Trang

CHAPTER 1: OVERVIEW OF EVFTA, EU TEXTILE MARKET, VIETNAM TEXTILE

AND GARMENT INDUSTRY ...................................................................................................... 3
1.1 OVERVIEW OF EVFTA ................................................................................................. 3
1.1.1 Definition of EVFTA ................................................................................................ 3

1.1.2 Aspects of EVFTA .................................................................................................... 3

1.1.3 Effects of EVFTA ...................................................................................................... 4

1.1.4 The importance of the deal ........................................................................................ 4

1.2 OVERVIEW OF EU MARKET AND CURRENT STATUS OF VIETNAM'S

TEXTILE AND GARMENT EXPORT TO EU ......................................................................... 5
1.2.1 Overview of the Vietnam Textile and Garment Industry .......................................... 5

1.2.2 Prospects for the sector .............................................................................................. 6

1.2.3 Strengths and Oppoturnities ...................................................................................... 7

CHAPTER 2: The effect of EVFTA on Vietnam’s garment industry ...................................... 7

2.1 Advantages of EVFTA on Vietnam's garment industry ................................................... 7

2.1.1 Benefits to reduce import tax rates ............................................................................ 7

2.1.2 Providing a potential market for textile and garment industry ................................ 14

2.1.3 Solving lack of supplies........................................................................................... 16

2.1.4 EVFTA may further encourage investment in Vietnam’s textile industry. ............. 17

2.2 Difficulties and challenges of Vietnam's textile and garment industry in front of EVFTA
20
2.2.1 Strict Rules Of Origin (ROO) .................................................................................. 20
2.2.2 Difficulties in legal system ...................................................................................... 21

2.2.3 Do not receive benefits immediately ....................................................................... 22

2.2.4 Weakness in human resources ................................................................................. 22

2.2.5 Inefficiency logistics activities ................................................................................ 23

CHAPTER 3: Some solutions to improve the effectiveness of EVFTA with the textile
industry .......................................................................................................................... 24
3.1 Solving the problem of input material ............................................................................ 24

3.2 Coordination with logistics activities ............................................................................. 25

3.3 Branding in international market .................................................................................... 26

3.4 Make effective use of trade remedies ............................................................................. 26

CHAPTER 1: OVERVIEW OF EVFTA, EU TEXTILE MARKET,
VIETNAM TEXTILE AND GARMENT INDUSTRY

1.1 OVERVIEW OF EVFTA

1.1.1 Definition of EVFTA
The EU-Vietnam Free Trade Agreement (EVFTA) is a new generation FTA between
Vietnam and 28 European Union member states.
EVFTA, together with the Trans-Pacific Partnership Agreement (TPP), are the two FTAs
with the broadest range of commitments and the highest level of commitments of
Vietnam ever.

1.1.2 Aspects of EVFTA

EVFTA is a comprehensive, high quality, balanced agreement of interests for both
Vietnam and the EU, and in accordance with the provisions of the World Trade
Organization (WTO).
The agreement includes 17 chapters, two protocols and several attached memorandums,
with main contents covering the following aspects:
- Trade in goods
- Services, investment liberalisation and e-commerce
- Government procurement
- Intellectual property rights
The EVFTA also covers other aspects including rules of origin, customs and trade
facilitation, sanitary and phytosanitary measures, technical barriers to trade, sustainable
development, cooperation and capacity building, and legal-institutional issues.
1.1.3 Effects of EVFTA
The tariff barriers will be eliminated at the highest level, which will benefit exports of
both sides.
After the trade deal takes effect, the EU will eliminate about 85.6% of import tariffs on
Vietnamese goods, equivalent to 70.3% of Vietnam’s revenue from exports to the EU.
Within seven years of the deal taking effect, EU will remove 99.2% of tariffs, equivalent
to 99.7% of Vietnam’s revenue from exports to the EU.
Regarding the remaining 0.3% of Vietnam’s export revenue, EU pledged to provide
Vietnam with tariff-rate quota, with the import tax rate set at 0% within the quota.

