Prof Claudio Dordi - Professor of International Law at Bocconi University (Milan), and MUTRAP III Team Leader
Mr Federico Lupo Pasini - Lawyer and consultant specialized in international economic law and policy. Based in Hanoi.
The Vietnam’s Textiles and Garment Industry
The textiles and garment, one of the largest industries in Vietnam (more than 2 million workers in enterprises, mostly state-owned, concentrated in the South-East region – 58% - and in the River Delta – 27%) shows a high export propensity: more than 65% of production is exported to the US market, and the rest is exported mainly to the EU and Japan. Exports of garments showed a constant growth in the period 2005-2008 (+32% annually average) and a substantial decrease in 2009 (-10%) due to the demand contraction (and price reduction) following the economic crisis. The rising of prices of materials and high lending interest rates contributed to worsen the competitiveness of Vietnamese industry. The difficulties in exporting to the EU and American markets pushed the Vietnamese producers to look for niche markets such as Turkey, Middle East, Africa and Eastern Europe. Furthermore, due to the reduced tariff applied by Japan in the context of the ASEAN-Japan FTA, in 2009 the textile exports to the Japanese market increased of 25%. The ASEAN-FTA agreements will even mitigate the increase of costs of materials imported from Japan and Korea. Besides the international turbulences, the industry faces few challenges on the export side; in the next future the increased presence of products from China, India, Pakistan and Bangladesh will probably represent a the most important challenge for Vietnam. Besides the other advantages, the conclusion of the FTA will reduce to 0 the 12% tariffs at present applied by the EU on the export of Vietnamese apparel and clothes. This will benefit, in particular, the five most exported products (Women’s and men’s suits - 285 million and 233 million USD respectively, Men’s and Women’s overcoat - 211 million and 207 million and jerseys 166 million). Based on the 2009 data, the elimination of tariffs by the EU would produce an increase of export of the five most exported products above mentioned, on average, of more than 20%.
The Vietnam’s Footwear Industry
Footwear production (over 500 enterprises, one million workers) accounts for 40% of the total industrial production and has become a key export for Vietnam (10% of the export turnover, Vietnam is among the ten leading exporters in the world). In the EU, Vietnam is the second most important exporter after China (4.5 bn. USD in 2008; in 2009 the export reached 3.6 bn., down of 20%; China exports 10.5 bn., India and Indonesia around 1.5 bn. each); Vietnam exports concentrate mainly on high quality leather (48%, 2.3 bn. USD in 2008) and sport shoes produced for US and EU brands; recently few Vietnamese producers have started to focus on domestic demand by investing in the establishment of professional model design rooms. The share of EU import of Vietnamese footwear on the total import of footwear in the period 2004-2008 shows a “U shape” (11% in 2004, 9.3% in 2006 and 10.5% in 2008). The decrease in 2005 and 2006 is probably the result of the antidumping duty applied by the EU on the footwear with uppers of leather (even if the AD has been applied only in 2006, there has been an “announcement effect” as the procedure started in 2005); in this period Vietnam diverted part of its leather footwear exports to the US. However, in the same period China and other competitors increased their market share in the EU import (China: from 12.1% in 2004 to 21.1% in 2009; India +0.6%, Indonesia +0.5%): in 2009 the economic crisis impacted more on the Vietnamese (-1.1. of share in the EU market) than Chinese exports (+1.5% of share). Vietnamese exports of leather footwear are more sensitive to external shocks than Chinese ones: this is confirmed by the trend of export from 2006 to 2009 following the application of antidumping duties. The weighted average tariff applied by the EU on footwear imported from Vietnam is 12.4%: however, the tariff on import of leather footwear, including antidumping, is 17%. The losses in market share and the sensitivity of exports to external shocks make particularly important for the export of Vietnamese footwear the conclusion of a FTA: in the simulation with SMART (World Bank), the export of the different types of footwear would increase from 7 to 21%; to this it must be added an increase of 14-16% due to the forecasted expiry of the antidumping duty.
Committee on International Trade Policies - VCCI