Impacts of EVFTA on export activities
The elimination of tariffs under the EVFTA enhances price competition for goods entering the EU, one of the largest export markets This creates significant opportunities for key export industries, including textiles, footwear, and agricultural products, to improve their competitiveness As export activities flourish, foreign direct investment (FDI) is likely to increase, driven by the anticipated improvements in institutional frameworks and export policies that will promote transparency and align with international standards However, it is essential to consider potential negative impacts that may arise during this transition.
44 challenges posed; Barriers to TBT, SPS and customer requirements, origin requirements, risks of trade remedies, competitive pressure from EU goods and services.
Value chain of Vietnam's textile and garment industry
General comments on Vietnam's textile and garment industry
Vietnam's textile and garment industry has a relatively high growth rate, with the number and size of enterprises continuously growing over the years.
Low labor cost, young and abundant labor force The cost of workers in
Vietnam's garment industry stands out as the most cost-effective in the region and globally, with worker salaries averaging only twice the minimum wage, approximately 15 million VND This low labor cost significantly reduces production expenses, leading to cheaper product prices and providing a competitive edge in the garment market.
Vietnam is located in the attractive "stop" area of the world garment industry
The global garment industry is currently focusing on key Asian countries, including China, India, Hong Kong, Taiwan, and South Korea, which are leading producers and exporters of raw materials Vietnam's advantageous geographical location enhances the efficiency of transporting inputs, reducing both time and costs This proximity also facilitates quicker and more comprehensive access to market information.
Vietnam is recognized for its stable political environment and strong social security, making it an appealing destination for foreign traders and investors Additionally, the country's active involvement in regional and global economic integration further enhances its attractiveness in the international market.
Vietnam's market access for exports, particularly in textiles, has significantly expanded, fostering an environment for growth Recent years have seen a consistent rise in foreign direct investment in the country, driven by supportive government policies that further enhance the development of the textile and garment sector.
The Government of Vietnam aims to develop the textile industry by 2030 by enhancing supporting industries and addressing weaknesses, such as cotton cultivation, to reduce reliance on global cotton imports Investment in the textile and dyeing sectors is a key focus, as the Textile and Garment sector is prioritized among six key supporting industries for Vietnam's development Consequently, textile enterprises will benefit from a favorable business environment, supported by detailed and specific government policies aimed at advancing the industry.
Vietnam's dyeing and finishing process is still underdeveloped It is estimated that
Vietnam's textile industry comprises approximately 180 enterprises engaged in flower dyeing and fabric finishing, operating 66 floral print lines, 193 continuous dyeing lines, 750 intermittent dyeing machines, and around 100 yarn dyeing equipment However, the country's dyeing and finishing sector remains underdeveloped, leading businesses to export undyed fabric and import treated materials for domestic use Consequently, many local textile products are primarily exported, with limited consumption in the Vietnamese market While some domestic companies have upgraded their woolen and cotton finishing lines with advanced European technology, most finished dyeing lines are not utilized to their full potential, highlighting a significant weakness in Vietnam's state-owned textile industry.
Labor productivity in Vietnam's textile and garment industry remains low, with approximately 83% of the workforce classified as low-skilled, as reported by the Vietnam Textile Association Despite inexpensive labor, the overall quality is lacking, resulting in productivity levels that fall short compared to regional counterparts The industry's growth is limited, operating at only two-thirds of its potential Additionally, low wages contribute to high labor mobility, complicating professional training efforts Currently, companies primarily engage in garment processing and exporting, rather than direct exports.
Vietnamese textile enterprises often struggle due to their small size and limited capacity to handle large orders To effectively manage substantial production demands, these companies require stable capital and a skilled workforce However, the discipline of Vietnamese workers has been noted as a concern Most domestic textile firms are small to medium-sized, which raises challenges when clients seek reliable partners for large orders Clients prefer manufacturing partners with robust financial capabilities to ensure timely production and mitigate risks, such as potential losses Consequently, many clients opt to distribute their orders across multiple production units, reflecting their apprehension about the capacity of individual Vietnamese garment manufacturers to fulfill large-scale requests.
