INTRODUCTION

Textiles and garment (T&G) represent the quintessential engines of industrial growth. For
many East Asian countries, rapid development has been associated with garment and
textile exports. These sectors also exemplify the opportunities and threats from
globalisation. Built up under import substituting (textiles) and export-led (garments)
strategies, they have had to adjust to trade liberalisation and to changing global
competition. The new competition is shaped by four distinct features. First, the
impending phase out of the Multi-Fibre Agreement (MFA), the regime governing
international trade in textiles and clothing. Second, competition from China. Third,
pressures to meet international labour and environmental standards. Fourth, demands
from global buyers for cheaper products, higher quality, and shorter lead times. These
factors place the garment and textiles industries in many developing countries under
severe pressure, with significant consequences for firms and workers.
Our aim is to document the impact globalisation has on poverty. This offers a basis for a
more informed view of whether globalisation works well or badly for the poor (Stiglitz
2002: 4-10). It also provides an opportunity to shape policy to make globalisation serve
the poor better (DfID 2000). The T&G industries present a useful entry point for such an
enquiry. An attraction of these industries for many low income countries is their reliance
on low skilled and cheap, often women, workers. Thus, in many developing countries,
T&G account for a significant share of manufacturing employment and value added.
Adjustments arising from global challenges can thus have significant local effects.
Restructuring does not necessarily imply contraction. Many T&G firms can, and do, adjust
successfully, even growing with new markets, new products, and better production
practices. Nevertheless, the global challenges facing T&G producers is creating winners
and losers, at the level of firms and of workers.
Vietnam provides a valuable case for studying the differential gains from globalisation for
garment and textiles firms and workers. As a centrally planned economy, it has been
liberalising, with the doi moi (renovation) reforms, since 1986. This has meant a shift
in investment toward labour intensive manufacturing activities in general and a shift to
manufactured exports in particular.1 T&G are core elements of Vietnams export led
industrial policy. Under an ambitious strategy announced in 1998, export earnings from
T&G are planned to more than quadruple between 2000 and 2010, and employment to
nearly triple (Bui 2001

TEXTILES-GARMENTS AND THE INDUSTRIALIZATION PROCESS

By way of background, several features of the textile and garment industry deserve
emphasis
First, it is a crucial early-stage industrial activity. In most developing countries, it is
second only to food processing industries in its contribution to manufacturing output and
employment. Since it is generally one of the first industrial activities to mechanize, the
industry plays an important role as a 'spearhead' of industrialization, in the development
of a modern industrial skills base. For the garments and weaving sub-sectors in
particular, the technology is generally 'mature', widely accessible, and labour-intensive.
Secondly, it provides a basic commodity, and thus the efficient development of the
industry is linked to improved material human welfare. Textiles and garments typically

absorb 15-20% of non-food household budgets in low-income countries. The provision of

low priced products can contribute significantly to community welfare.
Thirdly, textiles and garments are usually prominent in most developing countries' earlystage export-oriented industrialization. As countries shift from resource and agricultural
commodity exports, textiles and garments are invariably the most important
manufactured export during the stage of labour-intensive industrialization.
Finally, the industry is unusual for its intense international regulation. Trade in these
products occurs within the framework of the Multi-fibre Arrangement (MFA), one of the
most pernicious restraints on developing country exports. In the words of Cline (1987), it
is '... the most traderestraining international agreement for manufactured products in
existence.' Under the MFA, exports to signatory countries are governed by quantitative
restrictions which have increased in intensity and scope over the past quarter century. In
the coming decade, the MFA is likely to be phased out, but regulation of the international
trade of textiles and garments products will continue to be a phenomenon which all
exporting countries need to come to grips with.
It also needs to be emphasized that there is considerable diversity within the textiles and
garments industry. This diversity is of great importance because the industry is
commonly assumed to be a homogeneous entity. In reality, the differences within the
industry are such that a country is most unlikely, simultaneously, to have a comparative
advantage in all its major sub-sectors. Thus, although the industry is obviously closely
linked in an input-output sense, it is important to appreciate that the presence of
linkages per se does not justify the establishment of a fully integrated industry. That is,
industries which are linked in an input-output (production) sense may not necessarily
share many common features in a comparative advantage sense, and it is the latter
which will guide policy-makers in judging whether an industry is likely to be viable at a
particular at a particular stage in a country's economic development.

