Vietnam Has Also Adopted A Major Decision To Reduce Its Dependence On China. Domestic Textile Enterprises Should Be Alert

In recent years, Vietnam has become one of the few countries with relatively prosperous import and export. Under the circumstances of prosperous import and export, Vietnam has "pursued the victory" and signed a free trade agreement and an investment protection agreement with the European Union. According to the agreement, the two sides agreed to gradually reduce the "toll" of 99% of products in bilateral trade in goods until it is finally cancelled.

It is reported that Vietnam is the second Southeast Asian country after Singapore to sign a free trade agreement with the EU, which makes investors more confident about Vietnam's economic growth. Economist Irwin pointed out in his report that Vietnam's GDP growth rate is expected to remain between 6% and 6.5% in the next 10 years. According to this growth rate, Vietnam's GDP will surpass that of Singapore in 2029.

After the signing of the free trade agreement with the European Union, the garment industry, which accounts for 10% of Vietnam's exports, has also shown a thriving scene recently. Foreign media reported that the agreement has brought a large number of orders to Vietnam's garment industry, and in response to the surge in orders, Vietnamese garment manufacturers are planning to rapidly expand their companies.

According to the data, the EU has already become Vietnam's second largest clothing export market, accounting for 15% of its total clothing export in 2018, second only to the United States. Therefore, after the signing of the agreement, Vietnam's clothing industry will become one of the industries that will benefit the most. The optimism of Vietnamese garment manufacturers can also be seen from the report. These manufacturers believe the agreement will change the rules of the game and pave the way for Vietnamese clothing to dominate the European market.

Obviously, after the agreement, Vietnam has become more and more convinced that it has not only become one of the key links in the global manufacturing supply chain, but also is likely to succeed China as the next world manufacturing center. However, Vietnam's prosperous garment manufacturing industry is facing a major test.

It is reported that the agreement stipulates that if Vietnam wants to exempt "toll free" for its clothing exported to the EU, its raw materials must be completely produced in Vietnam or countries that have signed a free trade agreement with the EU, because the EU does not want to see China's cheap raw materials dominate the Vietnamese market.

However, official data show that nearly 70% of the raw materials currently used in Vietnam's garment manufacturing industry need to be imported, most of which come from China. Garment manufacturers say that if they can't import from China, the cost of their clothing manufacturing will become higher and their profits will be less, which means that Vietnam's manufacturing industry is still inseparable from China for the time being, and the agreement with the European Union has put it in a dilemma.

Working hard for the problem of raw materials

70% of raw materials are imported from China, so Vietnam's textile and garment industry is facing the crisis of not enjoying preferential tariff treatment in evfta. Fan Chunhong, President of Saigon textile company No.3, said that at present, Vietnam's textile and clothing industry still mainly imports raw materials from China which are not listed in the national list with preferential treatment from evfta. The cumulative rules of origin in evfta allow Vietnamese enterprises to use raw materials originated from South Korea, Japan, other ASEAN countries and other countries that have signed FTA. However, the prices of raw materials in the above countries are high and the types are not rich.

Some other enterprises have changed their strategy to buy more domestic fabrics. However, with the addition of 10% value-added tax, the price is more expensive than that of imported goods, which leads to insufficient benefits from tariff reduction and reduction treatment, adjusting prices and competing with products from other countries.

In addition to the difficulties in raw materials, weaving and dyeing is also a weak link in Vietnam's textile and clothing supply chain. Nguyen Man Kam, vice president of Vietnam textile and Garment Association, said that a large-scale textile and dyeing project was unable to obtain the investment license from the local government due to environmental problems, so he had to announce the withdrawal from the Vietnamese market. If we can not shape the initiative situation in this link, textile and garment enterprises can not benefit from it.

Before the formal entry into force of evfta, the textile and garment industry has to face various difficulties that can not be solved in order to become the beneficiaries of the agreement. Specifically, in view of evfta, the import tax rate of 100% Vietnamese textiles and garments will be reduced to zero within 8 years after the agreement comes into force. The EU will eliminate tariffs on 77.3% of Vietnam's textile and clothing exports in five years, and the remaining 22.7% in seven years. Thanks to the tariff advantage, Vietnam's textile and clothing competitiveness against products from Bangladesh, Cambodia, Pakistan and other countries may increase. Evfta is expected to increase Vietnam's textile and clothing exports by US $157 million in the first year after its entry into force, and more than US $1 billion in 2025.