Vietnamese textile and garment enterprises still lack linkages in the value chain
Vietnamese textile and garment enterprises predominantly operate independently, focusing mainly on processing predetermined orders The lack of integration between textile and dyeing businesses highlights a significant industry gap, as the yarn industry generates approximately $4 billion annually yet requires over $2 billion in imports This indicates an inability to supply sufficient yarn materials for fabric production, underscoring the need for stronger industry linkages.
The incomplete value chain in Vietnam's textile industry significantly impacts the rule of origin requirements, particularly at the textile dyeing stage, which is a critical point The yarn sector exports two-thirds of its production, while the garment industry relies on 70% imported materials, indicating a failure to utilize the country's abundant fiber resources This underutilization leads to a severe output shortage of cloth, hindering businesses' ability to secure larger orders, especially from major markets like the US and EU that enforce strict origin rules.
Vietnam's textile and garment industry is heavily reliant on imported input materials, with 61% of cotton sourced from the US and 58% of fabric from China, according to the Vietnam Textile and Apparel Association The country processes these materials to produce finished goods primarily for export to key markets including China, the US, and the EU Notably, 68% of yarn exports go to China, while the US and EU account for 45% and 13% of apparel exports, respectively Despite producing over 1.2 million tons of yarn annually, Vietnam meets only 1% of its cotton needs and imports 70% of its yarn, predominantly from China (43%), Korea (20%), and Taiwan (15%) This dependency on imported fabrics exceeds 80% of total demand, with China contributing 50% of the total value, leading to significant challenges within the industry.
48 at the textile dyeing stage The localization rate is only about 50% Accessories must also be imported up to 70%.
Vietnam's textile and garment industry is heavily reliant on imported cotton, operating through a purely commercial trading method that is not integrated into the value chain The yarn sector, which exports nearly 70% of its output, sources almost all of its input materials from imports, with 99% of cotton and 100% of fiber being imported According to the TCM textile industry report, polyester yarn is primarily composed of polyester filament (45.2% of total consumption) and cotton yarn (24.6%), with 85% of cotton yarn being supplied domestically.
Vietnam's textile and garment industry lacks a distinct brand identity, resulting in limited distribution channels both domestically and internationally, primarily relying on individual company stores for sales This absence of a cohesive branding strategy contributes to weak consumer demand, and companies often fail to collaborate on advertising efforts, leading to internal competition in the domestic market.
The position of Vietnam's textile and garment industry in the global textile
Vietnam's textile and garment industry plays a crucial role in the global supply chain, heavily relying on significant import and export markets, particularly China, the United States, and the European Union.
Figure 2.1 Value added by stages of the textile industry (Source: Synthesized from Vietnam Textile and Apparel Association)
The textile industry in Vietnam is currently lagging in supply chain development compared to competitors like Sri Lanka and Bangladesh, as noted by the Vietnam Textile and Apparel Association Vietnam primarily occupies an outsourcing role in the global textile and garment supply chain, exporting less and generating lower added value than its rivals In contrast, developed nations such as the US, EU, and Japan focus on high-value stages like design, marketing, and distribution Outsourcing and wholesale operations are predominantly based in regions like Hong Kong, Korea, and Taiwan, linking manufacturers with end consumers Both Vietnam and Bangladesh benefit from low labor costs and a substantial number of factories; however, Bangladesh often handles large-volume orders with simple technical requirements and lower labor standards Consequently, many Vietnamese exporters lack direct customer access, relying heavily on foreign companies for business.
50 intermediaries (mainly Hong Kong, Taiwan, Korea) In recent years, textile enterprises are making efforts to build their brands, directly approach the market and distribution channels in major markets.
Table 2.4 Vietnam Textile and Garment - Comparison between 2000 and 2018
Industry size Revenue Export Labor
(Source: Vietnam Textile and Apparel Association)
In 2018, Vietnam emerged as the world's third-largest textile and garment exporter, following China and India, with exports reaching 42 billion USD and 36.5 billion USD in revenue, representing 87% of total exports Vietnamese garments were shipped to 100 countries, with the US, Japan, EU, and Korea accounting for 49%, 16%, 14%, and 12% of the market share, respectively.
