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2015 VIETNAM TEXTILE AND GARMENT INDUSTRY REPORT TABLE CONTENT Part Page Part Page List of abbreviations 1.2. Raw materials Executive Summary 1.3. Spinning I. Business environment 1.4. Weaving, dyeing
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2015 VIETNAM TEXTILE AND GARMENT INDUSTRY REPORT TABLE CONTENT Part Page Part Page List of abbreviations 1.2. Raw materials Executive Summary 1.3. Spinning I. Business environment 1.4. Weaving, dyeing and finishing 1. Macroeconomic situation 1.5. Sewing 2. Government Policies Relating to the industry 1.6. Distribution and export 3. Foreign Trade Agreements 1.7. Textile Machine Industry 4. Trans-Pacific Partnership Agreement 2. Vietnam s Textile and Garment Industry II. Industry Overviews 2.1. Overview 1. Global Textile and Garment Industry 2.2. Raw materials 1.1. Global Textile and Garment Value Chain 2.3. Spinning 2 TABLE CONTENT Part Page Part Page 2.4. Weaving, dying and finishing VI. Industry s key players 2.5. Distribution and export 1. Key players in Garment Industry III. Industry s potential and risk analysis 2. Key players in Textile Industry 1. Risk analysis V. Conclusion 1.1. Five Forces Analysis Reference 1.2. SWOT Analysis Appendix 2. Potential analysis 2.1. Industry s development plan 2.2. Forecast and potential assessment 3 LIST OF ABBREVIATIONS LIST OF ABBREVIATIONS Acronyms Expansion Acronyms Expansion CMT Cut Make Trim CNTAC China National Textile & Apparel Council OEM Original Equipment Manufacturer VINATEX Vietnam National Textile and Garment Group ODM Original design manufacturer GDVC General Department of Vietnam Customs OBM Original brand manufacturer GSO General Statistics Office of Vietnam PET Polyethylene terephthalate MoIT Ministry of Industry and Trade EU European Union UAE United Arab Emirates CARG Compound Annual Growth Rate VITAS Vietnam Textile and Apparel Association VCOSA Vietnam Cotton and Spinning Association GDP Gross Domestic Product CPI Consumer Price Index 4 EXECUTIVE SUMMARY GLOBAL TEXTILE AND APPAREL INDUSTRY 5 EXECUTIVE SUMMARY VIETNAM TEXTILE AND APPAREL INDUSTRY 6 TABLE CONTENT Part I. Business Environment 1. Macroeconomics Situation 2. Regulatory Framework 3. Foreign Trade Agreements 4. Trans-Pacific Partnership Agreement 7 Part I. Business environment 1. Macroeconomic situation Vietnam GDP and GDP growth rate Unit: billion US$ % 7% 6% 5% 4% GDP tend to grow stably over time % This page is intentionally removed 2% for demo purposes 1% T/2015 0% GDP GDP growth rate Source: VIRAC from GSO Textile and Garment industry is a vital part of the industrial sector, contributing significantly to the economic restructuring process. T&G industry promotes both upstream and downstream ones, from agriculture such as jute cotton, silk and etc. to other industrial sectors, namely power, chemical to manufacturing. Vietnam s textile industry has increased significantly since normalizing relationships with the United States in the 1990 s. Vietnam was granted most favored nation status (MFN) in December 2001, which led to a dramatic reduction in import tariffs in the US market. The textile industry is now the second biggest exporter in Vietnam and is expected to become the biggest in the near future. However, the industry only makes up for about 7-8% of Vietnam s GDP since it is dependent on imported raw materials and only operates on low-value-added stage. 8 Part I. Business environment 1. Macroeconomic situation 2500 GDP per capita and GDP per capita growth rate Unit: US$/capital 25% Increasing GDP per capita is a positive factor to promote apparel spending % % % 500 5% GDP per capita GDP per capita growth rate GDP growth rate 0% Source: VIRAC from GSO 9 Part I. Business environment 1. Macroeconomic situation Vietnam total import value Unit: billion US$ % 10% 8% 6% 4% 2% 0% This 2012page 2013 is intentionally T/2015 removed for demo purposes Import Proportion of T&G industry in GDP Source: VIRAC from GDVC Vietnam total export value Unit: billion US$ T/ % 20% 15% 10% 5% 0% Export % of T&G industry Source: VIRAC from GDVC 10 Part I. Business environment 1. Macroeconomic situation VND/CNY exchange rate Impact of China devaluating the CNY. China is currently the largest trading partner of Vietnam. When it devalued the CNY, there would be a major impact on many industries of Vietnam, including textiles. Vietnam annually imports up to 40% of textile raw materials from China, equivalent to about 4 billion meters