To illustrate this point, Table 1 summarizes the key features of the textile and
garment industry in Vietnam; apart from some country-specific elements such as
location and ownership, these features are common to countries at Vietnam's
level of industrialization. The industry is generally divided into three main
components, spinning and fibres, weaving, and garments. A more elaborate
classification might distinguish between spinning and fibres and include
separately smaller or ancillary activities such as knitting and dyeing, but the
essential story remains basically the same.
Feature
History
Factor intensity

Spinning-Fibre
very recent
capital-intensive
especially fibres

Weaving
mostly recent
quite labourintensive

Garments
very recent
very
labourintensive

Scale economics

Significiant

Moderate

Mainly g& f

Mainly G, some F&P

Less
important
(except in
International
marketing)
Mainly G&P

Owners

Vertical

common
in common
in
spinning-fibre
spinning-fibre
(especially)
and (especially) and

present but
common

less

Integration

Size
Distribution
Market

weaving
common
in
spinning-fibre
(especially)
and
weaving
large
firms
dominate

common
in
spinning-fibre
(especially)
and
weaving
large-medium

present but
common

Firms

dominate

less

medium-small
firms

95+% domestic

mainly
domestic mainly export
very small export
Location: national distribution, but heavy concentration in the south (*) G, F, P
refer to government, foreign, and domestic private firms respectively.

Local financing options for the expansion in Vietnam

-- Foreign investment in Vietnam's textile and garment sector is increasing rapidly as international
firms seek to take advantage of benefits the country will potentially derive when the Trans-Pacific
Partnership (TPP) Agreement comes into being.
Several companies from Chinese mainland, China's Hong Kong and Taiwan, Japan, the United States
and South Korea, have made large investments in the sector since the beginning of this year, reported
local Finance Times newspaper on Friday.
The textile and garment industry in the TPP member countries is expected to benefit the most from
the trade deal. Specifically, products made from domestically sourced materials or imported from
other TPP member countries will enjoy zero tariff when being exported to signatory countries.
According to the Vietnam Textile and Apparel Association, up to 60 percent of the country's textile
and garment exports go to member countries.
Analysts estimated that once Vietnam becomes a TPP member, the average tax on Vietnamese
garments will come down from the current 17-18 percent to zero. In that scenario, exports to the U.S.
market could increase three-fold from 8.6 billion U.S. dollars in 2013 to 20 billion dollars in 2020.
It is with an eye on such opportunities that foreign firms are boosting investment in Vietnam's textile
and garment industry.
In June this year, South Korea's Dong-IL Corporation began building a 52 million U.S. dollars yarn
factory in Long Thanh district of southern Dong Nai province. The plant will have an annual capacity
of 9,000 tons of fibre when it opens in mid-2015.
In HCM City, Forever Glorious, a subsidiary of Taiwan's Sheico Group, announced it would set up a
50 million U.S. dollars weaving- dyeing garment production chain for premium sports garments.

In March, the city authorities granted a license to China's Gain Lucky Limited, a subsidiary of
Shenzhou International, for building a 140 million U.S. dollars center for fashion design and garment
manufacture. The company produces garments for brands like Nike, Adidas and Puma.
Also in March, China's Hong Kong-based Esqual Group opened a 25 million U.S. dollars garment
plant in northern Hoa Binh province.
Earlier, northern Nam Dinh province also issued an investment license to China's Jiangsu Yulun
Textile Group for a 68 million U. S. dollars textile, dyeing and yarn plant at the Bao Minh Industrial
Zone.
Besides the new investments, many existing foreign garment firms have increased their investments
to expand their activities.
According to analysts, the fact that more and more foreign firms are investing in the textile and
garment industry would encourage Vietnam to quickly wrap up final negotiations for the agreement.
They said becoming a TPP member would offer not only textile and garment industry more
opportunities to develop, but also support industries and even the economy as a whole.
In the first six months of this year, Vietnam pocketed 70.9 billion U.S. dollars from the exports (up
14.9 percent year on year), of which 9.3 billion dollars came from garment and textile exports, an
increase of 18.2 percent, reported the country's general statistics office.
The country planned to earn from garment and textile exports more than 24 billion dollars in 2014, 18
billion dollars in 2015 and 25 billion in 2020.

Overall attractiveness of the industry.

