The textile and garment industry’s exports were worth US$32 billion last year and they are expected to reach $40 billion this year.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU-Việt Nam Free Trade Agreement and the US-China trade war have brought benefits and challenges to the sector.
Despite the challenges, the Việt Nam Textile and Apparel Association believes the industry will do well this year.
Vũ Đức Giang, the association’s chairman, talks to Việt Nam News reporter Xuân Hương about this and more.
What do you think about the textile industry’s export prospects this year? How has the US-China trade war affected the industry?
Garment and textile exports reached $19 billion in the first half of the year, a year-on-year increase of 8.5 per cent. The exports are expected to top $40 billion this year.
The US-China trade war has not only affected the US and China, but also other countries.
Currently we export yarn to China. Việt Nam’s yarn exports to China reduced by 80 per cent in the first half of the year. Following the US’s imposition of 25 per cent tariffs on Chinese products, our Chinese buyers asked us to lower prices, but we could not and accepted lower exports to the market.
The trade dispute has also had a psychological chain effect that has affected buying by major global importers, with purchases going down by 4-5 per cent globally on average.
Many people say Việt Nam has the opportunity to get large orders that are shifting from China, but it is not so. When global buying falls, producers have to calculate to further reduce the cost of goods.
Việt Nam now mainly makes products for medium and high-end market segments, and very little low-end products. So buyers will mainly switch their orders to Bangladesh or Myanmar, because the average minimum wage in these countries is $150 while in Việt Nam it is $350.
Therefore, the shifting of orders from China to Việt Nam has not been as much as expected by people.
With yarn exports to China reducing, we have quickly shifted to other markets such as Japan, South Korea, the Middle East, and Taiwan. Thanks to that we have still achieved our yarn export target.
Though the global market faces many difficulties, I believe Việt Nam’s textile industry is still developing well. Việt Nam’s yarn industry faced difficulties in the first half of the year, but the situation will improve in the latter half.
How is export of garment and textile products to CPTPP member countries since the agreement took effect this year?
The CPTPP has had a positive impact on our garment and textile exports. Previously countries such as New Zealand, Australia and Canada rarely imported Vietnamese garment and textile products. But this year, with the CPTPP coming into effect, these markets have begun to import our garments and textiles in rather large quantities.
The EU-Việt Nam Free Trade Agreement was signed recently. What advantages and challenges does the agreement bring to the garment and textile industry?
The EU-Việt Nam FTA will impact the vision and long-term strategy of investors in the textile and garment industry, persuading them to invest in segments where there is still a shortage for Việt Nam’s garment and textile industry, especially fabric.
Currently we are a large fabric importing country. Of the total expected exports of $40 billion this year, fabric imports will account for $11 billion.
So this [FTA] is one of the factors that attract foreign and domestic investors to segments with a supply shortfall.
That is very good for the industry's long-term development.
The agreement has also created a better foundation for the development of the local textile and garment industry, and better competition in terms of prices and delivery times.
We believe we will have enough local feedstock supply.
It is also spurring manufacturers to have training strategies for designers. The rate of sub-contracting is reducing. We used to make products to sell FOB but have started to enter the ODM (original design manufacturing) and OBM (original brand manufacturing) markets. This means we sell products that we design and bear our brands. This is a factor that greatly affects the development strategy of the textile and garment industry in Việt Nam.
But the agreement will also bring challenges to the garment and textile industry.
Firstly, we must comply with the rules of the FTA, namely transparency, standards in terms of social responsibility, workers and trade unions.
We must be able to meet requirements in terms of products and brands and compete on delivery time and prices, and even corporate social responsibility, with countries that already benefit from the FTA.
Countries such as Bangladesh, Sri Lanka and Myanmar have had FTAs with the EU for a long time, so we have to compete with these countries.
This requires the industry to establish a sustainable linkage chain to improve its competitiveness.
The FTA has brought benefits but they go hand in hand with challenges. Businesses must understand that to come up with appropriate business strategies.
Most of the fabric is imported from China but China is not in the CPTPP or EVFTA. Is that a disadvantage for the industry?
We import some fabric from China, but we also import from Japan, South Korea, Bangladesh, Indonesia, and Thailand.
Our fabric imports from China have reduced significantly this year, and they will further reduce in the coming time.
Enterprises understand which markets they should import to enable them to get most benefits from FTAs. — VNS