Professional Documents
Culture Documents
Bao Cao Tac Dong Wto - en
Bao Cao Tac Dong Wto - en
This report is done at the request of Project Support to trade promotion and export
development in Vietnam VIE/61/94
Vietnam Trade Promotion Agency Ministry of Industry and Trade
TABLE OF CONTENT
I. Overview..............................................................................................................4
II. Commitments of Vietnam on garment in trade agreements..................................5
A. WTO and free trade agreements: Impacts on garment sector......................5
B. Tax commitment in some key markets.......................................................10
C. Benefits and obligations for Vietnams garment exporters.........................12
III. Garment export: Current status and prospect......................................................15
A. Pre- and post-WTO position of export garment..........................................15
B. Some analysis on Vietnams garment sector...............................................18
C. Access to key export markets in the future.................................................21
D. Assessment of export potential Vietnams garment sector.......................24
E. The role of Government and Association in sector development and export
promotion...................................................................................................27
1. General approaches............................................................................27
2. Approaches introduced during the global economic recession...........30
IV. Problems facing Vietnams garment sector.........................................................31
V. Conclusion and proposal.....................................................................................37
A. Conclusion..................................................................................................37
B. Proposal......................................................................................................38
C. Descriptive action plan...............................................................................41
References..................................................................................................................44
LIST OF TABLES
Figure 1: FDI for garment: number of projects and invested capital (mil. USD)
1988-2008...................................................................................................19
Figure 2: Impacts of issues on the garment value chain.............................................34
LIST OF BOXES
Overview
Garment is one of the leading sectors, having an important role in Vietnams
export strategy. With quick growth rate, garment has remarkable contribution to export
and economic growth in Vietnam. This achievement was thanks to the efforts of
enterprises in building partnerships with big importers in the world as well as in taking
advantages of cheap and skillful labor. The prospect for the garment sector is getting ever
brighter, especially when the world economy is recovering from the global economic
recession.
After accession to WTO, Vietnam has been moving quickly to integrate into the
regional and world economy. Thanks to the governments negotiation and
implementation of bilateral and multilateral free trade agreements, domestic enterprises
in general and garment enterprises in particular have more opportunities to benefit from
free access to international markets. However, these opportunities could only be
optimized if the enterprises overcome the challenges in the process of integration. To
cope with the challenges, the garment enterprises must be provided with sufficient and
up-to-date information related to the sectors development.
The purpose of this research is to provide general and basic information of
Vietnams commitment related to the garment sector in the concerned free trade
agreements. Along with some assessments of opportunities and challenges, this report
also offers some recommendations to the Government and the Vietnams Garment
Association (VITAS) as well as the garment export enterprises on the direction for the
garment export development. Although it is intended for the garment exporters, it can be
use by governmental authorities and other concerned institutions for reference.
A part from the Overview, this report includes of 4 other sections: Section II-
Summary of Vietnams commitments on garment in WTO framework; Section III -
Review and assessment of garment sectors performance and prospect, Ability to access
main markets under free trade agreements, The role of Government and VITAS in
garment sector development in general and garment export in particular; Section IV
Problems and challenges facing the garment export enterprises as a result of the free trade
agreements; and finally, Section V Conclusions and some recommendations to the
Government, VITAS and the garment enterprises.
CHAPTER 51 WOOL & FINE OR COARSE ANIMAL HAIR, INC. YARNS & WOVEN FABRICS THEREOF
CHAPTER 56 WADDING, FELT & NONWOVENS, SPECIAL YARNS, TWINE, CORDAGE, ROPES & CABLES
& ARTICLES
CHAPTER 63 MADE-UP TEXTILE ARTICLES NESOI, NEEDLECRAFT SETS, WORN CLOTHING, RAGS
Table 1 presents the MFN tariff rates applied in main export markets toward
Vietnam exported garments from 2006 to 2008. This period is selected to make a
comparison with the post-WTO participation of Vietnam.
