Vietnam’s textile, garment - a magnet for foreign investors
Foreign firms have been increasing investment in Vietnam’s textile and garment industry to enjoy free trade agreements and low labor costs.
According to Chairman of the Vietnam Textile and Apparel Association (VITAS) Vu Duc Giang, more than 2,000 foreign businesses from 16 countries and territories worldwide have invested some US$15.75 billion in Vietnam’s garment and textile sector so far.
South Korea is the largest investor in Vietnam’s textile and garment industry
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Earlier this year, Japan’s ITOCHU Corporation splashed out $47 million on purchasing an additional 10 percent of the Vietnam National Textile and Garment Group (Vinatex). The purchase raised ITOCHU’s stake in Vinatex to 15 percent, making it the second-largest stakeholder after the Ministry of Industry and Trade.
Vinatex operates 200 subsidiaries and affiliates nationwide and is exporting various kinds of products with high added value. ITOCHU’s deeper engagement in the Vietnamese group will bolster Vinatex’s export revenue, including revenue gained in Japan.
Notably, the garment and textile sector has lured many large scale foreign direct investment projects, including the $80-million Nam Dinh Ramatex Textile and Garment Factory by Singapore, and $80-million Ha Nam YKK Factory specialized in producing zippers and other materials for the garment industry.
Bright outlook
Giang said that low labor costs coupled with free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have made the Vietnamese garment and textile sector alluring to foreign investors.
Once the CPTPP takes effect, Vietnam can increase shipments to CPTPP member countries, which spend up to $40 billion on garment and textile products every year.
In addition, the EU-Vietnam Free Trade Agreement (EVFTA), which is expected to take effect at the end of this year, has also made Vietnam’s textile and garment industry attractive to foreign investors.
EU-MUTRAP team leader Claudio Dordi said that thanks to the EVFTA, there will be ample opportunities for Vietnamese textile and garment products to ship to the market as the EVFTA will provide tariff preferences to Vietnamese exporters to the EU.
According to Dordi, only “EVFTA originating” products will benefit from preferential tariffs for a maximum of seven years after entry into force. To be “EVFTA originating,” EVFTA requires textile and garment producers to carry out two production stages in an EVFTA country: Vietnamese producers can upgrade their value chain, adding the “weaving or knitting” stage to the existing “cutting and sewing.”
At present, this operation is particularly challenging, as it requires financial resources and high-skilled workers to manage the high-technology machinery, he said.
“However, for a maximum of seven years, the present 12 per cent duty on textile and garment imports from Vietnam will be removed and, taking into consideration the better legal environment for investment (indirect EVFTA opportunities), we may expect that the EU or other countries’ investors will provide the necessary technology (machinery) to support the upgrading of the garment value chain,” said Dordi, who is also professor of the International Trade Law of Italy’s Bocconi University.
“Investors from other countries may wish to relocate sufficient stages of textile and garment manufacturing to Vietnam to benefit from market access offered by the EVFTA,” Dordi said.
However, Giang suggested that to better attract foreign investment, the government and the Ministry of Industry and Trade should devise stable policies, and pen a strategy for the garment and textile, with the construction of industrial parks meeting international standards on wastewater treatment key.
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