The localization ratio in textile & garment industry has risen to 40-45 percent

Experts all agree that poor supporting industries are the major reason hindering Vietnam from joining global supply chains. However, this is no longer true in the textile and garment industry.

Pham Xuan Hong, chair of the HCM City Association of Garment, Textile, Embroidery and Knitting, said Vietnam has made a big leap in developing textile and garment supporting industries thanks to the government’s policy and enterprises’ hectic preparations for Free Trade Agreements, which set high requirements on the origin of products.

Even when the TPP trade agreement faced postponement, Vietnamese and foreign investors continued to invest in projects in textile and garment supporting industries.

The HCMC-based Hung Xuong Chemicals has obtained Bluesign, an European certificate on environmentally friendly products and workplace safety, which is considered a solution for sustainable textile production.

Pham Tat Thang, a senior researcher at the Ministry of Industry and Trade (MOIT), also said Vietnam’s textile and garment supporting industries had developed slowly until two years ago.

In the past, Vietnam had to import 80 percent of input materials and accessories for domestic textile and garment production. But the figure has fallen to 30-40 percent. 

Thang said Vietnam has invested in supporting industries based on commitments made in FTAs. 

CPTPP, for example, sets the ‘yarn forward’ principle, so Vietnam has made bigger investments in yarn production projects to be eligible for preferential tariffs stipulated in the agreement.

Vietnam has also developed fabric manufacturing projects to satisfy the ‘fabric forward’ principle stipulated in the Vietnam-EU FTA. The current fabric output is high enough to satisfy both domestic demand and exports.

However, Thang pointed out that there are still problems. Enterprises want to develop weaving, dyeing and trimming projects to set up closed production chain. However, they are finding it difficult to lease land for workshops, because local authorities tend to refuse dyeing projects because of pollution. 

The second problem lies in production optimization. The production scale now is not big enough to cut production costs.

Hong also thinks the input material and accessories supply chain for the textile & garment industry is not strong enough. “It is true that the production costs of textile & garment input materials and accessories are higher than imports from China because of the limited production scale,” he said. 

If it continues to import materials from China, Vietnam will not be able to improve its capability to be eligible for preferences given in FTAs.

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