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Fabric origin poses problem for Vietnamese textile firms

Nov '20
Pic: Shutterstock
Pic: Shutterstock
Vietnamese companies are struggling to fully benefit from the European Union (EU)-Vietnam Free Trade Agreement (EVFTA) as the country does not produce enough or competitively-priced raw materials for its textile industry. Businesses are unable to meet rules of origin requirements to enjoy tax incentives, according to the country’s SSI Securities Corporation.

To do so, they need to use fabrics either domestically produced or imported from countries that have free trade deals with the EU.

Vietnam depends on China for 60-70 per cent of its textile feedstock and fabrics imported from South Korea account for only 15 per cent of its total requirement.

Under EVFTA provisions, 77.3 per cent of Vietnam's textile exports to it will enjoy zero per cent tax within the first five years while the rest follow a seven-year road map. EFVTA will see Vietnam eliminate 99 per cent of its import duties over 10 years and the EU doing the same over seven.

The Vietnam National Textile and Garment Group (Vinatex) said the tax incentives under EVFTA are not attractive enough for businesses to switch from Chinese to Vietnamese fabrics as the former are 10-40 per cent cheaper and delivered faster due to the scale of production, a Vietnamese newspaper reported.

China's textile and dyeing industry has a capacity of 80 billion metres of fabric a year while Vietnam’s is 2.5 billion metres against a demand of 8 billion metres.

But SSI believes that in the long run, Vietnam needs to develop its own industry and ensure sufficient scale to compete on cost with China.

There are around 6,800 textile and garment businesses in the country and their exports were worth $32.85 billion last year.

Fibre2Fashion News Desk (DS)

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