The Vietnamese garment units have to pay an average tariff duty of 12-30 per cent, which will be reduced to nil once the TPP comes into force. But the yarn-forward rule of origin in the TPP prohibits the Vietnamese garment manufacturers from importing raw materials for production to avail the benefit of zero duty. Similarly, the fabric forward rule of origin in the EU-Vietnam free trade agreement requires locally produced raw materials.
Vietnamese apparel producers were largely relying on imports for raw materials, with almost two-third of the total raw materials used in production being imported. But under the new free trade agreements signed by the country, it is no longer advantageous to rely on imports.
The country needs way more raw materials than what it currently produces to meet the needs of its apparel industry. For example, Vietnam needs almost 9 billion metres of fabric annually, but produces only about one-third of its total requirement. Hence, Vietnam needs to increase its overall capacity for raw material production, according to the Vietnam Cotton and Spinning Association.
For the same, garment manufacturers are seeking supplies from domestic raw material manufacturers, yarn producers, weavers and dyeing units. In order to ensure an uninterrupted raw material supply, they are also investing funds or purchasing stakes in the supplying companies, according to Vietnam Textile and Garment Association (Vitas).
Once the free trade agreements come into force, Vietnamese textile and garment exports are likely to increase by more than 15 per cent, if manufacturers should work upon an efficient supply chain in whole, according to industry experts. (MCJ)
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