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Textiles are unlikely to benefit immediately with EVFTA

Textiles are unlikely to benefit immediately with EVFTA

Tuesday 23, 06 2020
When the Free Trade Agreement between the European Union and Vietnam (EVFTA) comes into effect, textiles and garments are expected to be the most profitable sector. However, it is difficult for enterprises to benefit immediately because of the barriers of rules of origin for garments specified in EVFTA.

Clothing products of Thanh Cong Textile Garment - Investment - Trading Joint Stock Company (TCM) exported to the European market currently has an average tax rate of about 12%. When EVFTA comes into effect, Thanh Cong aims to increase the export rate to this market from the current 5-8% to 12-15% next year, focusing on exploiting product lines with a 0% tax rate immediately. As committed in EVFTA, textiles, and garments into the EU will be immediately reduced to 0% about 42.5% of tariff lines, and the remaining will gradually reduce to 0% in 5-7 years.

Businesses take chances

However, textile enterprises wishing to increase efficiency when exporting to the EU through tax reduction under EVFTA will have to implement relatively strict rules of origin with the requirement of "from fabric onwards". This means that the fabric used to make clothes must be woven in Vietnam or EU member states or countries that have signed FTAs with the EU. At the same time, textile products need to meet specific processing criteria specified in the Agreement.

Mr. Tran Nhu Tung, Member of the Board of Directors and Deputy General Director of TCM, believes that Thanh Cong's clothing products can be applied preferential tax from EVFTA with a number of product lines. Because TMC is also a supplier of yarn and fabric.

In addition, with EVFTA, Mr. Tung believes that Vietnamese clothing manufacturers to the EU will increase purchasing of TCM's fabric products to replace this item imported from the Chinese market to enjoy preferential tax treatment.

Currently, TCM is continuing to expand fabric production to take opportunities from the EVFTA Agreement, Mr. Tung said.

Similarly, according to Mr. Pham Van Viet, Chairman of Viet Thang Jean Board of Directors, Viet Thang's garment products exported to the EU are currently subject to a tax rate of 14 to nearly 18%, depending on the product category. Therefore, when the tax rate is reduced to 0, it will bring great advantages to help businesses lower product costs and be more competitive, to increase the proportion of exports to this market in the near future instead of accounting for about 30% of the current proportion.

Mr. Viet said that the company has changed its fabric supply from China to Thailand and Korea, the two countries that have signed FTAs with the EU.

The source of cloth in accordance with rules of origin is still very lacking

Textiles are unlikely to benefit immediately with EVFTA

Not all garment enterprises have advantages or timely preparation to benefit from EVFTA such as TCM or Viet Thang Jean. In fact, for a long time, Vietnam has mainly imported fabrics from the Chinese market or fabric materials as directed by foreign customers.

To solve the problem of fabric shortage and to enjoy incentives from EVFTA, some businesses use imported fabrics in Korea to manufacture in Vietnam. However, the rate of importing fabric from the Korean market is not high, as businesses are prioritizing the import of fabrics from China due to lower prices, having more advantages in geography and rich and diverse models.

However, more than 60% of fabrics imported into Vietnam are from China and Taiwan, with prices much lower than those imported from Korea. This makes it difficult for local companies to take advantage of preferential tax rates.

The situation that the textile industry has not been proactive in supplying raw materials is also a reason why some localities do not receive dyeing and weaving projects because of concerns about affecting the environment.
The investors pouring a lot of capital into Vietnam will contribute to the development of supporting industries for the textile industry, thereby helping to increase the localization rate. However, in recent years, many localities are somewhat unsatisfied and have considered receiving projects in this field, especially those with dyeing.

According to representatives of the Vietnam Textile and Apparel Association (Vitas), some localities have even bluntly rejected the project with a commitment of up to hundreds of millions of US dollars because they are afraid of affecting the environment.

Vitas said that this is a big challenge for the industry to meet the regulations and enjoy export tax benefits to European markets.

Vita's leaders said that only a very small number of dyeing and weaving projects of the industry violated and affected the environment, but many localities turned away from the majority of projects in general. This will greatly affect domestic textile and apparel businesses, as it will not meet the conditions to enjoy preferential tariffs when producing textile products exported to the European market.

However, Vitas called for awareness from textile enterprises in production and environmental protection, thereby creating trust with the government, environmental management agencies, and local governments to prevent "rejection" of textile and dyeing projects.

Meanwhile, economic experts say that localities have grounds to worry about this issue, but if they are too afraid, the risk of losing domestic enterprises is very large. Looking further, it will be difficult for Vietnam to master raw materials and take advantage of the opportunity to enjoy preferential tariffs in many markets.

Therefore, the current policy is to plan projects by location and to strictly handle and control the environment. According to experts, if applied and strictly adhered to modern technologies, it will both produce fabrics and ensure the environment.


Vietnam Economy

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