1.1.4 The importance of the deal

The level of commitment in the EVFTA is the
highest level that Vietnam has reached among
signed FTAs so far. This is of great
importance to Vietnam as only 42% of
Vietnam’s exports to the EU enjoy a 0% tax
rate under the Generalised Scheme of
Preferences (GSP).In 2018, the EU was the
second largest export market of Vietnam.
The strong commitments on market opening in the EVFTA will certainly promote
Vietnam - EU trade relations, helping to further expand the market for Vietnamese
exports.
With the commitments to abolish nearly 100% of import duties as agreed by the two
sides, there are huge opportunities to increase the export of Vietnamese products such as
garments and textiles, footwear, agricultural and seafood products (including rice, sugar,
honey, and vegetables), wood products, and others.

1.2 OVERVIEW OF EU MARKET AND CURRENT STATUS OF

VIETNAM'S TEXTILE AND GARMENT EXPORT TO EU
The EU is the largest textile and apparel importer in the world. It is also the second largest
textile and garment exporter, accounting for 24% of the world's textile and apparel export
turnover. EU countries import apparel from developing countries and re-export to other
EU countries themselves. Therefore, EU textile and apparel exports within the EU
account for more than 40.1% of total imports of this market, about 60% of the remaining
imports come from non-EU countries, mainly from EU developed countries.
Among developing countries exporting to the EU, China, Turkey and Bangladesh are the
three countries with the largest export market share to the EU, accounting for nearly 36%
of total imports worth US $ 100 billion.

1.2.1 Overview of the Vietnam Textile and Garment Industry

Textile industry is an industry with a long tradition in Vietnam. This is an important
sector in the economy of our country because it serves the basic needs of human beings,
the industry solves many jobs for the society and in particular it is the sector with
strengths in export, create conditions for economic development, contributing to the
balance of imports and exports from the country. Textiles and garment products is one of
the most important sectors for Vietnamese export and outsourcing of production. In the
process of international economic integration, the textile sector, as proved to be a key
sector in the economy was reflected in exports continued to increase even during the years
of crisis, the market is always wide open, the number of employees in the industry and the
value of the sector's contribution to national income ... however facing relentless volatility
of world economies, Textile industry is facing opportunities and great challenges.
The textile products of Vietnam have been exported to 180 countries and territories
around the world. Particularly in the first six months of 2015, textile exports Vietnam
continues to maintain two-digit growth, reaching 12.18 billion US dollars, up 10.26%
compared with the same period of 2014.

1.2.2 Prospects for the sector

It can be said, textile is one of the bright spots in the picture of Vietnam's exports in 2014.
The strong growth in exports has boosted the trade balance of the sector towards a
surplus. With average export value reached USD 1.955 billion / month, experts said that
in 2014 Vietnam's garment industry may finish exceeded $ 1 billion. Commenting on this
possibility, Mr. Le Tien Truong, General Director of Vietnam National Textile Garment
Group said: in 2014, the textile industry is capable of exceeding the target of 0.5-1 billion
USD export growth 15-16% compared to the 12% target set. Particularly Vietnam Textile
Group also expects exports to reach US $ 3.4 billion worth of goods.
According to the “world trade organization [2019]” Vietnam became the 8th largest
textile exporter in the world with export value of 8.3 billion dollar with a highest growth
rate of 12.5% [2018-2017].

It is also ranked 3rd in exporting apparel with the highest growth rate of 13.4% where
China lost 0.4%.In 2019 the revenue of Vietnam textile is 39bn dollar. Vietnam is aiming
to raise 50 billion dollars from its textile and apparel industry by 2020.
1.2.3 Strengths and Oppoturnities
Strengths
▪ Supportive government policies, including incentives to attract foreign direct
investment.
▪ A generally supportive government policy, allowing, for example, duty-free imports
of raw materials on the condition they are re-exported as clothing products within 90-
120 days; and
▪ The Vietnamese industry has shown capacity to react quickly and flexibly to new
orders.
Opportunities
▪ Development of ‘non-traditional’ markets for Vietnamese clothing products holds out
promise: the industry is looking at the Middle East and Russia as important new
opportunities in this regard; and
▪ Greater product differentiation and specialization may boost margins – for example in
functional work-wear, home furnishings, and other niche markets.