However, in addition to meeting the requirements of the evfta agreement on raw and auxiliary materials, the issue of proving the origin of a product is complex. At present, the agreement allows for the implementation of two mechanisms, the general certificate of origin (C.O.) and the certificate of origin. As a result, any exporter is allowed to self certify its origin (similar to the current GSP regulations) for consignments under 6000 euro.

In Vietnam, the mechanism of self certification of origin is regulated by domestic law. Before the implementation of the above mechanism, Vietnam will inform the EU and issue implementation rules at home. The EU will monitor shipments with questionable origin issues. The mechanism of issuing certificates of origin by institutions and organizations entrusted by the Ministry of industry and trade will be implemented for batches of goods with a value of more than 6000 euros. However, there are many risks of fraud hidden in the mechanism of self certification of origin. In the long run, it can bring negative effects to enterprises.

Vietnam actively introduces policies to promote the development of supporting industries, and Chinese enterprises also need to take precautions

In order to enjoy the preferential treatment brought by evfta, over the years, various enterprises have made efforts to build a complete supply chain. Li Jinchang, President of Vietnam textile and Garment Group, said that the group has focused on negotiating with UNIQLO, H & M, Zara and other suppliers to transfer raw and auxiliary materials supply to Vietnam, aiming to meet the requirements of evfta on origin, so as to benefit from it.

In the short term, No. 10 garment company also orders raw materials and accessories from domestic manufacturers, aiming to meet the requirements of evfta on the origin of raw materials and accessories in the region. In the long run, the company also plans to carry out the development strategy of domestic raw and auxiliary materials supply sources, which will help enterprises optimize their benefits, not only from evtfa but also from other new generation free trade agreements. At the same time, reduce the risk caused by the concentration of some raw and auxiliary materials supply market.

Recently, it is reported that Vietnamese Prime Minister Nguyen Chun Fuk has signed a resolution 115 / nq-cp to promote the development of supporting industries, which will build 2000 enterprises that can directly supply spare parts for multinational companies within 10 years, so as to ensure that these large enterprises can operate in Vietnam.

The goal of the resolution is: by 2025, Vietnamese enterprises will be able to produce supporting industrial products with strong competitiveness, meeting 45% of the basic domestic production and consumption demand, accounting for about 11% of the industrial output value. By then, it is estimated that about 1000 enterprises will be able to directly supply products to assembly enterprises and multinational companies.

By 2030, supporting industrial products will meet 70% of the demand, accounting for about 14% of the industrial output value. About 2000 enterprises will be able to directly supply products to assembly enterprises and multinational companies in Vietnam.

In order to achieve the above objectives, the resolution formulated incentive measures, including effective and synchronous formulation, improvement and implementation of specific mechanisms and policies, creating favorable conditions for the development of auxiliary industries, and setting preferential interest rates. Other measures include effectively attracting investment, strengthening business ties between Vietnamese enterprises and multinational enterprises, production and assembly companies at home and abroad, building centralized supporting industrial parks, developing material industry to increase the autonomy of raw materials, etc. The resolution also emphasizes promoting the development of domestic and international markets, improving scientific and technological capabilities to achieve breakthroughs in technological infrastructure and technology transfer, and enhancing the ability to absorb technology. It also emphasizes the development of human resources through national skills upgrading projects and the links between training institutions and enterprises.

In addition, the resolution also calls for the establishment and improvement of statistical systems to promote links between Vietnamese suppliers and TNCs; to improve the effectiveness and efficiency of national policies for managing and supporting industries; and to improve the quality of statistics to ensure timely, complete and accurate information.

According to some Vietnamese media, the entry into force of the relevant policy agreement will help Vietnam reduce its dependence on China and other single markets, and will be more attractive to multinational enterprises planning to move their production lines out of China. For China's foreign trade enterprises, the future competition from Southeast Asian market can not be underestimated, enterprises should take precautions in advance!