Japan, and Korea, accounting for 91% of the total turnover, showing the very wide participation of Vietnam's textile and garment in the international markets. the global textile value chain.
The effects of the EVFTA on exports to the European Union (EU) market of Vietnam's
Trade relations between Vietnam and EU
The European Union (EU), comprising 27 member countries and a population exceeding 500 million, accounted for 22% of global GDP with a total of $18,292 billion in 2019 As Vietnam's largest textile and garment export market, the EU boasts a consumption demand exceeding $250 billion, with a compound annual growth rate (CAGR) of 3% from 2015 to 2019, second only to South Korea The EU ranks as Vietnam's fifth largest trading partner, the second largest export market, and the fourth largest import market With a robust trade foundation, the EU-Vietnam Free Trade Agreement (EVFTA) presents significant potential for enhancing trade relations, likely offering greater opportunities for export growth than for imports Currently, Vietnam has no Free Trade Agreement (FTA) with the EU.
Trade between Vietnam and the EU is characterized by a diverse import and export structure, presenting significant opportunities for Vietnam to enhance its export potential Key industry groups such as Footwear, Hats, and Textiles are poised for growth, particularly in major markets like Germany and France, followed by Italy and the UK Additionally, Vietnam has the capability to expand trade with other EU nations, including the Netherlands, Spain, Austria, Belgium, Poland, and the Czech Republic Furthermore, Vietnam's bilateral relations with ASEAN countries also play a crucial role in its trade dynamics.
EU has signed FTAs and IPAs with Singapore, Malaysia, Philippines andIndonesia
Trade share and growth rate
The European Union (EU) has long been a vital trade partner for Vietnam, representing the second largest purchasing power globally In 2019, the two-way trade between Vietnam and the EU reached $56.5 billion, making up 10.9% of Vietnam's total trade, a significant increase from $17.6 billion in 2010 Exports accounted for $41.5 billion (15.7%), while imports totaled $15 billion (5.9%) In the first 11 months of 2020, trade between Vietnam and the EU was $45.1 billion, comprising 9.2% of the country's total trade, with exports at $31.9 billion (12.5%) and imports at $13.2 billion (5.6%).
Garment export turnover to EU
Proportion of export turnover in total export turnover of Vietnam (%)
Figure 3.1 Correlation of Vietnam's garment exports to the EU in the 2016-2020 period
(Source: According to the General Statistics Office)
Assessment of the current situation of Vietnam's textile and garment industry
3.3.1 The production situation of the textile industry in the country
Currently, the whole industry has about 7,000 enterprises, employing nearly 3 million workers, importing raw materials and accessories from two main markets: China and Korea.
Figure 3.2 Producing the main product groups of the textile industry
(Source: According to the General Statistics Office)
Analysis of each stage of the textile industry in the supply chain of the textile industry:
Vietnam's garment industry primarily engages in the cutting and sewing segment of the textile supply chain, with minimal involvement in design, marketing, and distribution As a result, the industry's added value remains low, ranging from just 5% to 10% Furthermore, the majority of businesses in this sector are small to medium-sized enterprises.
Silk and yarn: Vietnam's yarn output has continuously increased over the years.
The Vietnamese yarn industry predominantly produces synthetic silk yarn, which constitutes approximately 61.7% of total yarn output While knitted yarns cater to local textile production, many other yarn types are primarily exported due to limitations in dyeing and finishing capabilities The spinning technology utilized by Vietnamese textile and garment companies is relatively advanced, with the garment sector achieving an annual output of around 2 billion m², fulfilling about 25% of domestic demand However, domestically produced fabrics still fall short of the quality standards required by garment manufacturers for export, and most woven equipment remains at a moderate technological level, impacting yield and quality.
Vietnam has approximately 180 enterprises involved in floral dyeing and finishing, featuring around 66 floral print lines, 193 continuous dyeing lines, 750 intermittent dyeing machines, and about 100 yarn dyeing setups The country's dyeing and finishing sector remains underdeveloped, leading businesses to export undyed fabric and import finished materials for domestic use Consequently, many textile products produced in Vietnam are primarily exported rather than sold locally While some domestic companies have upgraded their woolen and cotton finishing lines with advanced European technology, the majority of dyeing lines lack effective management and technological utilization, highlighting a significant weakness in Vietnam's state-owned textile industry.