CHAPTER 2: The effect of EVFTA on Vietnam’s garment industry

2.1 Advantages 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.

2.1.1 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

Ex Pro
ports potion
(milions
$)

Type A (0% 80 18,0

when comes to 2,6 %
effect)

Type B ( - 25 5,7
3% per year, 0% 4,8 %
after 3 years)

Type B5 ( - 24 55,7
2% per years, 0% 80,7 %
after 5 years, first
year 10%, higher
 than now GSP:
9,6%)

Type B7 ( - 92 20,7
1,5% per year, 0,9 %
0% 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

H Descri G R
S tion P o
S u 2 2 2
t 0 0 0
i e 2 2 2
m 0 1 2
p E ( ( (
o V % % %
s F ) ) )
e T
d A

Jacket 9 B
, robe for , 7
men 6 (
% -
6 1
1 7
0 0
, 9 ,
2 ,
5 5
1 5
%

p
e
 r

y
e
a
r
)

Other B
types from 5
artificial (
fibers -
except 2
6021.93 %

p
1
e 8 6
0
r

y
e
a
r
)

Suit, 9 A
jacket, , l
blazer for 6 m
6 women or % o
girl s
0
t 0 0 0
2
4
A

(
0
 %
)

Suit, 9 A
jacket, , l
blazer for 6 m
men or boy % o
s
t

B
5

1
- 8 6
0
2
%
6
0 p
2 e
3 r

y
e
a
r
)

Suit A
form cotton, (
renewable 0
fibers, %
0 0 0
)
Jacket
, blazer
from wool
 Pant B
from 3
recycled
fibers (
-
3
%

p 9 6 3
e
r

y
e
a
r
)

Suit B
form wool, 7
synthetic (

-
1
,
5
% 1
7
0
9 ,
p ,
e 5
5
r

y
e
a
r
)
 Jacket 9 B
, robe for , 7
women or 6 (
girl % -
1
,
5
%
1
7
p 0
9 ,
e ,
5
r 5

y
e
a
r
6
)
0
2
2
From B 1 8 6
cotton or 5 0
artificial (
fibers more -
than 1kg 2
%

p
e
r

y
e
a
r
)
 T- 9 B 1 8 6
shirt, , 5 0
sleeveless, 6 (
and other % -
underwear 2
%

6
p
1
e
0
r
9

y
e
a
r
)

2.1.2 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%.

Export Exp
Natio turnover ort
n (billion of market
dollar) share

19,
China 55,3
8%

Turke 7,2
20
y %

Bangl 9,0
25
adesh %

4,0
India 11,1
%

Pakist 2,7
7,5
an %

Camp 2,3
6,3
uchia %

Vietn 2,2
6
am %

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

2.1.3 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.

2.1.4 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.
2.2 Difficulties and challenges of Vietnam's textile and garment
industry in front of EVFTA
Beside the positive impacts that the Agreement brings back, there are still shortcomings
and difficulties for Vietnam in applying in practice.

2.2.1 Strict Rules Of Origin (ROO)

Although when compared to the CPTPP Fabric import markets of

Agreement where the strict requirement for Vietnam 2019
the origin of textile products is from yarn
onwards, the regulations on origin of the
15% China
EVFTA seem to be simpler when only
requiring from fabric onwards, which only 12% Korea
requires the sewing of the product and the 58% Taiwan
fabric used to make the finished product 15%
Others
must be from Vietnam or the EU or a third
country that also has FTA with EU.
However, the above regulation will
Cotton import markets of
probably still be the strongest barrier for
Vietnamese businesses who want to enjoy Vietnam 2019
preferential tariff from the Agreement,
because only in 2019, to meet the export 18%
America
target, the garment industry needs 10 billion
meters of fabric means about 2 million tons 6% Brazil
of yarn is used as raw materials, and 15% 61% India
although our country is fully capable of Others
producing such yarn, only 1/3 of the 2
million tons of yarn produced is used for
fabric making, the remaining 2/3 of yarn is
used for exporting. This leads to up to 80% of Source: Vitas, FPTS's compilation

