Việt Nam’s textiles and garments yet to fully unlock FTA’s advantages and potential

Workers at a textile and garment factory in the northern province of Bắc Ninh. VNA/VNS Photo Trần Việt

HÀ NỘI – Việt Nam’s textile and garment industry has not been able to fully capitalise on the advantages and potential of FTAs, according to the Ministry of Industry and Trade (MoIT). 

To address this issue, the MoIT, as the leading agency for FTA negotiation and enforcement, has been enhancing connections with ministries, localities, associations, and stakeholders to establish a collaborative ecosystem to help the textile industry effectively leverage FTAs.

According to Ngô Chung Khanh, deputy head of the multilateral trade policy department under the MoIT, the Vietnamese government has signed various FTAs with many markets around the world, with a key focus on reducing tariffs to the lowest and quickest levels and simpler rules of origin for Vietnamese goods, especially in the textile and garment sector. 

In a recent survey by the Vietnam Chamber of Commerce and Industry (VCCI), while most enterprises had some understanding of the FTAs, only about 8 per cent possessed a clear understanding. 

According to the ministry, Việt Nam’s trade balance has been significantly in deficit in the East Asian markets, amounting to nearly US$129 billion in 2022, with $60.5 billion in trade with China, $37.9 billion with South Korea, and $13.42 billion with ASEAN. 

Meanwhile, the Southeast Asian economy registered a substantial surplus with the US and the EU last year, $95 billion in surplus with the US, $31.4 billion with the EU, and $5.2 billion with the UK. 

However, the market share of Vietnamese textiles in FTA markets has not increased in the past 4 years and remained relatively modest. In the EU, Vietnamese textiles account for only 4 per cent in the UK, 2 per cent in Canada, and 13 per cent in Mexico.

The proportion of raw processing in Vietnamese enterprises is still too large, with cut-make-trim (CMT) accounting for about 65 per cent, OEM production about 30 per cent, and ODM production about 5 per cent.

Difficulty in accessing capital remained a major challenge for enterprises in making further investments and improving competitiveness. The VCCI’s survey showed the percentage of enterprises concerned about credit access has been increasing over time. In 2020, only 40.7 per cent of enterprises were concerned, in 2021, this figure increased to 46.9 per cent, and in 2022, it reached 55.6 per cent.

In addition, Vietnamese businesses have yet to embrace development and lack collaboration.

However, Khanh said sustainable development was not only a requirement of foreign management agencies but also of consumers. Failing to meet consumers’ demands would likely result in losing orders. 

He said in the FTA implementation plan, the government had set up a framework for Vietnamese and FDI businesses to enhance collaboration but so far, it had not been able to minimise unhealthy competition within the industry.

Trần Hoàng Phú Xuân, CEO of HCM City-based FASLINK Fashion, said there were still few Vietnamese businesses that actively participate in international trade fairs to understand end-users and target markets, preferring to receive orders directly in Việt Nam through intermediary companies. 

Factors that have been hindering stronger growth include a global economic slowdown, resulting in fewer orders being placed.

The MoIT proposed a number of solutions, aiming to widen the search for new partners and seek new customers.

However, the ministry said the long-term plan was to build an ecosystem for the industry, one that would connect farmers to manufacturers, exporters, associations, regulatory agencies, consulting companies, logistics, and importers.

The Prime Minister’s Office has also instructed the ministry to coordinate with ministries, localities, and associations to develop a plan for each province to develop key product lines. 

Khanh said Vietnamese businesses must start positioning FTA markets as keys in their export strategy. To enter these markets, enterprises needed to research and understand the market information and policies, devising an access and brand-building strategy. VNS