The textile and garment accessories sector is actively seeking investment, yet it currently meets only 50% of domestic demand A significant portion of essential items like buttons, zippers, and mex must be imported, primarily from China Meanwhile, several domestic companies have begun producing inks to support the industry.
55 comparable in quality to Chinese ink However, only inks that meet European standards are still in the research phase in Vietnam.
3.3.2 The export situation of the textile and garment industry in general
Figure 3.3 Export value of some major commodity groups in 4 months of 2021 compared to 4 months of 2020
(Source: General Department of Customs) Textile and garment exports in April 2021 reached $2.46 billion, down
In the first four months of 2021, Vietnam's textile and garment exports reached $9.66 billion, marking a 10.7% increase compared to the same period last year The United States remains the largest market for these exports, with a value of $4.7 billion, up 18.7% and representing 48.7% of the total export value In contrast, the Japanese market saw a decline, importing $1.07 billion, which is down 9.8%.
The period of impact of the Covid-19 pandemic on the export situation of Vietnam's textile and garment industry Due to the impact of the Covid-19
56 epidemic, Vietnam's textile and garment industry faces many difficulties and challenges:
(ii) Orders dropped dramatically when social distancing and consumption habits changed.
Although the epidemic increases the demand for protective products and medical masks (both domestic and foreign), not too many businesses benefit from this In
In 2020, Vietnam's Textile and Garment industry experienced a significant decline, with an export turnover of $35 billion, marking a 10% drop from 2019 Amidst challenging market conditions, textile enterprises reported decreased business performance, with 12 companies collectively generating total revenue of VND 45,998 billion and a profit after tax of VND 2,316 billion, both reflecting a 17% year-on-year decrease.
Figure 3.4 Profits in 2021 of some textile enterprises
(Source: Textile and garment industry report 2021, BSC)
Table 3.1 Products exported to the EU market before and after the effective
Cell phones and accessories Computers, electronic products and components Footwear Textiles
Other machinery, equipment, tools and spare parts The coffee
Seafood Book bags, wallets, suitcases, hats, umbrellas Cashew Spare parts transport vehicles Products from iron and steel Wood and wood products Products from plastic Toys, tools and parts
Materials for textile, garment, leather, shoes
Products of rattan, bamboo, sedge, carpet
Products from rubber Confectionery and cereal products Rubber Pepper
Ceramic products Precious stones, precious metals
This article explores various materials and products, including chemistry-related items, plastic materials, and a range of cameras, camcorders, and their accessories It also highlights wooden furniture made from non-wood materials, diverse textile yarns, and other common metals and their products Additionally, it covers technical fabrics, various chemical products, and rice as a significant agricultural commodity.
(Source: Compiled from the General Department of Customs)
The ongoing challenges posed by the Covid-19 pandemic have led EU countries to reintroduce strict epidemic prevention measures, significantly impacting the regional economy and reducing consumer demand for goods Consequently, import turnover across the EU decreased compared to 2019, particularly in imports from outside the bloc Despite this decline, Vietnam's export turnover to the EU saw an increase during the same period, indicating a growing presence of Vietnamese products in the EU market The effectiveness of the EVFTA Agreement is evident, as the growth rate of goods exports post-agreement surpasses previous levels However, the pandemic has limited the full potential of the EVFTA on Vietnam's export growth, affecting various product categories.
The expected benefits from the Agreement are not anticipated to rise significantly; in fact, they may decline due to decreased demand for EU imports, including rice, textiles, footwear, and wood products However, in 2021, Vietnam's exports to the EU are projected to improve positively, largely attributed to the advantages offered by the EVFTA Agreement.
EU economy is forecasted to recover, although the recovery is slow In its latest forecast, the EC forecasts that the EU economy will grow 4.1% in 2021, after shrinking 7.4% in 2020.