garment fabric for export are imported from other countries with approximately 60%
imported from China, 15% from Korea and 12% from Taiwan, ... Of which, China and
Taiwan have not had an FTA with the EU. On the other hand, the main raw material for
the industry, which is cotton fiber, must be imported up to 90%, mainly from the US with
more than 60% of cotton imported. These information has pointed out the shortcomings
of the Vietnamese textile and garment industry as well as the challenges that the industry
must overcome if we want to take full advantage of the benefits that the EVFTA
Agreement brings, that is to meet the demand for qualified raw materials.
2.2.2 Difficulties in legal system
In addition to the standards in the rules of origin, the EVFTA as well as the new
generation FTAs all require amending and adding domestic legal documents, which is not
only relating to the opening market of goods, services but also including public
procurement, intellectual property, labor, and environment ... The amendment of the law
requires a lot of time and if not done in time, it is easy to fall into the status of violation of
commitments. Specifically, for employees, EVFTA sets standards and regulations about:
• Labor and recognition of the relationship between workers' rights and trade
• Eliminating forced and compulsory labor
• Right to freedom association and right to collective bargaining of employees and
employers
• Prohibiting child labor abusing
• Eliminating all forms of employment and occupational discrimination, ...

Although there are specific provisions for the above issues, in reality, these regulations
are being violated in many enterprises, for example, some enterprises violate the
regulations of TBT and SPS causing many consignments of Vietnam to be rejected for
export to the EU, such cases like that, if not handled early, will affect the terms
committed in the Agreement. We need to cautiously modify the rules because otherwise,
the Agreement will lose its effect as in the case that Cambodia may not be entitled to
preferential treatment from the EBA due to violation of EU standards in In the primary
sectors in 2019, the job could cause 90,000 Cambodian textile workers to lose their jobs if
the EU proposes trade sanctions, as this will cause fashion brands to find production
forces elsewhere due to fears of union groups. Although only withdrawing 20% of the
preferential treatment for EBA in August 2020, this decision of the EU will certainly have
a negative impact and reduce the number of goods exported to this group of countries
from Cambodia, especially, textiles.
Besides, their also risks of trade remedies: When tariff barriers are no longer an effective
tool to protect enterprises, import markets often tend to use more anti-dumping and
subsidy measures or self-defense to protect the domestic industry. The EU is one of the
markets that often use these tools, so Vietnamese enterprises may be confused in terms of
legal aspects.Because of these reason, well-educated about trade remedies, raising
technical as well as sanitary standards to protect human health is extremely urgent for our
country to integrate more quickly into the global economy as well as make full use of the
EVFTA
2.2.3 Do not receive benefits immediately
While some Vietnamese products such as fresh vegetables, processed fruits, pepper,
honey, ceramic products, coffee, ... when exported to the EU, tariffs will be eliminated
right after the Agreement took effect on August 1, 2020, textile and garment products
have to go through a 7-year period to be eliminated, with 77.3% of the export turnover
will be deleted in 5 years and the remaining 22.7% will be completely erased after 7
years. Therefore, it is difficult for textile products to immediately bring benefits for
businesses at this time.
Group B5 to 0%,
decrease 2% tax
Group A to 0% 2023 annually 2027

