Striving to Survive

Striving to Survive

Soon members of the World Trade Organisation (WTO) will enjoy quota-free trade from January 1, 2005 when the Agreement on Textile and Clothing expires. This shift will pose many challenges to non-member countries like Vietnam. To survive, Vietnamese garment and textile exporters must meet the anticipated competition by concentrating on quality, price, delivery and other related services.

Regarding garment and textile exports, Vietnam is to face two forms of rivals. Firstly, countries that are geographically close and, secondly, nations with a sharp competitive edge, including China, Thailand, India, Pakistan, Bangladesh and Sri Lanka. The geographical advantage is of great significance due to seasonal trade. Countries in South America will directly benefit from the removal of the quota-based system since they are adjacent to the two key garment markets – the European Union (EU) and the US. It takes seagoing vessels only two days to cruise from Mexico to the US market, but up to 28 days from Asia.

Among its opponents in Asia, Vietnam is likely to experience the strongest pressure from China, which is expected to account for half of the world’s garment and textile production in the coming time. Recently, when the US removed quotas on certain garment categories, several Chinese goods exported to the market increased several fold. Currently, China holds a market share of around 66 per cent in the non-quota garment and textile market of Japan.

As well as fiercer competition from rivals, Vietnam’s garment industry may face trade protection-related barriers set up by its importers. Garment and textile producers in developed countries, which will be hard hit by the quota-free trade, are likely to ask their governments for protection policies. Under the Agreement on Textile and Clothing, WTO members have to gradually remove garment and textile quotas in four phases in 1995, 1998, 2002 and 2005 to avoid causing sudden changes to their domestic production. However, most garment exports have been restricted by the quota regime. Some 51 per cent of garments and textiles were, in theory, to enjoy free-quota trade by 2002, but just 21 per cent of the goods in the US and EU markets benefited from this.

In all likelihood developed countries such as the US and many EU members will issue protection policies within the first three years after the Agreement on Textile and Clothing expires, because WTO members have the right to apply temporary self-defence measures in the timeframe to protect domestic production. In other words, Vietnam, which is still considered a non-market economy, will be more vulnerable to defensive measures, including anti-dumping tariffs.

To raise competitiveness of garments and textiles in the post-quota period, many foreign and local experts believe that producers and exporters have to issue proper policies to meet the demand of buyers in terms of speed, price and flexibility by creating full package sourcing, including material supply, product development, finance, production, logistics, market, customer relations and information. In a nutshell, the key to success involves five principal factors, namely customer orientation, flexible supply networks, consistent statistics, two-way assessment and personal relations, which will result in improving product styles, satisfying market requirements, reducing costs and delivering goods on time.

As Vietnam has to import a large volume of materials for production and mainly carries out contractual manufacturing, the country should introduce four principle measures relating to market development, investment expansion, financial assistance and workforce training. The weakest point of Vietnam’s garment and textile industry is its low production of cloth and accessories. The country is therefore in dire need of stronger local and foreign investment in the fields of weaving and dyeing. More investment in developing material zones is also needed. Vietnam has targeted to increase cotton-growing areas to 60,000 hectares by 2005 and 130,000 hectares by 2010, respectively turning out 30,000 tons and 95,000 tons of seed cotton each year.

Regarding market development, Vietnam is actively negotiating with its major garment and textile importers, the EU and the US, about quota expansion and is considering the possibility of re-entering its traditional market of Eastern Europe. The country will also aim to further penetrate into Southeast Asian markets, which will impose tariffs of only five per cent in 2006, mainly by showcasing local garments and textiles in supermarkets in Indonesia, Malaysia and Thailand. The 81 million person domestic market needs to be further tapped as well.

Vietnam has targeted to reap garment and textile export turnovers of US$4.5-5 billion in 2005 and US$8-9 billion in 2010. The proportion of locally-made components in its garments and textiles will reach 50 per cent by 2005 and 75 per cent by 2010.

• Dong Phong