Table 1: MFN tariff rates in main export markets (2006-2008)
Unit: %
HS EC Japan US
Chapter 2006 2007 2008 2006 2007 2008 2006 2007 2008
50 4.98 5.18 5.18 6.03 6.95 6.03 0.92 0.92 0.92
51 4.00 4.00 4.00 2.74 2.74 2.74 6.68 6.68 6.68
52 6.42 6.36 6.36 5.84 5.81 5.81 8.56 8.56 8.56
53 2.86 3.33 3.33 3.49 4.21 4.21 1.66 1.99 1.99
54 5.95 5.96 5.96 6.10 6.09 6.09 10.16 10.01 10.01
55 6.49 6.43 6.43 6.71 6.65 6.65 10.99 10.82 10.82
56 6.10 6.10 6.10 3.60 3.60 3.60 4.26 4.26 4.26
57 7.56 7.59 7.59 6.66 6.62 6.62 3.02 3.02 3.02
58 7.29 7.28 7.28 5.88 5.88 5.88 6.96 6.96 6.96
59 6.30 6.30 6.30 3.94 3.94 3.94 3.10 3.10 3.10
60 7.95 7.95 7.95 6.99 6.98 6.98 10.10 10.10 10.10
61 11.62 11.60 11.60 9.18 9.06 9.06 11.58 11.80 11.80
62 11.56 11.56 11.56 9.42 9.43 9.43 10.11 10.11 10.11
63 9.90 9.77 9.77 6.10 6.01 6.01 6.72 6.79 6.79
Source: Calculation by the consultant team based on WTO data
It can be seen that MFN tariff rates of the countries have not changed very much.
In EC and Japan, except for the products of Chapters 50 and 53, other products almost
remain under the same tariff rates. In general, tariff rates on the products of Chapters 61,
62 and 63 are higher than the others.
In the US, the tariff rates changed in some groups of Chapters 53, 54, and 55. In
comparison, US tariff rates for these groups are similar to those applied to the same
groups of EC and Japan, except a difference for man-made filaments (Chapter 54) and
man-made staple fibers (Chapter 55).
Benefits and Obligations of Vietnamese garment sector
Benefits
After participating in WTO, Vietnams garment sector will receive equal
treatments as with other WTO members.
First, Vietnam garment products exported to a WTO member country will receive
MFN treatment that the country is offering other WTO members.
Second, after entering into a WTO countrys market, Vietnamese garment products
will not be treated differently from local products.
Third, in case of commercial disputes, Vietnamese garment products may be
protected by dispute resolution mechanism of WTO.
Forth, in case of threats to local market, Vietnamese garment sector may be
protected by temporary safeguard mechanism.
Fifth, after participating in WTO, Vietnamese garment products will no longer be
imposed quota when entering into other members markets.
Sixth, Vietnamese garment sector may benefit from foreign investment, new
technologies and management skills.
Finally, the participation of Vietnam in WTO proved that our efforts in economic
reform and development are recognized by the international community and this is the
basis for Vietnam to participate more broadly and deeply in trade liberalization process.
As mentioned above, after participating in WTO, Vietnam is also committed to
other agreements such as VJCEP, AANZFTA and AJCEP. These agreements provide
garment enterprises with more opportunities to access new markets.
Obligations
There are a lot of obligations that Vietnam has to implement. First, domestic
garment protection must be removed. Before participating in WTO, import tax for
clothing of Vietnam was 50%, for fabrics 40%, for fibber 20% . After participating in
WTO, all must be reduced by 2/3 to meet the international commitments. This is the
chance for Chinese products to penetrate into Vietnamese market and it is obvious that
competition from Chinese fabrics and clothing will increase.
Second, human resources will be divided. Labor cost will increase and
competition in attracting labor will be more critical. Third, there will be more foreign
investors to invest in this sector, thus competition against Vietnamese enterprises will
increase.
Table 2: Committed import tax (average) after participating in WTO
Unit: %
Ceiling tariff rates
HS chapter after participation Final ceiling tariff rates
50 9.77 9.77
51 7.73 7.73
52 9.50 9.50
53 5.66 5.66
54 9.05 9.05
55 8.77 8.77
56 10.32 10.32
57 12.00 12.00
58 12.00 12.00
59 11.15 10.89
60 12.00 12.00
61 19.92 19.92
62 19.80 19.80
63 14.70 14.60
Source: Calculation by consultant team using WTO data
Import tax will make the retail price of garment products higher. Therefore
retail price of similar home-made garment products may increase and domestic
producers will gain more added value. Calculation in Table 3 shows that almost every
garment product (except for fiber) gain more added value thanks to import tax. In
other words, reduction of import tax will reduce added value of domestic enterprises
if these manufacturers do not improve competitiveness and move up the value chain
(by gaining more value from own marketing and design).
The financial crisis and global economic recess have reduced considerably
demand for Vietnamese garment products. Although there are many adjustments made,
the target of USD9.5 billion in export value in 2009 seemed very difficult.
