FTA’s push Vietnam to focus on domestic supply chain

After the recent signing of FTA’s, many foreign investors have been attracted to Vietnam according to the chairman of the HCM City Association of Garment Textile Embroidery and Knitting. But the FTAs not only bring opportunities but also challenges and risks for Vietnamese companies.

Việtnam depends on imported raw materials from China, Korea and Taiwan, and the sector does not create much value addition in the supply chain since it merely does low value-added work such as cut-make-trim services to transform fabric into garments to export.

Vietnamese textile and garment companies should focus more on developing their supply chain to enable them to capitalise on opportunities arising from free trade agreements.

Oliver Massmann, general director of Duane Morris LLC and chairman of legal sector committee of the European Chamber of Commerce in Việt Nam, said the so-called fabric-forward rule of origin under the EU-Việtnam FTA is a challenge for Vietnamese garment and textile companies.

He added that a domestic supply chain must be established.Yarn production must now go together with weaving and dyeing, but environmental protection must be ensured.

The FTAs would result in more foreign investment in Việtnam in untapped parts of the value chain, and local companies would benefit from the expertise of foreign experts, he said.

Richard Hong, CEO of TUV SUV ASEAN said that the garment and textile sector has just been doing outsourcing. They had been competing through low labour costs, but that is no longer an advantage. They must create new momentum to compete.Having reliable raw material sources at home and investment in technology would help create value for the sector.

He added that whether they have the TPP or not, the sector will develop as it has for many years.The EU, the second largest export market for Vietnamese garments and textiles, offers great opportunities for Vietnamese firms to boost exports.

Việtnam’s garment and textile exports are expected to increase by only 5.5 per cent this year to US$28.5 billion. Enterprises in the sector have mapped out measures hoping to enjoy better growth next year and in the years to come.