Vietnam Garment and Textile Facing More Hardships after WTO Entry

Mr. Le Quoc An, Chairman of the Vietnam Textile and Apparel Association, answered an interview of the Vietnam Business Forum after Vietnam wrapped up the WTO accession negotiations with the United States.

 

In the framework of trade liberalisation, the two most sensitive matters that all countries want to protect to avoid multi-sided effects are agriculture and garment-textile. The garment and textile issue is the thorniest and takes the longest time to negotiate.

 

Suffering a lesson from China, the US is afraid that Vietnam’s garments and textiles will make a massive penetration into the US market if the quota is removed, threatening its domestic industry. Secondly, under the explanations of the US, Vietnam’s garments and textiles enjoy the State subsidies and this is unfair.

 

The WTO targets set until 2010 are all developed countries must totally open their markets and scrap import taxes on all commodities. The deadline for developing nations is 2020. However, farmers of the US and the EU are protected most. Annually, the US subsidises 40 US cents for a kilogram of cotton while the cotton price is $1-1.5 a kilo. Or in other words, the subsidy rate is between 30 per cent and 40 per cent. Several EU member countries like Portugal, Spain and Greece have a similar subsidy rate. However, Vietnam has no subsidies for the cotton industry.

 

Vietnam’s garment and textile rivals are not countries in the ASEAN block but South Korea, Japan, Taiwan, Pakistan, India and especially China. The Vietnamese garment and textile industry is now incapable of competing with these countries. After the Vietnam-US Bilateral Trade Agreement (BTA) took effect in 2001, Vietnam’s garment and textile export to the US grew strongly in 2002 and 2003 but only increased some 10 per cent in 2004 and 6.5 per cent in 2005. This growth cannot be higher in the coming time because the capacity of the Vietnamese garment and textile industry is reaching the “saturation point.” Especially, in the first nine months of 2005, Vietnam’s products couldn’t squeeze into the US market because Chinese products were free to enter this market. During this period, Vietnam suffered a negative growth while China enjoyed a 67 per cent increase.

 

From now until 2008, the US will limit inflows of Chinese commodities. This is a good short time for Vietnamese enterprises to increase apparel exports to the US. After 2008, Vietnam will face enormous hardships in competing with Chinese products on the export frontline.

 

As a member of the WTO, the Vietnamese garment and textile industry will no longer be imposed the export quota but it will also lose government support policies as well as most protective taxes. Without the quota, Vietnam only has a little advantage and cannot make quick progresses as the US is worrying. Further, the Vietnamese garments and textiles only make a small market share of 3.2 per cent in the US while tax-free and quota-free Mexico and Canada have 12 per cent of the market share. China, India, Pakistan and Indonesia have a better competitive edge although they have the same import taxes as imposed on Vietnam because they have supporting industries and better material sources.

 

First, the pressure on the domestic market will be very high. Although import tariffs on material and clothing from ASEAN countries were reduced to 5 per cent, Vietnam’s rivals are non-ASEAN countries. Currently, garments and textiles from non-ASEAN countries are being imposed very high import taxes of 50 per cent and 40 per cent, respectively. However, as a full member of the WTO, these rates will be lowered to a maximum level of 15 per cent. Thus, garment and textile enterprises will be put a higher competition pressure on the domestic market.

 

Second, the Government will stop subsidies for the garment and textile industry. Although the current subvention is small, several enterprises will still face more difficulties, especially those enjoying large preferential credits. 

 

Third, if the Vietnamese garments and textiles are sued for dumping, the US will compare the accused prices with prices of enterprises in proven market economies, not of Vietnamese enterprises. Then, we will be at a disadvantage because the difference will exist, even very wide.

 

The competition in the distribution stage is also very severe. In the current distribution network in Vietnam, small outlets account for 70 per cent while modern do-it-yourself shops are the rest. In developed countries, these rates are on the contrary. After Vietnam enters the WTO, foreign retail groups will enter and they will put pricing pressures on the domestic network.

 

 

In my opinion, there are two major tendencies for Vietnamese garment and textile enterprises to grow, namely producing unique products and enhancing investment for development of material sources for the export garment industry.

 

The Vietnamese garments and textiles can only compete in quality, not quantity or price. To survive, Vietnam cannot only manufacture popular products nor does outsourcing. China, India and ASEAN countries are too strong in price competition. Of course, we must do because the shift needs a long time and a gradual roadmap. But more importantly, enterprises must define development plans from outsourcing into FOB commodities, from popular products into luxury products. I think producing unique apparels is a right track.

 

On the other hand, the garment and textile industry should focus on investing to manufacture apparels for export in the coming time. Vietnam is implementing two general fibre and yarn material production projects. In reality, to develop the textile industry, all nations must support production right from the material stage. The garment and textile industry is facing several hardships, like more than 70 per cent of material for clothes-making is imported while 85 per cent of machinery, equipment and spare parts for the textile industry is also imported. In spite of numerous difficulties, the investment for the textile industry is essential.