Export situation as of the first quarter of 2021
The Vietnam Textile and Apparel Association reports a recovery in the production chain, with traditional orders on the rise The textile and garment industry is projected to achieve an export turnover of $39 billion in 2019 levels, reflecting an 11.4% growth year-over-year By mid-March 2021, the total export turnover reached $7 billion, marking a 1% increase compared to the same period last year, despite a 1% decline in early 2021 due to minimal Covid-19 impact Notably, the first half of March saw an impressive growth of 11% compared to the previous year, highlighting the industry's resilience amid the pandemic.
Figure 3.5 Vietnam's textile and garment export turnover in the first 2 months of 2021
Textile enterprises have successfully addressed the issue of disrupted raw materials, which previously posed significant challenges due to the fact that 63% of textile materials are imported from China The outbreak of the epidemic in early 2020 severely impacted the supply chain, hindering businesses' ability to fulfill orders However, in 2021, trade relations between the two countries improved, thanks to stringent epidemic control measures that ensured a steady and timely supply of raw materials.
Figure 3.6 Import turnover of Vietnam's textile and garment industry
(Source: General Department of Customs)
Export to EU market Comparison of market shares of some countries importing into the EU market:
Table 3.2 Garment market share of some suppliers in the EU market
(Source: Calculations from the European Statistical Office)
EU countries import garments from developing nations and subsequently re-export them to other EU member states, resulting in textile and garment exports within the bloc representing over 40% of the total market imports.
60% of the remaining imports come from non-EU countries, mainly developing countries.
Table 3.3 List of a number of Asian countries that compete in textiles and apparel to enjoy EU tax incentives.
(Source: Ministry of Industry and Trade)
Table 3.4 Importing textiles into EU-28 from main sources
Supply 2019 (Billion USD) 2019 compared to 2018 (%)
Market share of sourcing in total imports to the EU (%)
Market share of suppliers in total imports from abroad (%)
(Source: Trademap) Bangladesh and Cambodia enjoy import tax exemption under the EBA
The Everything but Arms (EBA) program allows Pakistan to benefit from exemption from import taxes under the GSP+ framework In contrast, Vietnam, while also enjoying GSP privileges, is limited to a "Standard GSP" rate of 9.6% This highlights the significant advantages of the GSP+ and EBA programs for eligible countries.
Vietnam faces significant competition in the EU market due to 64 preferential tariff regimes that provide suppliers from other countries with a substantial price advantage This competitive landscape is a key factor in keeping Vietnam's export market share in the EU at approximately 2-3% As a result, the competition among developing countries exporting to the EU is intense, particularly with the application of the Generalized System of Preferences (GSP).
The EBA preferential tariff regimes provide beneficiary countries with a significant price competitive advantage over Vietnam, contributing to Vietnam's export market share in the EU remaining at approximately 2-3% However, the implementation of the EVFTA Agreement is expected to enhance this situation by offering substantial tax benefits to Vietnamese textiles and garments.
General assessment
Vietnam's textile industry is poised for growth by enhancing its role in the global textile value chain By leveraging the opportunities presented by the EVFTA, Vietnam can boost textile exports to key EU markets, particularly the Netherlands, France, and Sweden, which are recognized as promising destinations for Vietnamese textiles.
The Netherlands is recognized as a significant market with strong import demand, serving both processing and production needs, as well as transshipment activities due to its strategic position as a gateway to the European market Furthermore, the country implements policies that promote imports from developing nations.
Vietnam's garment exports to the Dutch market have seen significant growth in recent years, driven by the demand for 87 labor-intensive goods that cater to the Dutch processing industry and are suitable for import and re-export.
From 2016 to 2020, the Netherlands ranked among the top five garment export markets for Vietnam within the EU The implementation of the EVFTA has streamlined Vietnam's garment exports to the Netherlands, leading to significant growth In the first quarter of 2021, the Netherlands emerged as Vietnam's largest garment export market in the EU, with exports making up 22.73%, a notable increase from 18.40% in the same period of 2020 and 19.35% in 2019 Vietnam is now the eighth largest garment supplier to the Dutch market, with imports growing at an average rate of 11.98% annually during 2016-2020, surpassing the overall import growth rate for the market and outpacing competitors like China and India This trend indicates a continuous expansion of Vietnam's garment market share in the Netherlands.