With the US market, the biggest market accounting for more than 55% export
value of Vietnam garment sector, enterprises have cooperated with importers to make
reasonable price adjustments while keeping the same quality of products and services.
Thank to this effort, in 2008, Vietnams garments exported to the US market gained over
USD5.1 billion, an increase by 15% compared with 2007. In the first 9 months of 2009,
garment imports of the US decreased by 12.7% and that from most of the big exporters
decreased (Hong Kong by 21%, Indonesia by 2.9%, Thailand by 25.6%, India by 7.7%.
At the same time, imports of garment from Vietnam still increased by 18% in volume and
only reduced by 4.5% in value.
With EU market, sharing about 20% of export value of Vietnams garments, the
enterprises have made improvement in product quality and extension in support services
to the importers as well as conformed new rules on customer safety. The result is that
export value of the first 9 months of 2009 gained about USD1.25 billion, falling by only
3.5% while total import value to this market decreased by 11% as compared with the
same period of previous year.
With Japan market, the third largest export market of Vietnams garments, through
VJEPA, the enterprises have strengthened trade and investment promotion activities with
Japanese partners. As a result, export turnover to this market increased continuously
(12% in 2008 and 15.3% in the first nine months of 2009). This is a very impressive
achievement while Japanese economy is still being hit seriously by the global economic
recession.
Furthermore, the enterprises have made efforts in new market promotion. In the
first nine months of 2009, Vietnams garment export to Korea has increased by 50%, to
Saudi Arabia by 23%, to Switzerland by 12.7%, and to ASEAN by 7.8%.
In the domestic market, many enterprises have changed their strategies to provide
better products and services to consumers. Measures carried out include greater
investment in market and trend research, more focus on fashion design and development
of new products, re-organization of production lines, sales promotions in big cities in
parallel with sales promotions in rural areas to showcase brands and companys prestige.
These measures reflect the enterprises efforts in implementing sector development
strategy toward domestic market in the time of economic crisis.
Source: VITAS.
Apart from that, Vietnams garment sector still has some weaknesses. Export
garments are mostly done under processing contracts; design work has not been
developed; the number of FOB contract remains still very small; and production
effectiveness is still low.
Meanwhile, textile and support industries are still weak, not relevant to the
development of the garment industry. Support industries do not supply sufficient
materials for garment production, therefore added value is low. In addition, production
value of the textile industry is always lower than that of the garment. As a result, garment
industry is depending very much on imported materials and accessories.
Furthermore, most of garment and textile enterprises are small and medium-sized
and their ability to mobilize capital is limited. Therefore, they have difficulties in
innovating and modernizing new technologies. Because of small-scale production, these
enterprises cannot operate productively and can only supply to certain markets. When the
market goes down, garment enterprises always have problems when changing traditional
business practices or turning to new markets. Difficulties are also seen in turning back to
domestic market when the main markets of US and EU are in recession.
Moreover, technical management of Vietnamese enterprises is also weak, lacking
occupational training. Productivity is rather low while product types are popular and
undiversified. Marketing ability is limited. Most of the enterprises neither have their own
brands nor a long term development strategy.
In the current situation, garment sector can still take advantages of some
opportunities. Worlds garment production is gradually moved to the developing
countries including Vietnam. This brings Vietnamese enterprises the opportunities to
approach investment capital, new technologies and equipments as well as management
skills from the developed countries.
In addition, Vietnams integration into the world and regional economy makes it
easier for garment products to access new markets. Vietnam has become a member of
WTO as well as signatory to important bilateral and multilateral free trade agreements
(e.g. VJEPA, ACFTA, AKFTA, ASEAN-Australia- New Zealand, etc).
Vietnams commitments on economic reform and development have great
attractions to the investors and create opportunities to open new markets and business
relationships. Furthermore, domestic market with more than 84 million people is a great
potential for both investors and businesses.
However, Vietnam garment sector is still faced with big challenges. On the one
hand, Vietnams garment sector started low while support industries have not been
developed. Most of materials and accessories are imported. Processing contracts are still
prevelant due to limited competitiveness of the enterprises.
On the other hand, legal environment is still not adequate. Legal documents are
under completion while policy-making and trade promotion people are not well-trained,
especially in professional skills and foreign languages.
