3.

1 The positive effects of EVFTA on Vietnam's garment industry

EVFTA is considered to be one of the most comprehensive and ambitious trade

investment agreements that the European Union (EU) has ever signed with a developing
country. After Singapore, this is the second agreement the EU has signed in the ASEAN
region and is expected to strengthen the bilateral relationship between Vietnam and the
EU. In the context of deep economic integration, the resonance effect of this Agreement is
very great, contributing to the economic development and innovation of Vietnam Textile
enterprises, helping businesses, entrepreneurs. Investment from other countries and from
Vietnam has a chance to strongly develop in the Vietnam Textile and Garment market.

3.1.1 Benefits to reduce import tax rates

The base tax rate in EVFTA for garments is 12%, from this tax, the goods will be 0% as
soon as the Agreement comes into effect or to 0% according to the roadmap B3, B5, B7 -
immediately after 3, 5, 7 years from the date of entry into force of the Agreement to 0%.
Regarding the commitment to reduce taxes in EVFTA, businesses should also note that
some items in the first year of the Agreement that the EVFTA import tax rate may be
pushed higher than the 9.6% GSP currently enjoyed... However, the EVFTA Agreement
brings long-term benefits to Vietnam's textile and apparel industry, not just the benefits of
tariff elimination. The benefits of EVFTA are superior to the GSP mechanism we are
enjoying, although in the first year of the Agreement, some products did not benefit from
tax reduction because when the EVFTA Agreement came into effect, Vietnam will not be
eligible for GSP mode.
The biggest limitation of the GSP is the "maturity threshold", which limits the expansion
of Vietnam's textile and garment export market to the EU because if Vietnam's textile and
garment export turnover exceeds 14.5% of total imports of products From all the
countries that are entitled to the GSP, within three years, Vietnamese textiles and
garments will be excluded from the GSP mechanism.
According to our statistics we have researched, in the Top 10 CAT exports to the EU,
accounting for 72% of total exports (exports) to the EU, 76% of exports (in the B5 and B7
groups) in the first year the tax effect will be pushed. higher than GSP, specifically:

Exports (milions $) Propotion

Type A (0% when comes to 802,6 18,0%

effect)
Type B ( -3% per year, 0% after 3 254,8 5,7%
years)
Type B5 ( -2% per years, 0% after 2480,7 55,7 %
5 years, first year 10%, higher
than now GSP: 9,6%)
Type B7 ( -1,5% per year, 0% 920,9 20,7 %
after 7 years, first year 10,5%,
higher than now GSP: 9,6%)
 Tax reduction schedule according to evfta for the top 5 CAT export to EU

HS Descrition GPS Route

2020 2021 2022 2023
imposed EVFTA
Jacket, robe for men 9,6% B7(-1,5%
10,5% 9% 7,5% 6%
per year)
6021 Other types from B5(-2%
artificial fibers except per year) 10 8 6 4
6021.93
Suit, jacket, blazer for 9,6% Almost A
6024 0 0 0 0
women or girl (0%)
Suit, jacket, blazer for 9,6% Almost
men or boy B5 ( -2% 10 8 6 4
per year)
Suit form cotton, A(0%)
renewable fibers, 0 0 0 0
6023 Jacket, blazer from wool
Pant from recycled fibers B3 (-3%
9 6 3 0
per year)
Suit form wool, synthetic B7( -1,5%
per year)
10,5 9 7,5 6
Jacket, robe for women 9,6% B7(-1,5%
or girl per year)
10,5 9 7,5 6
6022 From cotton or artificial B5(-2% 10 8 6 4
fibers more than 1kg per year)

T-shirt, sleeveless, and 9,6% B5(-2% 10 8 6 4

6109 other underwear
per year)

3.1.2 Providing a potential market for textile and garment industry

According to the research, the sector set to earn 40 billion USD in export turnover this
year, in which the US market contributes 42 percent of the value, followed by the EU -
21.5 percent, Japan – 19.5 percent and the Republic of Korea – 14 percent. 
Although ranked second, the EU remains a strategic, key and long-term market of
Vietnam's garment and textile industry because the inflow of goods to the EU has higher
added value than those to other countries, Giang said, adding that the EU is also a
traditional and stable market for Vietnamese enterprises.

Except for China, other countries such as Bangladesh, Cambodia or Pakistan all have an
outstanding advantage of import tax incentives compared to Vietnam when exporting to
the EU. Bangladesh and Cambodia are exempted from the import tax regime under the
EBA program. Pakistan is also exempt from import tax under the GSP + program.
Although Vietnam is also entitled to the GSP preferential tariff, it is only "Standard GSP -
Standard GSP" at 9.6%.

Nation Export turnover (billion of dollar) Export market share

China 55,3 19,8%
Turkey 20 7,2%
Bangladesh 25 9,0%
India 11,1 4,0%
Pakistan 7,5 2,7%
Campuchia 6,3 2,3%
Vietnam 6 2,2%

