Textiles industry and opportunities from TPP

Trans-Pacific Partnership (TPP) is expected to create a turning point of the twenty-first century to form a new standard for the global trade. Notably, the agreement has exclusively a chapter to talk about the textiles industry. According to experts, TPP partnership will help Vietnamese textiles to improve the added value of products, and also require enterprises to improve competitiveness, facilitate auxiliary industries.

Improving product’s added values

According to Dr. Tran Thanh Toan, Labour - Society University, Vietnamese market is vast and consists of potential customers to textiles industry. Vietnam has joined formal international organizations, thus textile export quotas were completely abolished so that enterprises are no longer worried about restricted export.

Joining TPP will help Vietnam's textiles to improve the added value of products. Photo: Textile production line of tuong Long Textile Company (Song Than II industrial park, Di An town)

Economic experts assessed, when textiles industry flourishes, enterprises have opportunities to expand their manufacture scale and diversify the supply chain.  Accordingly, the positive aspects of the origin rules will encourage businesses to invest in the auxiliary industry and focus on raw materials in order to enjoy the preferential tax rate of TPP, and less depend on raw material imports, especially imports from China. This will help to enhance the added value of exported garment products; facilitate a sustainable growth of this industry.

Besides, TPP would be a prerequisite to accelerate the investment process for the raw material production, which is a capital-intensive phase requiring advanced technologies. In addition, TPP will attract investment flows into Vietnam's textiles. In fact, FDI in domestic textiles has continuously increased in recent years, especially in 2015. Many major projects recently launched in Vietnam focus on producing textile materials and accessories, including dyeing and premium garment. New trends in FDI in Vietnamese textiles are establishing industrial parks exclusively for this industry, rather than merely a single project.

In Binh Duong, textiles is one out of six key industry of the province. In 2015, provincial textiles exports reached 2.09 billion USD, up 11.6% year-on-year, accounting for 9.6% total exports of the province and being ranked second in export turnovers of the province. The main export markets of Binh Duong textiles, like: the US, European Union (EU), South Korea, China, obtained growth from 8-11%. In addition, the successful TPP, FTAs with EU, South Korea, Russia negotiations, will help the industry to enjoy preferential tariffs, expand their export markets among member countries. At present, many large enterprises in the province have signed contracts until the end of 2016.

Nguyen Van Luong, Deputy Director of Vietnam Esquel Garment Manufacturing Company (Thuan An town), said the successful TPP negotiations would help Vietnamese textiles to gain more competitive advantages compared with countries in the region, especially China. The company also has now signed contracts until the end of 2016.

Besides, Binh Duong is planning for auxiliary industry development and forming industries producing raw materials for the textile industry. Binh Duong has attracted one major project in the textiles’ supporting industry. That was a yarn - dyeing conjugated chain project of Vietnam Far Eastern Polytex Company with an investment of 274.2 million USD in Bau Bang industrial park.

Improving competitiveness

According to MSc Ha Lam Oanh, Thu Dau Mot University, Vietnam's textiles is experiencing material limitations as guaranteeing the origin rules and the intense competition with FDI enterprises. Textiles is expecting benefits from exports as joining TPP, but if Vietnamese enterprises are not careful enough, these benefits may fall into the hands of FDI enterprises. Currently, FDI enterprises are contributing to the fierce competition with domestic enterprises in terms of orders, input materials, labors…

On the other hand, Vietnam's textiles still focuses on exporting processed products – the bottom position of the global value chain has relatively low added values. In addition, productivity of Vietnam is in the lowest in ASEAN and the world. This is the main reason why product prices of domestic enterprises are hiked up, although our labor price is the cheapest in the region.

Economic experts said as Vietnam joins the TPP, import duty on garments will reduced from 20% to 0%, foreign products will appears more and more on domestic market. With common, similar product types and shrunken distribution channels, the losing risk right at home of domestic companies is relative high.

To enhance competitiveness, make the most advantages from TPP, MSc Ha Lam Oanh believed that domestic enterprises should actively improve cooperation with customers through increased production capacity, timely delivery, quality management and performing social responsibilities… Besides, domestic companies must invest more in market research and designing.

According to economic experts, in the current conditions, designing, raw materials supply and trade are able to gain the highest profit for the textiles. Textile enterprises also need supports from the State; increase exports in the form of FOB; research, design new products with particular characteristics. Companies needs products with high differentiation, must be unique, modern, update on fashion trends…

Hopefully, when TPP takes effect, benefits that Vietnam enterprises gain will outweigh obstacles.

Reported by P.Le – Translated by Ngoc Huynh