Group B3 to 0%, Group B7 to 7%,

decrease 3% tax decrease 1,5% tax
2020
2020 annually 2025
2025 annually

Graph 1 Import tax rate cut process

In addition, Vietnamese businesses are currently dealing with the negative impacts of the
COVID-19 epidemic on raw material supplies, canceled or delayed orders from the US
and EU, ... making many businesses have to face with numerous difficulties and may even
shut down, this can lead to a decrease in the production and export capacity of the whole
industry and thus not fully maximize the benefits of the agreement.
2.2.4 Weakness in human resources
The abundant and cheap labor force was once one of the competitive advantages of the
textile and garment industry in the international market, but with the average salary of
garment workers reaching about 250-300 USD / month, nearly 2.5 times the average
salary of a worker in Bangladesh, the 2nd largest garment exporting country behind China
(110 USD / month). Despite having relatively high wages, the labor productivity of
Vietnam is much lower than other countries in the region, especially with two countries
that also develop strong textile outsourcing, Cambodia and Bangladesh. Moreover the
qualifications of our country's textile and garment workers are still low. Indeed, among
more than 2.5 million workers in the textile and garment industry, most of them are still
only unskilled workers, mainly perform product outsourcing stages, and for stages that
require high technical levels such as dyeing, fabric finishing, or product design, ... the
labor force cannot meet both quantity and quality demand. This is also a reason that create
difficulties for Vietnam's textile and garment production of raw materials to develop and
meet the needs of production and export. High production costs and under expectation
product quality may become an obstacle to the goal of expanding market share in the EU
through the great benefits that the Agreement brings.
2.2.5 Inefficiency logistics activities
Besides the weaknesses in labor resources, high logistics costs are also one of the reasons
that reduce the competitiveness of Vietnam's garment and textile. Specifically, Vietnam's
logistics cost is currently equivalent to about 20.9% of GDP (of which transport accounts
for 60%), while in developed countries such as the US and EU countries this figure is
only about 10%. As for the textile and garment industry, the industry's export turnover in
2017 reached $ 31 billion, of which it took up to $ 18 billion to import raw materials for
production, and $ 2.8 billion for logistics activities, accounting for 9.1% of the total
export turnover. The logistics cost of our country is assessed relatively higher than in
other countries in the region, 6% higher than Thailand, 7% higher than in China, and
almost 3 times the logistics cost of Singapore. High transportation costs, port surcharges,
as well as the limited infrastructure of seaports, are considered to be some of the main
reasons for such high logistics costs in our country. These costs will have a large impact
on the cost of the product when it is exported and thereby reduce the attractiveness in the
EU market. In addition to high costs, logistics activities have not yet achieved high
productivity, not enough to meet the demand of partners. Even in some cases, the
requirement of a delivery schedule is also an issue that many Vietnamese businesses have
to give up orders. This may become an obstacle affecting foreign enterprises' decisions to
invest or expand production into Vietnam, at the same time significantly reduce the
benefits that the Agreement brings.
CHAPTER 3: Some solutions to improve the effectiveness of
EVFTA with the textile industry
From the above difficulties and challenges, we can come up with a number of measures to
assist businesses in promoting the effectiveness of the Agreement.

3.1 Solving the problem of input material

Although the EU allows the application of the rule of accrual of origin, meaning goods
originating from partner countries with the EU also enjoy preferential tariffs, for example,
the amount of Vietnamgarment imported from South Korea (accounting for 15% of total
fabric imports), a country that has already had an FTA with the EU, will be deemed to
have met traceability conditions to receive incentives. However, the proportion of 15% is
extremely small, and the cost of importing fabrics is still relatively high, so sourcing
fabrics from Korea will not be an effective solution for replacing raw materials imported
from China. Therefore, we need to use some more effective long-term measures such as:
Self-production of fabric. This could be a high requirement for the textile and garment
industry of Vietnam today when both technology and human resources of the industry are
weak and lacking, so there should be a stronger investment in both sides:
• In terms of technology: enterprises need to boldly invest when given the
opportunity, make efforts to renovate modern technology equipment, improve
product quality through the innovation of technical equipment, and improve the
competitiveness of products, ... Not only investing in technology for weaving and
dyeing stages but businesses also need to search for technical solutions treating
wastewater caused by production activities. Because this is probably one of the
main reasons why localities and businesses are not too interested in fabric
production. In reality, researching, learning, and applicating of modern technology
in raw material production, as well as environmental protection, requires high and
long-term investment costs, so it is necessary for the government to effectively
deploy the production of raw materials for the textile and garment industry,
possibly through planning and investing in concentrated zones and industrial zones
with complete waste treatment systems.
• In terms of human resources in the textile and garment industry: Improving the
quality of the textile and garment workforce requires training, coaching courses of
industry experts from enterprises and the State to improve qualifications of
workers, especially in dyeing, finishing, or designing products.
• The mentioned solution is extremely important and crucial not only for solving the
supply of raw materials for the textile and garment industry to meet the
requirements of the EVFTA but in the long term, this solution also helps change
the position of Vietnam in the global value supply chain. Indeed, Vietnam's textile
and apparel industry is currently just stopping at the lowest value-added stage of
the supply chain - the rental sewing stage or the production stage. Labor training
and technology investment activities will help businesses participate in the raw
material supply stages and the design stages, helping to gain more profits through
 FOB and ODM methods (currently accounting for only 25% and 9% of export
activities, bringing in profits of 4% and 6%), rather than CMT method (accounting
for 65% of export activities but only bringing profit of 2 %). This is the reason
why the after-tax profit of Vietnam's textile and garment enterprises in 2018 was
only $ 1.57 billion (5% of export turnover).
Take advantage of foreign investment. Thanks to Agreements such as EVFTA and
CPTPP, Vietnam's textile and garment industry will become an area that many investors
are interested in, such as investment sources from Russia and the Middle East in the field
of raw materials and materials, weaving, and dyeing, especially when the quality of the
labor force in the textile and garment industry in Vietnam has improved after
implementing the above methods.

