Nghe An textile and garment industry on the eve of EVFTA

Breakthrough opportunity

AgreementEVFTA(effective from August 1, 2020) is one of the new generation of comprehensive, high-quality Free Trade Agreements, expected to bring great prospects in promoting trade and investment, of important significance to the economy of the whole country in general and Nghe An in particular.

The EU is the region with the world's largest demand for textile and garment consumption markets (250 billion USD), of which 60% of the demand must be imported from countries outside the Union (150 billion USD). Currently, Vietnam only accounts for about 2% of the total textile and garment import turnover into the EU (4.3 billion USD).

Many factories and industrial clusters have been invested in, creating jobs for local workers. Photo: Thanh Cuong

For Nghe An, more than 40 enterprises are currently exporting and importing to the EU market and more than 150 other exporting enterprises will have the opportunity to expand their markets and increase export turnover. Notably, key export items such as textiles, processed fruits, and various wood products have the greatest advantage because in addition to eliminating import taxes, enterprises have the opportunity to compete fairly with enterprises from countries that are enjoying tariff incentives from the EU.

Graphics: Lam Tung

Textiles are also showing a downward trend compared to the same period last year. Textiles are one of the province’s key industries, contributing to the rapid increase in export turnover and creating jobs for workers.

In the province, there are 20 garment projects that have been invested in construction and put into operation, creating jobs for more than 25,000 workers, mainly in rural areas. There are 10 projects currently carrying out investment procedures to soon put the project into production. However, the impact ofCovid-19 epidemicTherefore, garment enterprises are suffering certain impacts because most of the input materials and some equipment of the projects being implemented are behind schedule.

Many textile and garment enterprises are affected by the Covid epidemic. Photo: Thu Huyen

In fact, our textile products are mainly processed for export, with low added value. Supporting industries for the industry such as production of raw materials, accessories, equipment, vocational training, design... are not highly developed, mainly exported to markets in the Middle East and Africa.

As of July 2020, there were 26 textile and garment exporting enterprises to 25 countries and territories, but only 2 enterprises exported to the European market with a very modest turnover, reaching only over 11 million USD, accounting for 7% of textile and garment turnover.

The potential for Nghe An textile and garment enterprises to export to the EU is huge. The EVFTA agreement comes into effect, according to which the EU will immediately reduce to 0% for 42.5% of tax lines, the rest will gradually reduce to 0% over 5-7 years. Thus, Vietnamese textile and garment products will be more competitive than or equal to competitors such as China, Cambodia, and Bangladesh.

Mr. Hoang Minh Tuan - Head of Import-Export Management Department, Department of Industry and Tradeg

Urgently remove the bottleneck

The National Assembly’s vote to approve the EVFTA and its official entry into force is a great opportunity for the textile and garment industry. According to the EVFTA’s commitment, among Vietnam’s main export products to the EU,textilesThe EU will eliminate tariffs on 77.3% of export turnover within 5 years, and the remaining 22.7% will also eliminate tariffs after 7 years. In addition to enjoying tax advantages, EVFTA promises to bring Vietnamese textile and garment enterprises in general and Nghe An in particular the opportunity to import high-quality machinery and access standard raw materials in the EU.

Immediately after the EVFTA takes effect, the EU commits to eliminating import tariffs on about 85.6% of tariff lines. Photo: Thu Huyen

However, although the Provincial People's Committee has paid attention to trade promotion activities in the EU market, this is a large market area, with very strict technical standards for industry and agriculture, causing many products to not meet the requirements or for producers to increase production costs, reducing competitiveness in terms of price and accompanying services.

In addition, due to the impact of the epidemic, many businesses, including large enterprises, are struggling, and there is a risk that some businesses will not survive until they benefit from the EVFTA. Therefore, from now on, businesses need to seize the opportunity and take advantage of the free trade agreements Vietnam signed to increase export production capacity while maximizing domestic market demand. Focus on strongly developing supporting industrial products, producing raw materials and accessories, and increasing the added value of products.

Workers of Hoang Thi Loan Textile Joint Stock Company operate the production line. Photo: Mai Hoa

In particular, to be exempted from taxes, textiles and garments must meet the rules of origin requiring 2 stages from fabric onwards. That is, raw fabrics used to make clothes exported to the EU must be woven in Vietnam or in EU member countries, or countries that have FTAs ​​with the EU, but domestically produced fabrics can only meet 25-30% of demand. Therefore, to take advantage of the tariff advantage, in addition to textile and garment enterprises needing to be prepared, investing systematically in factories, machinery and technology as well as raw materials and accessories to seize opportunities from EVFTA, investmenttextile and dyeing industryis absolutely necessary.

To boost Nghe An's textile and garment exports to the EU, increase the export turnover of enterprises in Nghe An, the Ministry of Industry and Trade is currently developing an implementation plan, including specific tasks for each industry and locality. Enterprises need to clearly understand the rules of origin of goods to the market, pay attention to investing in developing products in the high-end segment to participate in the EU supply chain... We also hope that ministries, branches and provinces pay attention to planning industrial parks for textile and dyeing enterprises as input materials for the textile and garment industry to ensure origin criteria; Pay attention to export promotion work, connecting supply and demand for Vietnamese textile and garment enterprises in the EU market.

Mr. Cao Minh Tu - Deputy Director of Department of Industry and Trade

In recent years, the export turnover of goods between Nghe An enterprises and the European market has grown but not significantly, averaging only about 50 million USD/year, accounting for 6-7% of the province's total export turnover. Main export items: Textiles (accounting for about 60%); processed fruits and fruit juices (accounting for 30%); other items such as: tea, pepper, plastic additives, pine essential oil, tiles... accounting for about 10% are exported to the markets of 26/27 countries in the EU bloc, mainly the UK, Germany, France.

Article: Thu Huyen - Editor: Lam Tung