Textile industry still awaiting clarity on EU-Vietnam FTA

For http://www.wtin.com/

Although outgoing European Commission president José Manuel Barroso, on his late-August visit to Vietnam, presented the planned EU-Vietnam free-trade agreement (FTA) as a nearly finalised deal – and Vietnamese state media predict the signing will happen in October – the Vietnamese textile industry is still unsure about the FTA’s potential impact.

Anxiously awaiting an announcement on what rules of origins will apply, industry sources warn that Vietnam’s up- and mid-stream textile plants are so dependent on imported inputs that if the FTA does not cover raw materials acquired outside the country, the whole pact will be meaningless to them.

“In our three Vietnamese factories, we use many different raw materials the country cannot produce, so that we need to import them from China, Korea, India, Malaysia and so forth,” said Michael Grosbøl, CEO of Danish workwear manufacturer Mascot International, which has three plants in Vietnam. Speaking to WTiN, he said: “If the rules of origin will work out strict, the FTA’s textile-tariff reductions from about 12% to 0% would not benefit my company at all.”

However, with generous rules of origin, Mascot’s Vietnamese operations would become globally much more competitive through the FTA.

In the global textile supply chain, Vietnam primarily delivers labour, on which it is more competitive than China in terms of the supply and wage scale. But the country’s spinners churn out mainly basic acrylic and acrylic-cotton yarns, while its weavers, dyers and finishers are also generally far from being able to supply raw materials of the quality require to meet the EU’s stringent, such as the Oeko-Tex Standard 100 certification system and compliance with the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) system.

According to Mr Grosbøl, Mascot International had recently harboured plans to invest in a Vietnamese dyehouse, but the perceived local ‘total lack of skill’ prevented the firm from carrying out the transaction, so that the fabric still has to be dyed in the UK, China, Korea and Thailand, among other countries.

“You need managers and technicians with an understanding of quality, and you need a laboratory, a colour kitchen and computerisation,” he said. “But the expert team we had flown in just shook their heads, declaring a co-operation mission impossible, given all that backwardness they encountered.”

Meanwhile, Bui Trong Nguyen, secretary general of the Saigon Association of Garment-Textile-Embroidery-Knitting (AGTEK) told WTiN that Vietnam’s own up and mid-stream textile plants would be able to supply more sophisticated yarns ‘in three to five years at the soonest’.

Mr Grosbøl foresees a 15-year timeframe for dying processes and finishing, with his bleak assessment based on the experience of China, which “spent many years to get to that point and is still not at same level as EU suppliers of fabrics.”

But there is yet another point of concern: Vietnam-based textile companies hope the EU-Vietnam FTA will address labour restrictions. In recent years the Vietnamese authorities have made it increasingly difficult to obtain work permissions for expat staff – requiring, for example, since 2012, that each extension of an expat work permit should be matched by a training contract with a Vietnamese national, in order to replace the expat staff member once the extension expires.

“All expats are subject to these regulations, even the most senior, at CEO level,” Mr Grosbøl observed. “Such restrictions have been met with repeated appeals from EuroCham [the European Chamber of Commerce in Vietnam] and other business organisations, but so far the Vietnamese authorities seem adamant to continue with even more restrictions.”

– See more at: http://www.wtin.com/article/2014/september/15_9_2014/eu-vietnam-fta/?channelId=1127#sthash.OV0vdv5B.dpuf

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