3.2 Coordination with logistics

activities

Added value
Sales/Service
R&D
Not only for the textile industry, but Marketing
Brand
logistics also plays a very important role
Design Distribution
in reducing costs, saving goods Manufacture
circulation time, and increasing reliability
for any sectors. The fact that the textile Commodity chain
and garment industry did not have a close Paradigm 1 Textile and garment supply chain

link with logistics will push the prices of exports up, reducing the competitiveness of the
textile and garment industry, especially a fierce market like the EU. Therefore, having
practical measures to increase the coordination between textile and logistics enterprises is
extremely urgent. Specifically, they should:

• Through logistics businesses to combine the import of raw materials and export
goods, thereby avoiding empty containers being transported and significantly
reducing shipping costs.
• Regularly organize conferences between textile enterprises and logistics
enterprises to find the same voice from the two sides.
• Textile enterprises must actively learn about logistics or even if possible they could
afford to build their own logistics department, for example, Nha Be Garment
Corporation has established NBC logistics company to perform logistics activities
for them, thereby reducing logistics costs from 6 to 4 billion VND per year.
• Logistics companies should promote the application of scientific and technical
advances, consolidate high-quality staffs through short-term training courses as
well as strengthen the coordination with universities teaching logistics programs
such as Foreign Trade University, National Economics University, ... to reduce
costs and improve the quality of service packages, thereby increasing trust not only
from textile businesses but also other sectors.
3.3 Branding in international market
In addition to strengthening logistics, branding for the textile and apparel industry is
urgent to save Vietnam from the bottom of the global value supply chain. This means
through methods such as opening design training courses in universities and colleges;
actively organize design competitions or seminars with the participation of domestic and
foreign experts; looking for talent in the design field as well as enhancing the image of the
country, the image of Vietnamese fashion to the international arena through entertainment
products like the way Japan uses anime or Korea uses Kpop, ... will help spread out the
image of Vietnamese textile products, allowing the image of ao dai, conical hats,… to be
more widely known by international citizens.

3.4 Make effective use of trade remedies

Knowing and applying accurately trade remedies is extremely important for textile
enterprises if they want to take full advantage of the benefits that EVFTA brings to them.
Especially when it is only a small mistake, we can completely lose a large market as in
the case of Vietnamese pangasius have been imposed by the US anti-dumping tax since
2003. Therefore, Vietnamese businesses need to learn and understand trade remedies in
terms of anti-dumping, anti-subsidy, safeguard measures, ... in order to raise the number
of 2% of businesses that truly understand trade remedies, thereby enhancing the image of
Vietnamese enterprises in general, textile enterprises in particular and strengthening the
world's trust in Vietnam.