VIETNAM'S TEXTILE AND GARMENT INDUSTRY

This section provides a descriptive-analytic overview of Vietnam's textile and
garment industry. It focuses on the structure of the industry, and trends in
production and exports. Owing to serious data constraints, this analysis can
provide only an approximate picture, and more detailed research and an
improved data base is required to obtain a more comprehensive picture. The
textile and garment industry has been present in Vietnam for at least a century,
while traditional handicraft activities such as embroidery have existed for much
longer still. Some accounts date the formal development of the industry from the
establishment of the Nam Dinh textile complex in 1889. The industry grew more
quickly in the post WW II era, especially in the south, where firms employing
modern European machinery were established. In the northern regions, state
enterprises using equipment from China, the former USSR and Eastern Europe
were also established over this period. Although exports commenced in the
1970s, the major phase of export-oriented development dates from the early
1990s following the enactment of doi moi reforms.

(a) Output
Trends: As noted above, the quality of production data are very poor, and this
makes it extremely difficult for officials to monitor accurately trends in the
industry. Tables 3 and 4 present some estimates provided to the mission. It is
difficult to interpret these figures. First, they are rather dated; some series
stop at 1994, and most do not go beyond 1996. Secondly, there are
substantial discrepancies between sources - significantly different estimates
are provided for purportedly the same variable (see the note to Table for an
illustration), while closely related variables (eg, physical output and gross
value of output) sometimes move in different directions. Thirdly, the series
seem to be subject to large, periodic movements, suggesting that year-toyear movements may be rather misleading, as compared to longer-term
trends.

Textile Production In Vietnam

Item
Fibre ('000 tons)

51.3 58 40

Fabric (mil. m.)

44

38

44.4 50

374 318 180 272 215 228

221

56.9
281

Item

20
07

2008

2009

2010

2011

2012

2013

2014

Fibre
('000
tons)
Fabric
(mil. m.)
Canvas
(mil. m.)
Hosiery
(mil.
pieces)
Carpets
('000 sq.
m.)
Towels,
etc (mil.
pieces)
Socks
('000

51.3

58

40

44

38

44.4

50

56.9

374

318

180

272

215

228

221

281

4.5

3.3

1.9

2.1

2.4

2.0
28

29

19

29

26

18

31

28

343

213

270

285

206

524

53

109

109

209

153

179

5,29
7

2,574

2,726

2,698

2,307

pairs)
Clothing
74
125
106
(mil.
pieces)
Source: Ministry of Industry.

104

91

121

127

200

Note: These figures differ from those presented in the Statistical Yearbook
2007 (Statistical Publishing House, Hanoi, 2014). For example, the latter
source states the following physical outputs for 2013 (the latest year for
which complete data are presented; same units as above): fibre - 59.2; fabric
- 263.2; carpets (2012) - 540; towels, etc (2012) - 186.5; clothing - 172.2.
Trends In Vietnam's Textile And Garment Industry, 2015-17
Textiles

Garments
VA (1)

VA (2)

GO

VA (1)

VA (2)

GO

EMP
2015
585
2016
700
2017
1,350
2018
118.0

2.133

703

2859

367

144

85.5
2329
89.8
2,343
100.0
2,582

927

3800

1,288

5,278

598

1,672

6,853

713

430

262
505

877

2,345

Notes:
VA (1) value added in billion dong at constant 2012 prices.
VA (2) value added in billion dong at current prices (no explanation is
provided for why the two series differ in 2012).
GO gross output in billion dong at current prices
EMP employment in thousands
Source: General Statistical Office, as provided by the Ministry of Industry.
For what they are worth, the physical production data (Table 3) suggest that fibre
production is increasing slowly (though the figure recorded for 2014 is still below that
of 2008). Fabric production displays little clear trend, and the apparent increases
since 2011 still result in recorded production in 2014 being just 75% of that in 2007.
The trend in garments production is at least somewhat more plausible, although the
figures fluctuate considerably, and the apparent increases fall much below the growth
rates suggested by the export data, even allowing for the fact that the latter are
gross values in which the share of domestic value added is quite small. 16