In main export markets, there are also a lot of technical barriers such as hygiene
and safety requirements, environment standards, social responsibilities and anti-dumping
rules to protect their home production. Most of Vietnamese enterprises are small- and
medium-sized enterprises and do not have sufficient capacity to pursue anti-dumping
proceedings. Failing the proceedings costs them a lot from trade disputes. On top of that,
trade barriers are more frequently used in one or another form, especially in the time of
financial crisis and global economic recession.
HS Types of
Average Lowest tariff Highest tariff
chapter products
50 50 1.5 0 14.0
51 47 0 0 0.0
52 84 0.7 0 2.3
53 39 0.2 0 7.9
54 259 0.9 0 7.0
55 65 0.0 0 0.0
56 107 0.1 0 3.0
57 46 0.8 0 7.9
58 113 0.6 0 6.4
59 45 0.1 0 3.9
60 124 0.6 0 7.9
61 349 0.4 0 0.9
62 264 0.2 0 9.0
63 117 0.6 0 6.4
Source: Calculation by the consultant team.
In order to enjoy GSP tariffs of Japan, Vietnams garments have to meet GSP
requirements of origin. Fist requirement is transportation, according to which
commodities have to stay intact during transportation process without any extra
processing or changes. Specifically, commodities have to be transported directly to Japan
and no transit is allowed (except for transshipment or temporary storage in bonded
warehouses).
Garment products are considered of Vietnamese origin if completely produced in
Vietnam or made partly or totally from imported materials, but final products are
classified (in the 4-digit HS system) different from imported materials. In the event that
garment products are made from material imported totally from Japan or from both
Vietnam and Japan they are considered having Vietnamese origin. Moreover, garment
products can be considered having Vietnamese origin if they satisfy the rules of common
origin.
To enjoy GSP tariffs, the enterprises need original evidences such as necessary
documents including Certificate of Origin Form A submitted to Japanese customs,
certificate of Japanese origin for materials or Common Origin Certificate. Other
evidences of transportation may be required including bill of lading, custom certificates
or documents for transit and/or other important documents.
Despite the fall in added value, export turnover of garments and textiles only
decreased in 2009 and will increase again in the period of 2010-2013. According to BMI
(2009), textile export turnover will increase from USD1.3 billion in 2009 to USD1.9
billion in 2013 on an annual average growth rate of 9.8% per year. Meanwhile, garment
export turnover will also increase from USD7.4 billion in 2009 to USD9.5 billion in
2013.
However, there are still problems to consider. Firstly, textile trade runs a big
deficit although this deficit decreased sharply in 2009 and was expected to decrease in
the period of 2011-2013 (Table 7). This means that garment industry will still have to
depend on imported materials to serve its export orders. The trend on imported materials
for garment production is presented in Table 8.
Table 8: Demand for garment and textile materials (incl. accessories) in the period
of 2005-2020
Yarn and 260 510 250 350 790 440 650 1.350 700
1,000 tons
filament
Fabrics million 618 2,280 1,662 1,000 3,525 2,525 2,000 5,950 3,950
sq.meters
Upon the approval by the Prime Minister, the Ministry of Industry and Trade
promulgated Decision No. 42/2008/Q-BCT dated 19/11/2008 endorsing the garment
and textile industries development plan toward 2015, with vision to 2020. According to
the decision, general objectives are (1) development of garment textile industries to
become key export industries; (2) strengthening competitiveness and stably integrating
into the international economy. More details of the objectives are presented in Table 9.
In order to achieve these objectives, some solutions also have been proposed:
Developing the garment and textile sector along with international
cooperation; optimizing the advantage that garment and textile production is
migrated from the developed countries; encouraging investment from domestic
business sectors;
Establishing material and accessories centers in Ha Noi, Hochiminh city and
other big cities to supply materials to the enterprises;
Expanding export markets through administrative reforms in customs, tariffs
and import procedures; providing advice and legal consultation to export
enterprises;
Setting up labor training programs for the garment sector. VITAS and
VINATEX will be focal points to coordinate cooperation between domestic
and international training institutions;
Pushing up research and application of new technologies, new materials;
improving consultancy abilities, applied research, technology transfers and
design capacity of research institutes;
Focusing on environment protection, specifically waste-water treatment at
textile and dyeing factories; innovating technologies to economize on fuel
consumption and ensure environment-friendly products.
Providing budget to research and training activities; improving technical
facilities in research institutions and training agencies in support of the
garment-textile sectors; using governmental-supported credit supply, ODA and
environmental protection fund for environmental projects of the sector.
