Vietnam’s textile and garment industry has been making strong strides in the international market, especially thanks to the free trade agreements (FTAs) that Vietnam has participated in. These FTAs not only create opportunities for export growth, but also help businesses in the industry improve their competitiveness and innovate production technology. By reducing tariff barriers, enhancing international cooperation and promoting sustainable production policies, free trade agreements have become an important factor shaping the future of Vietnam’s textile and garment industry.
What is a Free Trade Agreement (FTA)?
FTAs (Free Trade Agreements) are economic agreements between two or more countries that reduce or eliminate tariffs and other trade barriers to promote the movement of goods, services, and investment. These agreements often include commitments on intellectual property, labor standards, and environmental protection.
Characteristics of FTAs
Tariff liberalization: Reducing or eliminating import taxes, making it easier for goods to circulate. For example, EVFTA (Vietnam – EU Free Trade Agreement) commits to eliminating 99% of tariff lines on goods from Vietnam within 7 years.
Commitment to comply with international standards: FTAs require businesses to meet high standards on product quality, labor, and the environment.
Market expansion: FTAs create conditions for businesses to access new markets, reducing dependence on traditional markets.
Benefits of FTAs
Expanding export opportunities
FTAs help Vietnam access large markets such as the EU, the US, Japan, South Korea and ASEAN. In particular, EVFTA has helped textile and garment exports to the EU reach 4.34 billion USD in the first 9 months of 2024, up 7% over the same period last year.
Reducing production costs and increasing profits
Reducing tariffs helps Vietnamese textile and garment products compete better. For example, the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) has reduced import tariffs on Canada and Australia from 17% to 0%, increasing the advantage of Vietnamese textile and garment products.
Encouraging foreign investment
FTAs promote FDI (Foreign Direct Investment) flows into the textile and garment industry, helping to improve technology and enhance production capacity. In 2023, total FDI capital in Vietnam’s textile and garment industry will reach nearly 1.5 billion USD, an increase of 12% compared to 2022.
>> See more: Vietnamese textiles and garments benefit the most from the EVFTA Free Trade Agreement
Impact of FTAs on Vietnam’s textile and garment industry
Export growth
Thanks to FTAs, Vietnam has emerged as one of the world’s largest textile and garment exporters. Textile and garment exports reached 43.5 billion USD in 2023 and are expected to increase to 46 billion USD in 2024, thanks to effective use of incentives from FTAs.
EU market
EVFTA creates a big boost when import taxes to the EU are reduced sharply. For example, the tax rate on cotton shirts has been reduced from 12% to 0%.
CPTPP market: Exports to Canada are expected to grow by more than 15% in 2023, especially products such as sportswear and jackets.
Enhancing the supply chain
FTA origin requirements encourage Vietnamese enterprises to invest in domestic production of raw materials. This reduces dependence on imported raw materials from China, while increasing the added value of products.
According to EVFTA regulations, textile products must use fabrics originating from Vietnam or the EU to enjoy tax incentives. This has spurred strong investment in the domestic supply chain, with many fabric factory projects being deployed in Binh Duong and Dong Nai.
Challenges of compliance with high standards
FTAs, especially EVFTA and CPTPP, require businesses to comply with strict environmental and labor standards. This is a significant challenge for small and medium-sized enterprises in the textile industry.
For example, the EU requires products to meet low carbon emission standards and use recycled materials. Therefore, many businesses are having to invest in green technology to meet these standards.
Increased competition
Participating in many FTAs means that Vietnam has to compete fiercely with other countries such as Bangladesh, India, and China. However, tariff advantages and high product quality help Vietnam maintain its position in major markets.
>> See more: Choosing a low-cost manufacturer in Asia: Vietnam, China, India, Or Bangladesh?
In the coming period, the Vietnamese textile and garment industry will continue to take advantage of FTAs to expand its international market share. At the same time, investing in green production technology and improving product quality will be the key to maintaining sustainable growth. The government and businesses need to work closely to fully exploit the advantages of FTAs, making Vietnam a leading textile and garment center in the world.