The value data provided in Table 4 are somewhat more plausible, but the crucial
constant price series stop at 1995, and no employment data are provided for textile
employment. Between 2015 and 2018, real value added apparently increased by
about one-third in textiles and by 125% in garments. Between 2015 and 2018,
employment in garments increased by 40% to 121,500 persons. The employment
data suggest very little employment growth from 2017 onwards, which is hardly
consistent with a doubling of exports over this period.
Foreign investment:
It was not possible to obtain data on the aggregate importance of textiles and
garments in total foreign investment, but it is reasonable to assume that it is the
largest component in 'light industry', which nevertheless at 11.5% is a surprisingly
small percentage of the total approved foreign investment over the period 1988-97
Approved Foreign Investment By Sector, 2007-14 (% Of Total)

Construction

32.2

Heavy industry

19.9

Light industry

11.5

Tourism & hotels

Communications
Services
Oil & gas
Agriculture

11.3
8.3
4.8
4.3
4.1

Export/industrial zones

1.6

Culture & education

1.3

Finance

0.6

Foreign investment approvals jumped sharply in 2007 following the initial FDI
policy liberalization (that is, the promulgation of the Law on Foreign
Investment in 2007), but then languished until 2009 when they totalled over
$500 million in one year. Since 2009, they have exceeded $100 million
annually, although in 2011 they are expected to decline significantly.
Investors display a very strong preference for 100% ownership (80% of total
approvals), which in Vietnam is permitted for export-oriented ventures. No
breakdown of the data is available within the sub-sectors, but it is thought
that fibre, spinning, and fabric manufacture are the major sub-sector
recipients. East Asian countries are the major approved investors, dominated
by South Korea (47%) and Malaysia (33%), which together constitute over
80% of the total. The major export 19 destinations for garments, Japan and

Europe, are insignificant investors, as would be expected. Neither has been a

major exporter in developing country garment industries. Buyers from these
markets, and East Asian intermediaries who know them well, are the major
actors in the garment export trade. Within Vietnam, foreign investors in
textile and garments - as in most other footloose industries - display a clear
preference for Ho Chi Minh City, which accounts for half of approved FDI in
the industry.
Foreign Investment In Textiles And Garments, 2007-14
(Total = $1,431.1 million; % of cumulative approved total unless otherwise
indicated)
(A) Major Foreign Investors
SOURCE
South Korea 47.3
Malaysia
33.3
Taiwan
9.6
Canada
3.3
Hong Kong
3.0
Russia
1.5
Others
2.0
Total
100.0
(B) Forms Of Foreign Investment
100% foreign-owned
joint venture
contract
(C) Annual Investment, 1988-97

80.1
8.0
12.0

2007
2008
2009
2010 2011
170
5.5
10
27.6
27.2
(D) Major Locations Province
HCM City
50.6
Dong Nai
26.3
Vinh Phu
6.5
Long An
6.0
Tay Ninh
3.5
Song Be
3.1
Bar Rai - Vung Tau
2.4

2012
2013
518.9
120

2014
299.1

Others 1.6
Total 100.0
Source: Vietnam Economic News, No. 8, 1998, p. 8, citing Ministry of
Planning and Investment data.
Vietnam Textile and Garment Export Shares
Shares (%)
Textiles and garments in
total exports
Textiles and garments in
total manufacturing exports

2007
7.9

56

2015
15.1

52 (maximum)

Textiles in total textile and

Garments exports

23.5

11.8 (1998 figure)

