With tax incentives given, new-generation Free Trade Agreements (FTAs) Vietnam has signed are expected to open up a wealth of opportunities for the garment and textile industry to attract foreign direct investment (FDI) to develop local supply chains, according to insiders.

New-generation FTAs offer impetus to textile supply chain restructuring 

Experts say developing local supply chains to reduce a heavy reliance on other countries is a must for Vietnam, especially the garment and textile industry which imports large amounts of materials from foreign partners. Attracting both domestic and foreign investment into the fibering, weaving and dyeing stages is considered an effective solution for the industry to develop in a sustainable manner.

The garment and textile industry is therefore predicted to significantly benefit from the implementation of new-generation FTAs such as the European Union-Vietnam Free Trade Agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the European Union - Vietnam Investment Protection Agreement (EVIPA). It is widely believed that this trio of trade deals will create greater opportunities to attract capital and modern technology as a means of further developing the industry.

Indeed, the advantages that come from these FTAs has led to a sharp increase in terms of FDI inflows into the garment and textile industry over recent years.

Cao Huu Hieu, deputy general director of the Vietnam National Textile and Garment Group, states that total registered FDI into the country’s garment and textile industry during the 2013 to 2018 period reached approximately US$9.6 billion, far exceeding the total FDI figure for the entire 24-year period preceding it.

The FDI sector has therefore made great contributions to the growth of garment exports, accounting for 60% of overall turnover.

Hieu therefore advises local garment makers to be proactive to avoid doing outsourcing for FDI firms, noting that investment in producing raw materials remains the key to long-term success amid fierce global competition.

Despite the FTAs facilitating the greater attraction of capital and technology through the development of the garment and textile industry’s supply chain, the quality of capital sources and technology remains a challenging issue.

Experts underline the importance of strengthening connectivity between domestic enterprises and FDI firms in order to develop a strong supply source, while also using locally-produced raw materials in production. Furthermore, it has been noted that the Government and the Ministry of Industry and Trade (MoIT) must work to devise stronger policies in an effort to develop the support industry and draw up a national plan with regard to the development of raw material zones.

Truong Thanh Hoai, Director of the MoIT’s Department of Industry, emphasised the need to develop the design stage and trademarks suitable for the garment and textile industry, adding that in order to optimise the benefits of FTAs, enterprises must invest in modern production lines as a way of meeting the stringent requirements with regard to raw and auxiliary materials set by new-generation FTAs.