GUATEMALA CITY — Vietnam remains flexible in negotiating a deal with the U.S. for admission into the Trans-Pacific Partnership trade block, according to the president of the country’s Textile and Apparel Industry Association.
“We are flexible,” Dan Phuong Dong told WWD during the 24th annual Apparel Show held here, adding that Hanoi is unafraid of entering the 12-country trade pact under a yarn-forward rule, which the U.S. is favoring to allay concerns that a more lax, non-yarn-forward entry would enable it to use Chinese raw materials, gaining an unfair competitive advantage.
Phuong Dong said the industry, which accounts for 16 percent of Vietnam’s export revenues, is willing to consider an expanded short-supply list in lieu of the non-yard-forward provision it has been lobbying for, but that this will have to be decided during negotiations.
She noted yarn-forward admission to the TPP would undermine the Vietnamese industry in the short-term as it would limit feedstock imports from China, where it buys roughly 80 percent of fabrics for basic garments, but would provide long-term benefits by encouraging investment in new raw-material mills.
Vietnam, which exported $24.7 billion of garments last year — 47 percent of which went to the U.S. — is hugely reliant on feedstock imports. Of the 6.8 billion square meters of apparel churned out last year, it imported 6 billion square meters of raw material, the executive said during a breakfast presentation.
During the event, organized by Guatemala’s main textiles lobby Vestex, some Guatemalan industry executives said Vietnam’s rapid climb to the U.S.’ number-two garment supplier has been driven by government subsidies. The phenomenon has hammered Guatemala and Central American exports north of the border, hurting economic growth.
But Phuong Dong denied direct state intervention.
She said while state-owned companies used to own shares in textile manufacturers, their holdings have gradually been reduced (Vinatex’s recent, yet failed, IPO is an example). “There are no subsidies, no subsidies at all,” she countered. “Companies must grow on their own. We must borrow from banks.”
She did acknowledge that exporters enjoy sales tax exemptions.
Karin de León, a textiles industry consultant for investment promotion agency Invest in Guatemala, insisted Vietnamese entities including Vinatex receive unfair tax breaks, credits, low-interest financing, training, and research and development assistance.
She noted the short-supply list is cause for concern because Vietnam could manipulate it to work similarly to a non-yarn-forward rule. Short-supply categories under the CAFTA-DR Central America-U.S. FTA have very specific descriptions as to the scarce fabrics allowed for garment making, de León said. In contrast, Vietnam is asking for much broader descriptions, she added, noting she has had access to negotiation documents.
“At the end of the day, if a short supply list has so many products, for Vietnam to say ‘I’m going to allow a yarn-forward rule’ is very conceptual because the short-supply list could essentially give you the same flexibility of the non-yarn-forward rule,” de León noted. “We want an integrated rule of origin so that when you look at the small print, we actually have something like a yarn-forward rule in practice, not just conceptually.”
Meanwhile, Phuong Dong said Vietnam will press ahead with plans to boost clothing exports to $38 billion by 2020 and nearly triple them to $67 billion by 2030 by leveraging the TPP and other FTAs.
Apart from import dependency, the 5,000-strong industry must modernize its manufacturing base, move into higher value production and skirt high funding and energy costs, Phuong Dong said.
Vietnam hopes to boost exports to ASEAN counties, which currently accounts for only 2.4 percent of its apparel exports, and find new markets in Southern and Northeast Asia to tackle heavy competition from China and other Asian “tigers,” she added.