VN domestic textile, garment firms yet to take benefits of FTA breaks

Vietnamese domestic garment and textile companies have, for the foremost half, ignored on the much-touted edges of trade agreements (FTAs) that was signed by the country, experts aforesaid at seminar yesterday.

Vietnam has signed twelve trade agreements, of that ten FTAs have inherit force: VN-ASEAN, ASEAN-India, ASEAN-Australia-New Sjaelland, ASEAN-South Korea, ASEAN-China, ASEAN-Japan, Vietnam-Chile, Vietnam-Japan, Vietnam-South Korea and Vietnam- Eurasian Economic Union, said Nguyễn Ngọc Hòa, deputy director of the HCM town Department of trade and Trade.

The companies within the country that have taken advantage of FTA breaks is the FDI sector.

Garments and textiles are key export items for Vietnam in general and HCM City in particular. If these companies can take good advantage of FTA opportunities, the country will be able to increase export revenues as well as expand export markets.

But to be able to enjoy preferential tariffs under FTAs, the products must meet requirements under the rules of origin. With weak materials supply and supporting industries, domestic businesses in the garment and textiles face a big challenge in complying with the rules of origin, Hòa said.

Phạm Xuân Hồng, chairman of the Garment-Textile-Embroidery-Knitting Association in HCM City, said that the garment and textile industry has to import around 70 percent of its materials for production, mainly from China.

And one of the main reasons for this is that Vietnamese firms lack knowledge on this issue.

The seminar organised by the department in collaboration with the Ministry of Industry and Trade to help garment and textile businesses get updated information on rules of origin so that they can capitalise on preferential treatments under FTAs to boost exports.

Trịnh Thị Thu Hiền, head of the origin of goods division under the Ministry’s Export-Import Department, said that currently, more than 50 percent of Vietnam’s garment and textile products are making full use of opportunities provided by FTAs, but these are mainly FDI companies.

She said that the rules of origin can neutralise preferential tariffs under FTAs. Goods eligible for preferential treatment under FTAs have to meet general or product-specific rules of origin, and have appropriate documentation, known as the certificate of origin (C/O). Each FTA has its own certificate of origin form.

A product can qualify for the C/O if it is cut-made-trimmed in Vietnam under the ASEAN FTA, but under other FTAs like ASEAN-Japan and Vietnam-Japan pacts, firms must meet the rules of origin from the fabric onwards, which is a big challenge for Vietnamese firms since the country still relies heavily on imported fabric.

Under the EU-Vietnam FTA, the ministry has negotiated to apply more flexible rules of origin. While this FTA also requires rules of origin to apply from fabric onwards, meaning that exports to the EU must use fabric produced in Vietnam or the EU, the agreement also allows firms to use fabric from one third country which has FTAs with both Vietnam and the EU.

Also exports in the garment and textile sector were still focused on a few main markets. Hence, exporters are urged to diversify their export markets, especially those with which Vietnam has signed FTAs, so as to avoid or minimise risks.

In the first half of the year, Vietnam garment and textile exports has already touched over US$14 billion, a year-on-year increase of 11 percent. Hence, the industry is confident over achieving its export target of $30-31 billion for 2017.

All that is required is the firms need to study carefully the characteristics of each market as well as its rule of origin requirements.