Table 3.8 Dutch apparel imports from some key supplying markets
(Source: European Statistics Office) French market:
Figure 3.17 Export turnover of textiles and garments to France over the months
(Source: General Department of Customs)
France is one of six major export markets for Vietnam's textiles and garments in the
EU, ranking third in the EU after Germany and the Netherlands In the period 2016-
In 2020, Vietnam's textile and garment exports experienced varied growth rates, with exports to Germany increasing by an average of 1.2% per year and those to the Netherlands rising by 3.4% annually, while exports to France surged by 7%.
In March 2020, the Covid-19 pandemic severely impacted Vietnam's textile and garment exports to France, leading to a significant decline in the second quarter of the year By the end of 2020, export turnover for textiles and garments to the French market fell to just 62.02 million USD, marking a staggering decrease of 57.7% compared to the previous quarter.
2019 In general, in 2020, textile and garment exports to the French market reached US$572.09 million, down 5% compared to 2019.
Before the implementation of the EVFTA, Vietnam's textile and garment exports to France totaled $245.6 million in the first seven months of 2020, marking a 26.3% decline compared to the same period in 2019 However, following the EVFTA's enactment in August 2020, significant changes in trade dynamics are anticipated.
In 2021, Vietnam's textile and garment exports to France experienced significant growth, achieving an export turnover of $439.66 million This figure represents a 19.3% increase compared to the same timeframe from August 2019 to March 2020.
In the first quarter of 2021, Vietnam's textile and garment exports to France reached $113.2 million, marking a 13.4% increase compared to the same period in 2020 The majority of these exports consist of pants, underwear, t-shirts, and jackets, which together account for over 60% of the total export turnover Following the implementation of the EVFTA, exports in these categories saw significant growth: pants exports rebounded from an 18% decline to a 5.8% increase, while underwear exports improved from a 58% drop to a 13.9% reduction T-shirt exports surged from a 6.6% decrease to a remarkable 32.2% increase, and jacket exports decreased by only 9.2%, down from a 26.3% decline Notably, workwear has emerged as the fastest-growing segment of textile and garment exports to France.
Before the EVFTA came into effect, exports of this item to France surged by 592.6% in the first seven months of 2020 compared to the same period in 2019 Following the agreement's implementation, exports skyrocketed by 1,709.3% from August 2020 to March 2021 However, in the first three months of 2021, growth slowed significantly, with exports increasing by only 13.5% compared to the same period in 2020.
The export of cotton towels and socks to the French market has seen significant growth both prior to and following the implementation of the EVFTA.
Swedish market: In recent years, garment is one of the key export items of
Despite the absence of the EVFTA, Vietnam's garment market share in Sweden has been gradually expanding, yet it remains limited compared to the potential for export and consumption between the two nations Currently, Vietnam's garment exports to Sweden represent only 0.38% of its total garment export value, while Sweden's imports from Vietnam account for just 1.57% of its overall apparel imports in 2020 This indicates significant potential for Vietnam to boost its exports and increase market share in Sweden The EVFTA is expected to enhance Vietnam's attractiveness as an investment destination, drawing in foreign direct investment (FDI) from leading global partners and providing advanced capital, technology, and management, thereby creating a competitive edge for Vietnam in the garment industry.
In the first seven months of 2020, Vietnam's garment exports to Sweden totaled $39.2 million, reflecting an 18.83% decline compared to the same period in 2019 However, following the implementation of the EVFTA from August 2020 to March 2021, exports to Sweden demonstrated a notable recovery, with the rate of decline decreasing to just 4.33%.
% compared to the period from August 2019 to March 2020 Notably, in the
In the first quarter of 2021, exports surged by 30.54% compared to the same period in 2020, driven by a significant rise in the demand for casual and comfortable clothing among the Swedish population, following an extended period of restrictive measures due to the Covid-19 pandemic.
Table 3.9 Sweden's apparel imports from some major supplying markets
(Source: Statistics from the European Agency)
Vietnam stands out in the Asian region as one of the few countries with a Trade Agreement with the EU, following Korea, Japan, and Singapore The EU-Vietnam Free Trade Agreement (EVFTA), which came into effect on August 1, 2020, has created significant import and export opportunities for Vietnamese businesses, enhancing their competitive edge in the global market.