Vietnamese officials say that last year’s shock withdrawal by the US from the Trans-Pacific Partnership (TPP) has been overcome, as Vietnam has in any case entered into 16 other bilateral and multilateral free trade agreements (FTAs).
This includes the forthcoming Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – which includes all the TPP partners bar the USA; and the European Union-Vietnam FTA (EVFTA), creating numerous opportunities for textile-garment investors.
Local media outlet VietNamNet, in late June, cited Nguyen Thi Tuyet Mai, general secretary and head of the representative office in Ho Chi Minh City of the Vietnam Textile and Apparel Association (VITAS), as saying the country’s textile-garment sector has been growing since the third quarter of last year.
Industry observers believe that upstream textile investment will be driven more by CPTPP than EVFTA. This is because CPTPP has fabric-forward rules, and most of Vietnamese garment-makers’ fabric supply comes from non-CPTPP countries.
In contrast, EVFTA has less stringent measures on rules of origin since it does not limit them to EVFTA members, but a zero tariff is applied as long as any trading country has an existing FTA with the EU.
For example, South Korea has an FTA with the EU, meaning that if garment-makers buy fabric from South Korea, the final product will enjoy a zero tariff under EVFTA.
“The CPTPP rules mean that Vietnam needs to strengthen its supply capability in fabric yarn if it wants to enjoy zero tariff benefit within CPTPP nations,” says Ven Tran, director of the Vietnam Office of Weave Services Limited, a demand & supply planning consulting firm.
“The drivers of these investments in the supply capability of fabric yarn will come from the government, either through their own investment or a call for FDI; big suppliers, who will proactively plan their own investment to attract more volume from retailers; and brand owners,” he adds.
Ven says most brand owners, sourcing offices and retailers buy materials and ask the assembly factory to assemble products for them. He says it is likely they will now urge their supply chain to invest in Vietnam and share the benefits of zero tariffs.
However, Ven points out that the utilisation rate of Vietnam’s FTAs by the textile-garment sector is generally low due to manufacturers’ difficulties in satisfying the respective rules of origin.
“So, it is unforeseeable what the utilisation rate will be for CPTPP,” he notes. “If it is as low as other FTAs, we need to factor this in when evaluating the market potential post-CPTPP.”
That said, an official at the international trade department of the Korea Federation of Textile Industries (KOFOTI), expresses doubts as to whether South Korean textile investment in Vietnam will actually stay on a high growth trajectory following the US departure from the TPP.
“South Korean textile companies invested in Vietnam in the run up to TPP because they had hoped it would open up the US market, which clearly is the most important market to them,” he says.
Source: www.wtin.com