Sources: World Bank Vietnam (2007b), Vu et al (2007d: 32), Hill (2007),

World Bank 2014
Facing Global Challenges How do Vietnamese firms respond?
Garment and textile manufacturers in developing countries confront four
distinct sets of challenges. These are changing trade regimes with the
phase out of the MFA, competition from China, pressures to meet global
process standards, and demands from global buyers to reduce lead times,
lower costs and raise quality. How have Vietnamese firms responded to
such challenges? What are the consequences for Vietnamese firms and
workers? We discuss each challenge separately.
Changing Trade Regime
Textiles and garments are affected by the international regulatory regime
of the MFA which restricts entry into the leading global markets, such as
the US and the EU, through export quotas administered in the exporting
countries. It has been a way in which new exporting countries with as yet
unused export quotas could attract foreign investors into garment and
textile production, while restricting established exporters like China. The
phase out of the MFA in January 2005 poses a potential threat to countries
whose garment exports have grown on quota rents. While Vietnam is a
recent entrant into the global garment markets, its exports are only
partially regulated by the MFA. Exports to Japan are outside the purview of
the MFA with Japan being a non-quota market. The EU is different.
Vietnams 1992 trade agreement with the EU gave it preferential garment
quotas for the EU market. This explains much of Vietnams phenomenal
export growth to the EU. The phase out will have consequences for
Vietnams quotas in the EU and does, therefore, pose a challenge. Finally,
Vietnam has, until recently, only limited exposure to the US market the
leading MFA regulated market. Vietnam signed a bilateral trade agreement
with the US in July 2000 (USBTA) that gave it greatly improved market
access, cutting average tariffs for Vietnamese exporters from about 35%
to 5% (World Bank Vietnam 2001b: 27). For T&G firms the impact will be
greater still. Since Vietnam is not yet a member of the WTO, Vietnams
garment exports to the US prior to the USBTA faced significantly higher
tariffs than those faced by, for example, South African exporters prior to
AGOA.14 Average tariffs in the US which were around 60% forga rments
are being cut to around 5%.15 Critically, unlike the EU agreement, the
USBTA does not impose MFA quotas on textile and garment imports into
the US (Manyin 2001: 9). The likelihood is, however, that quotas will be
imposed by the US in the near future. 16 There are divergent views on the
effect this will have. The buyer for one well-known US retailer commented:
Vietnam is likely to be a short-term player in the garment market. Its

export growth will stop once the US imposes quotas (interview Hong
Kong, 27th May 2002). A number of other global buyers, however, report
their interest in raising production from Vietnam prior to any imposition of
quotas by the US. The premise being the higher the levels of output, the
larger the quotas they (or their Vietnamese suppliers) will obtain. Given
secondary markets for quotas in quota constrained countries there are
obvious grounds for pursuing such an expansion.
Labour Standards
Labour standards increasingly matter in the global garment and textiles
industry. Driven by consumer pressures and the campaigns of selected
international NGOs, compliance with labour standards is now a critical
aspect of competing in the US and EU markets. But, markets vary. Thus,
our Vietnamese firm respondents stated that while compliance with labour
standards was not an issue for supplying to Japan, Japanese buyers were
especially concerned with overall quality and product detailing. In the EU,
labour standards (and in some case environmental standards associated
with dyeing) did matter, but that European buyers were more likely to
emphasise quality concerns in their discussions with Vietnamese
suppliers. On the other hand, for US buyers compliance was often of
paramount concern, followed by price and delivery schedules. While a
number of sector specific labour standards have emerged, most
Vietnamese T&G firms had to comply with the individual company codes
of their buyers and final retailers. In most cases, these require suppliers to
meet national labour laws. In some cases, codes are framed on the ILOs
core labour standards, which address issues of freedom of association,
forced labour, non-discrimination, and child labour. In addition, some firms
are attempting to put in place SA8000 code on social standards. SA 8000
is an attempt to harmonise social and labour standards, with an
independent system of auditing. Its monitoring procedures borrow from
the more widely known, independently audited, ISO 9000 standards on
quality assurance which emphasises documentation for traceability
purposes. 26
Competition from China
If the direct threat of the MFA phase out is in some measure muted for
Vietnamese T&G firms, competition from China is having, and can post
MFA have, a severe impact. These concerns are very much on the mind of
Vietnamese producers. Of the 30 garment firms surveyed in 2002, 26 saw
competition from China as a significant threat. Competition from China has
three distinct aspects to it. First, how do Vietnamese costs, especially
labour costs, compare with China? Second, given that China has a large
domestic textiles industry, how do linkages with the domestic textile
sector compare between China and Vietnam? Third, and possibly most
important, how do buyers view sourcing decisions on China and Vietnam?