Source: Trademap

It is clear that the competition among developing countries exporting to the EU is quite
fierce, the application of GSP + and EBA preferential regimes help countries enjoy a
great price advantage compared to the Vietnamese price. This also explains why
Vietnam's export market share in the EU market remains around 2-3%.
Although the growth rate of dual export in the past 5 years has increased by nearly 9%,
the proportion of textile exports to the EU in the total textile and garment export turnover
to the world of Vietnam in the past 5 years has decreased from 17.1%. in 2015 to 16.3%
in 2019
Besides, European consumers have stricter choices that will be an advantage for Vietnam
when exporting high-quality commodities to the market.
Nguyen Thi Thu Trang, Director of the WTO Integration Centre at the Vietnam Chamber
of Commerce and Industry (VCCI), highly valued the free trade agreement signed
between Vietnam and the EU, because it is not only a big market but also a very attractive
market to exporters. Citing recent research data, Trang said that, in 2018, Vietnam's
textile and garment exports to the EU reached 5.6 billion USD, accounting for only 2.02
percent of the union’s imports of the items. 
EVFTA with no doubt will increase the chance for Vietnam’ apparel industry to expand
market share in EU
3.1.3 Solving lack of supplies
Since the 1990s, the textile industry has participated in this market. Since 1992, the textile
and garment industry has maintained export growth to the EU market. This is a market
that requires sustainability with fabric origin.
Similarly, the CPTPP has special implications for the textile and apparel industry because
it helps reduce tariffs, diversify markets and export products, of which the most expected
markets are Canada and Australia. In particular, the CPTPP requires yarn to be the
foundation for the development of the fiber industry to meet the rules of origin.
To take advantage of opportunities from these agreements, businesses must meet origin
requirements. The textile industry is still under pressure from supply shortage despite the
large investment in yarn. In previous years, information on the FTA was not clear, so the
investment attraction was low.
According to the Vietnam Textile and Apparel Association, FTAs have created attractive
opportunities for investors in the supply shortage of Vietnam’s textile industry. With
investment attraction from FTAs, Vietnam has many modern fiber factories. Including
automation at all stages that meets international standards.
Vietnam is not the largest exporter of textiles and garments, but it is a leader in applying
technology to textile production and automation. It can be seen that the textile industry is
making an important contribution to diversifying foreign investment activities in Vietnam
with many investors from Russia, the Middle East and Europe who choose Vietnam to
invest in raw materials, textiles and dyeing with projects amounting to hundreds of
millions of dollars. This shows that the attraction of FTAs is very high.
With the advantages of FTAs and the open-door policy of the Government, it will
continue to create attraction for domestic and foreign investors to invest in supply. It is
expected that by 2022-2023, there will be a lot of raw materials, textile and dyeing
factories that can meet the supply shortage of the textile industry.
3.1.4 EVFTA may further encourage investment in Vietnam’s textile industry.
 Vietnam and the EU are long-standing trading partners. At the end of 2018, EU investors
had invested more than US$23.9 billion in 2,133 projects in Vietnam. In 2018, European
investors added almost US$1.1 billion in Vietnam.
EU investors are active in 18 economic sectors and in 52 out of the 63 provinces in
Vietnam. Investment has been the most prominent in manufacturing, electricity and real
estate.
The bulk of the EU investment has been concentrated in areas with good infrastructure,
such as Hanoi, Quang Ninh, Ho Chi Minh City, Ba Ria-Vung Tau, and Dong Nai. 24 EU
member states are invested in Vietnam, with the Netherlands taking the top spot followed
by France and the UK.
EVFTA may further encourage investment in Vietnam’s textile industry Vietnam is
confident the EU-Vietnam Free Trade Agreement (EVFTA) will be an opportunity to
increase the export of texiles and footwear, while also playing an important role with
those export commodities facing difficulties due to the impact of the coronavirus.
Besides, according to Mr. Le Tien Truong, Vice President of Vietnam Textile and
Apparel Association, in 2019, although the export market is more or less affected by the
US-China trade tension, it does not reduce the amount of FDI into this billion-dollar
export industry. 5 countries and territories with the largest amount of investment capital in
the textile and garment industry are Hong Kong ($ 447 million), Singapore ($ 370
million), China ($ 270 million), and South Korea ($ 165 million, respectively). ),
Seychelles (103 million USD).
A special feature in FDI inflows into textiles and garments in the past year was the
dominance of capital in raw material projects, of which 90 projects were in the textile
segment, with a total capital of 1,245 billion USD. Next is the dyeing field with 24
projects, total registered capital 673.3 million USD, 109 sewing projects with 587.2
million USD, 45 yarn projects with 640.4 million USD, 3 fiber production projects with
total registered capital 1.3 million USD. Capital in upstream projects has increased
sharply compared with only investment in apparel in the past.Drifting along that flow,
combined with the textile industry is one of the most industries benefiting quite a lot from
EVFTA, the Vietnamese textile industry has become a pretty attractive piece of cake for
domestic investors as well as foreign partners. According to estimation, with its position
in the global textile and garment supply chain, the supply capacity is increasingly
appreciated, the shift of investment capital to Vietnam in the textile and garment industry
is there and is likely to increase rapidly thanks to EVFTA.
According to the Vietnam Ministry of Planning and Investment, the EVFTA will help
raise Vietnam's revenue from exports to the EU by about 20% by 2020; 42.7% by 2025
and 44.37% by 2030. In addition, Vietnam’s imports from the EU will also increase but at
a lower rate than exports, at about 15.28% by 2020; 33.06% by 2025 and 36.7% by 2030.

The EVFTA is also expected to raise Vietnam's GDP by an average of 2.18-3.25% per
year in the 2019-2023 period; 4.57-5,30% in the 2024-2028 period and 7.07-7.72% in the
2029-2033 period.

Moreover, commitments on services, investment, government procurement as well as

specific regulations on market opening and technical measures in some specific areas will
also create opportunities for EU enterprises, products and services to have better access to
the Vietnamese market of nearly 100 million people. Meanwhile, Vietnamese consumers
will have easier access to high quality products and services from the EU in the areas of
pharmaceuticals, health care, infrastructure construction, and public transportation, among
others.
Commitments on state governance will also ensure a stable and open business and legal
environment for investors of both sides.

Through the EVFTA and the Investment Protection Agreement (IPA), EU investors will
have opportunities to gain access to markets that have signed FTAs with Vietnam with
more preferential treatment. The agreements also help to promote relations between the
EU and each ASEAN country and the ASEAN bloc at large, creating a foundation
towards negotiating an FTA between the EU and ASEAN in the future.