's CPTPP negotiation delegation, representative of the U.S.-ASEAN Business Council in Vietnam, stated: "Textile and garment is a separate chapter in CPTPP and receives highest favor ever since, strongly affecting the textile and garment industry. Evaluations have been produced based on accurate data sources, but have not been published yet.”
Bariers need to be removed
Although there are many advantages in the production and business plans, challenges still exist. There may still be a bad scenario if tax for this item is imposed by the U.S on China and this will impact much Vietnamese market. If that scenario happens, China will surely raise the textile material tax. This will directly affect Vietnamese orders, including the yarn industry.
In fact, until now, Vietnam's yarn has been mainly exported to China, besides, the increasing pressure on labor cost will also make businesses struggle to solve the problem of management and competition.
In 2019, Vietnam aims to export US$40 billion of textile and garment, while the low target scenario is more than US$38 billion. The first quarter of the year 2019 has passed, textile and garment industry has taken steps to assert themselves in the effort to achieve that goal. According to Mr. Le Tien Truong, to complete the objectives, textile and garment enterprise needs to focus on increasing productivity; invest gradually in automation to reduce labor; select high-end orders with high processing prices based on the advantage of high-skilled technical workers. Besides, the green and clean production conditions, ensuring environmental safety factors, social security will be advantages for partners to choose.
According to the Multilateral Trade Policy Department (Ministry of Industry and Trade), unlike the agreements that Vietnam has signed, CPTPP has its own chapter on textiles and garment. In addition to applying general provisions like other goods, textiles and garments have their own specific rules. Specific rules of origin require the use of yarn and fabrics from the CPTPP area to promote the establishment of regional supply and investment chains to increase the value of textiles produced in the block. Flexible regulations on the mechanism of "supply shortage" allow the use of certain types of yarn and fabrics not available in the region.
However, the U.S will conduct traceability of textile and garment products from Vietnam to limit products originating from China’s raw materials. This requires Vietnamese textile and garment enterprises to find ways to diversify the market to supply garment materials instead of relying on supplies from China.
Ms. Bui Kim Thuy said that with CPTPP, flexible rules allow finished products to have special tariff preferences although they violate 10% of origin. Typically, non-origin yarns are allowed to account for no more than 10% of the weight of fabric used to make finished products. For example, in 100 tons of exported yarn worth US$ 100 billion, enterprises are allowed to violate 10 tons of yarn or US$ 10 billion in volume or value of yarns not originating from CPTPP countries. This rule applies only to the textile and garment industry in terms of weight.
According to Mr. Truong Van Cam, Vice Chairman of Vietnam Textile and Apparel Association, Vietnam's biggest weakness is fabric production. Vietnam currently has to import 99% cotton, 80% fabric. In terms of sewing, the industry is strong, but mainly processing. In recent years, the textile and garment industry has also found solutions for this stage but the level of success is not as expected.
In addition, most of Vietnam's textile and garment enterprises still have small-scale, weak financial resources and management level, limited technology. These will make these enterprises weak when competing with strong enterprises on textiles and garments in the CPTPP area such as Mexico, Peru and Malaysia.
Vietnam’s GDP growth is forecast at 3.1% in 2020 before rebounding to 7% next year, while ASEAN+3 growth is predicted to sink to 0% in 2020, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
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