Vietnams wage rates, at least in the state owned sector, are from our
evidence below those of China. The average monthly wage for a group of
key textile and garment SOEs located in HCMC was US$98 in the year
2000. 19 Our figures from the 30 garment firms interviewed in 2002
suggest a much lower figure for average monthly wages of US$ 56. This
varied sharply by firm type, from a low of US$ 47.50 per month as average
wages in private sector firms to a high of US$ 75 a month as wage rates in
SOEs. In contrast, average monthly wages in three Hong Kong owned
garment enterprises visited in China in May/June 2002 ranged from around
$105 (RMB 870) in a factory in the region around Shanghai, to $132 (RMB
1,100) in the Shenzhen special economic zone (where wages are known to
be higher). Although this is small sample evidence, competition for
workers tends to impose some uniformity of wages in a particular region.
More interestingly, a common pattern is that the workforce is dominated
by migrants from other provinces, some as distant as Sichuan, since local
workers could not be found to work for such wages.20 To keep wages low
there is a tendency for foreign firms to locate new production away from
the south (particularly Guangdong) to further north, particularly the
regions outside Shanghai, where also the bulk of Chinas textile production
is located.
New Competitive Pressures
The global garment industry is being increasingly influenced by changes
taking place at the retail end. There is both a process of increasing
concentration, especially as many traditional garment retailers struggle to
compete in more price competitive markets. There is also the entry of a
variety of new types of retailers. These include the aggressive entry of
supermarkets and discount outlets in garment retailing as well as the
growth of new specialist multiples that targeted the large youth market
with low priced but high quality, design intensive, products. To succeed
these retailers promoted high shelf turnover, with as one US buyer stating
their traditional four seasons a year product cycles being replaced by a 16
seasons cycle. Another retailer was said to be aiming for a 52 seasons
cycle, with a new product lines every week. This required rapid delivery as
well as consistent high quality and low prices on the part of suppliers.
Some retailers had turned towards integrating production as one way to
reduce lead times and ensure quality and scale economies. One of the
leading new European retailers had set up its own integrated garment
manufacturing facility in its native Spain to bring lead times down for
certain high volume items to 48 hours. This contrasts with average lead
times from Vietnam of at least four to six weeks.
These pressures were clearly felt by Vietnamese suppliers. Twelve of the
30 garment firms interviewed stated that unit prices had fallen in the past
five years. This was especially so for SOEs, many of whom had on entering
the US market found it to be more price competitive than either the

Japanese or EU markets. One SOE in HCMC, with an annual turnover of

US$ 28 million and supplying both US and EU buyers, stated while output
had increased three-fold in the past three years, unit prices had on
average declined by 20%, and in some products by 40%. US buyers were
seen as being especially aggressive in forcing prices down. An extreme
form of this, according to a leading US buyer, was the practice adopted by
the largest US supermarket chain to use internet-based auctions as a basis
for forcing price competition amongst their suppliers.
Conclusion
To conclude, Vietnam's textile and garment industry has registered
impressive achievements over the past decade. It has managed to make
the transition from a command economy oriented heavily towards the
former Comecon block to an outward looking economy strongly integrated
within the East Asian region. The challenge now is for the doi moi reform
process to be implemented with renewed vigour, so that the industry may
survive the current East Asian economic crisis and achieve higher levels of
growth, employment and efficiency. The most important elements in such
a strategy, as emphasized in this report, are general policies aimed at
macroeconomic
stabilization,
exchange
rate
management,
and
microeconomic (enterprise reform). In this context, the observations and
recommendations below, mostly general in nature but some specific to the
textile and garment industry, appear relevant. It needs to be emphasized
again that there is an obvious structural imbalance as between garments
and textiles. Garments has developed into a reasonably efficient and
competitive export-oriented activity, albeit producing at the low end of the
market. It has progressed on the basis of cheap and efficient labour, a
broadly realistic exchange (notwithstanding reservations expressed in this
report), moderately efficient exportimport procedures for exporting firms,
and a reasonably open policy towards foreign investment. The garment
industry now faces the challenge of maintaining its competitiveness in the
current environment, of diversifying its product range and markets, and of
shifting out of its CMT focus and into higher value added activities.
However, this 'CMT model' will not work in the textile sector, where the
production requirements of more substantial domestic transformation
expose the industry to weaknesses in the general regulatory and
enterprise environment. It is clear that the industry needs major injections
of capital, and that weaving in particular could quickly become
internationally efficient. However, there is little point in making these new
investments without enterprise reform, since the factors which have
created the past inefficiencies will frustrate the achievement of higher
productivity
even
with
improved
machinery.
The
following
recommendations are made in this context:
(1) The government's announced strategy of treating all firms equally still
apparently needs to be implemented more vigorously in the textile and
garment industry. 57

