EVFTA opportunities for Vietnamese apparel products

Germany is known as the EU's largest import market for apparel products (clothing from Chapters 61 to 63 in the HS System) with increasing import demand. According to ITC Trademap, German imports of apparel products increased from USD 36.17 billion in 2010 to USD 48.73 billion in 2020, with the average import growth rate of this period being 3.43%. In particular, in 2020, despite being affected by the COVID-19 pandemic, Germany's apparel imports still recorded an impressive growth of 12% compared to 2019.

For Vietnam, apparel is a key production and export industry, for which the EU in general and Germany in particular are the main export markets. In the past, despite being imposed a relatively high tariff (MFN or GSP) by Germany, Vietnam's garment exports to Germany still maintained a good growth rate. According to ITC Trademap, Vietnam's garment exports to Germany in the period of 2010-2020 nearly doubled, from USD 673 million in 2010 to USD 1.71 billion in 2020 with the average growth rate of this period being 10% - much higher than that of Germany's apparel imports from the world of 3.66%.

In the coming time, with the implementation of the EVFTA, Vietnam’s export of garment products to Germany is expected to continue to grow when enjoying advantages from the Agreement. Specific benefits that the EVFTA may bring to Vietnam's garment products include:

Benefits from tariff reductions: Germany currently maintains relatively high MFN and GSP tariffs on Vietnamese apparel products. Specifically, in 2021, Germany’s average tariff rate of MFN on apparel products is 11.27% and that of GSP is 9.02%. According to the EVFTA, the EU/Germany committed to eliminate 196/418 (equivalent to 47%) of tariff lines for Vietnamese apparel products at entry into effect of the Agreement (August 1, 2020). The remaining lines (about 53%) will be eliminated after 3, 5, or 7 years. This is a very high commitment that an FTA partner has ever granted for Vietnamese garment products, which creates a great competitive advantage for Vietnamese garment manufacturers compared to competitors from non-FTA partners as well as from GSP partners of the EU.

Benefits from Cumulation of Origin

Besides preferential tariffs, Vietnam’s apparel products also achieve a relatively favorable commitment on rules of origin in the EVFTA – the cumulation of fabric from a third party. Specifically, the main rule of origin for garment products in the EVFTA is "fabric forward", which allows Vietnam to import fibers from third countries. Although this rule is strict compared to the "cut and sew" rule of many previous FTAs, but compared to the "yarn forward" rule of the CPTPP, this is still an easier condition to meet.

In addition, the EVFTA also allows the cumulation with fabric imported from Korea for garments. Specifically, fabric originating in Korea (a country that has an FTA with the EU) will be considered as originating in Vietnam when such fabric is used as a material for processing or manufacturing in Vietnam for garments under Chapter 61, 62 when exporting to the EU. Currently, Vietnam has also imported a fairly large amount of fabric from Korea for the garment industry, so this is also a very favorable commitment for garment products to meet the EVFTA rules of origin..

EVFTA full text for more information: https://wtocenter.vn/chuyen-de/12778-eu-vietnam-trade-and-investment-agreements 

Source: "Business Handbook: Exploiting the EVFTA  to import and export goods between Vietnam and Germany" - Center for WTO and International Trade