Challenges faced by garment and textile industry ahead of TPP

The figure is expected to be met in the near future, with motivation stemming from the recently-signed Trans-Pacific Partnership (TPP) and European Union-Vietnam Free Trade Agreement (EVFTA). 

However, many leading businesses in the sector are facing declines in the number of orders and export prices, which makes it very difficult for them to achieve the envisaged goals.

Vietnam’s garment and textile exports only reached nearly US$8.5 billion in the first five months of the year, registering a year-on-year surge of 6.1%. 

As reported by a number of enterprises, export orders tended not to increase, which was accompanied by a decline in export prices and increase in production costs (comprising labour cost, electricity and water, insurance), resulting in a lot of drawbacks in manufacturing and distributing products.

Similar circumstances are taking place more severely among small and medium-sized enterprises, which are facing fierce competition with regional opponents from Laos, Cambodia, Myanmar and Bangladesh. 

This indicates that Vietnam’s garments and textile industry is being confronted with numerous challenges as consumers have been switching part of their orders to several other countries such as Cambodia, Myanmar and Laos due to export tax incentives to Europe and the US – the two largest export markets of Vietnam’s garment and textile sector. 

Meanwhile, Vietnam’s garment and textile exports to the US and EU are subject to an average taxation of 17% and nearly 10% respectively. 

If nothing changes, it is not until mid-2018 that the roadmap of tax reduction under TPP and EVFTA will take effect, which will therefore bring about a lot of disadvantages for Vietnamese enterprises in the process of competition with international opponents.

Furthermore, China, India and Bangladesh, who are on the “upper floor” compared to Vietnam in the global supply chain, are also implementing a number of active measures aiming to compensate for the downsides caused by their TPP non-membership, driving competition to new heights. 

Unless effective solutions are taken soon, Vietnam will surely become an “underdog” on the world market.

Several FTAs have already been negotiated but are yet to define their validity date, so export activities will see fewer considerable fluctuations. Importers have been looking to manufacturers located in countries with tax and cost advantages. 

Therefore, Vietnam’s garment and textile exports revenues are expected to reach only US$29.5-30 billion in 2016, lower than the country’s envisaged goal for the year.

In order to overcome difficulties, local enterprises must not stand still but take drastic measures to change the situation as well as be well-prepared to seize opportunities as soon as the TPP comes into effect. 

It is necessary for Vietnamese businesses to strengthen venture, links and investment in a chain; apply modern equipment and machines; and improve the quality of labourers aiming to diversify products to meet the demand for new products and enhance productivity. 

Besides, state management agencies should also make relevant and timely policy adjustments in terms of transportation costs, unofficial customs costs, tax and administrative procedures, as well as favourable conditions regarding capital, planning and transport infrastructure, aiming to facilitate enterprises to grow and firmly move towards the “larger sea”.