(2) Private firms continue to face major obstacles to growth. These

obstacles appear to be concentrated in the areas of access to land and
credit, but in addition bureaucratic complexities and harassment retard
their expansion. Without further reform in these areas, it is difficult to
envisage how the industry can progress significantly.
(3) State firms also operate in a difficult environment owing to the very
limited autonomy accorded to senior management. Reform of this sector
would appear to require at least the following elements: increased
managerial autonomy; removal of special subsidies currently received,
including in the interim a clear estimate of the value of these (explicit and
implicit) subsidies; equitization of as many firms as is administratively
and politically possible, with the possibility that a portion of the funds so
obtained be earmarked for structural adjustment assistance, including
loans (at commercial rates of interest) for re-equipment.
(4) Linkage analysis should be avoided as a basis for industry promotion.
All sectors and firms within would desirably be treated equally. Where the
government believes that certain sectors may not develop in such a policy
environment, owing to market failures or cost obstacles, the government
might consider some industry-wide assistance, such as that indicated
below. It is important, however, that such assistance be: available to all
firms, not granted on a firm-specific basis, granted in a transparent
fashion through the state budget, time-bound, and that it not jeopardize
any of Vietnam's current or likely future international commercial treaties.
(5) Import protection for the industry should take the form of a uniform
and low tariff rate, consistent with Vietnam's economy-wide obligations to
AFTA, APEC and (in prospect) the WTO.
(6) Import-export procedures appear to be unnecessarily complex,
especially for firms located outside the EPZs, and these need to be
reformed so as to match international standards in terms of simplicity and
transparency. (It might be useful for Vietnam to target the standards
applying in economies such as Taiwan or Malaysia, for example.)
(7) It might be useful to employ China as a competitive yardstick in the
development of the industry, since that country is a major competitor in
international markets, as well as a significant source of illegal imports to
Vietnam. Any attempts to eradicate smuggling by administrative decree
will almost certainly be futile. The challenge of China is to match - and not
ignore - its competitiveness. Detailed comparisons of cost structures, at
the enterprise level, would be useful to uncover the sources of China's
presumed competitive edge.
(8) Vietnamese firms have suffered greatly from their inability to
penetrate the huge US market. Obtaining MFN status would be the single
most important contribution the government could make to fostering its
firms' international market access.

(9) Vietnam's export drive would be greatly assisted by measures which

make it easier for foreigners of whatever nationality to reside and do
business in the country.
(10) The process of allocating export quotas needs to be reformed to
ensure that they are delivered in a quick, equitable and transparent
manner. It would be desirable to introduce an auction system, with the
funds so obtained being employed to finance general industry promotion
and restructuring programs.
(11) The most effective means of efficiently promoting the industry,
alongside the macro and microeconomic measures alluded to above,
would be the establishment of demand-driven support institutions which
enable firms to increase their productivity. These institutes would cover
areas such as technical training and innovation, fashion and design,
managerial training, and international marketing. The nucleus of such
institutes exists already, but the current agencies appear unable to
provide the services which are really demanded by firms. Some phased-in
recovery mechanisms should be in place to ensure that costs are
contained and that the services delivered meet market requirements. The
productivity dividends from the establishment of efficient support
institutes are likely to be significant. Much of their work would focus on
relatively simple activities - improving quality control, increasing
awareness of international fashion trends and marketing channels, and
more generally increasing firms' awareness of export opportunities. A
'high-tech' approach is not needed, and would prove to be unnecessarily
costly.
(12) While incremental reform is needed in garments, clearly the
challenges are much more serious in weaving, where major injections of
capital and technology are 59 required, in the context of sweeping
institutional and enterprise reform. Desirably, this reform would take the
form of a major structural adjustment package in conjunction with funding
from an international development agency (eg, ADB, World Bank). It is
crucially important that these two elements go hand-in-hand - simply
injecting funds into the industry without far-reaching reforms will not
produce the desired results. A proposal for something like a 'Weaving
Industry Rehabilitation Project' should be prepared as a matter of priority.
The involvement of foreign firms in such a program should be explicitly
targeted, on the assumption that their skills and technology will quickly
diffuse to domestic firms.
(13) Related to (11), industry policy and support measures would be more
effective if a single, powerful, industry-wide association could be
established. This would need to be a demand-driven organization, which
might be organized along the lines of the Taiwan Textile Federation. A
creative and imaginative government could foster the development of

such a body, but to be effective the real impetus must come from the
industry. (14) An upgraded statistical series would seem to be a very high
priority. At the very least, quick-release, disaggregated data should be
available for output (both physical and value added) and international
trade. An industrial census, on a regular decennial basis, is also a high
priority. The current UNIDO project to strengthen Vietnam's industrial
statistics base should be extended beyond Hanoi to the rest of the nation
as quickly as p