The role of the Garment Assocation (VITAS)
VTAS has made tremendous efforts to develop the sector through various means
including organizing policy dialogues with relevant authorities, actively participating in
policy-making process for the sector, proposing solutions to promote Vietnams garment
businesses and providing useful market information and market research to garment
enterprises.
VITAS has also built up a trade portal for the sector through which useful
information going to the enterprises is transferred much faster. The Association also has
great contribution to labor training activity for the sector.
VITAS, on behalf of its members, participated in many events organised by
regional and international garment and textile associations in order to help Vietnam
garment-textile sectors integrate into the world economy, e.g. ASEAN Federation of
Textile Industry (AFTEX), Asian Federation of Garments and Textile, etc. Through these
organizations, the enterprises have more opportunities to exchange technical,
management and technological issues and experiences as well as to promote commercial
exchanges in the region, increase export and set up common route for garment sectors
development in the region, establish ASEAN garment and textile supply system (SAFSA-
Sources ASEAN Full Services Alliance) in order to strengthen the competitiveness of
Vietnams garment. Recently, as Vietnam has joined the Asian Fashion Federation (AFF),
this may help Vietnamese designers and enterprises have more opportunities to exchange
experiences and learn from others countries, thereby producing Vietnams collections as
well as increasing added value to export garments of Vietnam in the near future.
VITA not only represents Vietnamese garment and textile enterprises but also
foreign businesses as associated members (e.g. AMCHAM, KOTRA, Taiwan Textile
Association, etc.) in order to have common voices of domestic and international
enterprises to map out effective directions for sector development, export promotion and
competitiveness enhancement.
The Vietnam Textile Corporation (VINATEX), the key member of the Association,
and some other member companies have established garment textile material supply
centers in Hanoi and Ho Chi Minh city to supply materials and accessories to the
domestic enterprises in order to increase FOB orders and improve sectors
competitiveness.
VITAS also encourages the member enterprises to participate in domestic and
international trade fairs, organize national trade promotion programs, and assist
Vietnams garment enterprises to promote their brands and products. Thanks to these
trade fairs, the enterprises have built up better relationships with potential customers as
well as found more partners in the sector for business cooperation.
VTAS also contributed actively to the process of administrative reform. On behalf
of its members, VITAS proposed a number of solutions to simplify the administrative
formalities, making it easier for business activities in general and for garment sector in
particular.
Solutions in financial crisis global economic recess situations
Vietnam did not have a single solution for garment sector in the time of economic
recess. Instead, the solution is applied for many sectors in trouble. Specifically, Vietnam
offered export credit insurances and sales promotion programs for rural consumers. Like
other sectors, the garment enterprises received supports from the Government such as
interest subsidies for short-term loans issued in 2009 to increase working capital for the
enterprises (pursuant to Decision No. 131/Q-TTg by the Prime Minister dated
23/01/2009), and for medium- and long-term loans to increase investments (pursuant to
Decision No. 443/Q-TTg by the Prime Minister dated 04/04/2009). Furthermore, the
Prime Minister also promulgated Decision No. 30/2009/Q-TTg on assistance to
unemployed laborers from enterprises hit by the economic recession, thus helping to
relieve burdens from the enterprises.
Besides, Vietnam Garment and Textile Association (VTAS) has actively
implemented export promotion programs to find new customers and orders. Through its
activities, the Association encouraged its member enterprises to invest in new
technologies as well as to develop the up market with high-income customers and warn
the companies of threats from possible anti- dumping taxes in importing countries,
especially the US.
Additionally, the Association also organized a lot of promotional activities to build
good images for the enterprises. Against the financial crisis and economic recession, the
Association has assisted the enterprises to look back to the domestic market which offers
high potentials for the enterprises both in crisis and in good performance.
Deadlines:
Initiative C Organize seminars on policy making in order to collect enterprises needs for administrative
reform, especially in tariffs and customs regulation
Responsible agency VIETRADE (in coordination with relevant authorities in charge of administrative reforms)
Needed capacity Budget, Project
Implementation time Year 1 Year 2 Year 3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Deadlines:
Strategic consideration # 4 Research on large export markets for the garment sector
Objective Improve understanding of the markets, especially market access in order to develop a
suitable strategy for export promotion of garment products
Initiative A Online workshops with trade counselors in main export markets
Responsible agency VITAS and VIETRADE
Needed capacity Budget, Project
Implementation time Year 1 Year 2 Year 3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Deadlines:
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