of fabric and other clothing materials By devaluing its currency, China helps lower the price of its domestic 3000 commodities, thus creates competitive advantages for its businesses in global market. Competition in Vietnam s key export markets, such as the US and EU, 2900 increases significantly since Chinese textile product prices falls sharply. Main export products to China in 2014 Unit: million US$ Main import products from China in 2014 Unit: million US$ Source: VIRAC from VGDC, Yahoo Finance 11 Part I. Business environment 1. Macroeconomic situation In 2015, Vietnam constantly devalues VND. In the first six months of 2015, the State Bank increased interbank average exchange rate twice, from VND21,246 to VND21,458 in 7 th Jan 2015 and to VND21,673 in 7 th May 2015, to actively lead the market to correspond with international financial market developments. China s central bank devalued its tightly controlled currency, causing its biggest one-day loss in two decades, State Bank reacted by increasing trading band of VND/US$ from +/-1% to +/-2%. Orienting itself as an exporter, Vietnam s devaluation of VND helps lower exporting price, increases competitiveness for domestic enterprises including garment ones, and helps increase export revenue while input costs are not considerably affected by CNY devaluation. USD/VND exchange rate 31/12/ /12/ /12/ /12/ /6/2014 6/1/2015 7/5/ /8/2015 Source: VIRAC from SVB 12 Part I. Business environment 1. Macroeconomic situation Related Industries (Petrochemical Industry) Oil derivatives are raw materials for production of some products in textile industry such as plastic beads, synthetic rubber, synthetic fibers and etc. However, it is associated with the development of petrochemical industry. With crude oil reserves of 4.4 billion barrels, Vietnam is the second largest in oil reserves in East Asia, after only China. Vietnam, however, now mainly exports crude oil and imports refined oil products due to undeveloped domestic refinery industry. At present, Vietnam has only Dung Quat oil refinery and a small factory named Cai Lai in operation, the rest are in the process of deployment. Out of six oil refinery projects mentioned below, only Nghi Son project is on the right track to deploy by the end of 2014 and has been disbursed about US$3 billion; of five other projects, one was ground-breaking a long time ago but currently on hold and under time extension, one is awaiting building permit, one is under the risk of revoked license. In the coming years, synthetic fiber industry of Vietnam will still have to continue importing raw materials derived from petroleum and is under the risk of global price and exchange rates fluctuations. Oil refine projects currently built in VN Project name Location Capital (US$ billion) Capacity (million tons / year) Part I. Business environment 1. Macroeconomic situation Related Industries (Retail) Vietnam is estimated to have approximately 8,500 markets, 1.3 million grocery stores, nearly 500 convenience stores, 750 supermarkets and 132 commercial centers. The retail businesses have seen rapid growth and enhanced competitiveness in the fiercely competitive market. Many have established extensive distribution and retail network, and fulfilled all consumer needs. In 2014, retail sales estimated to be US$76.5 billion and reached 96.4 billion US$ in 10 months of Retail revenues are forecasted to reach US$ 109 billion in 2017 with an average growth rate of about 13%/year. With a population of over 90 million people and increasing per capita income, apparel spending in Vietnam is relatively adequate. In 2010, spending on textiles was US$2.2 billion, US$2.5 billion in 2012, US$3 billion in 2014, an average increase of 10-20%/year. Together with supermarkets, commercial centers are developing fast, some textile enterprises establish and constantly expand their own system of retail store chains on their own brands (Viet Tien, Vinatextmart, Canifa, Hanosimex, etc.). Access of Vietnam s people to modern retail is very low at the moment (22%) compared to other countries in the region; its potential for retail sector, therefore, is still very large. Vietnam retail sales Unit: US$ billion Share of modern retail in total retail Unit: % % 14% 12% 10% 8% 6% 4% 2% Malaysia China Thailand Indonesia Philippines Vietnam F 2016F 2017F 0% Retail revenue Growth rate Source: VIRAC from Deloitte TABLE CONTENT Part I. Business Environment 1. Macroeconomics Situation 2. Government Policies Relating to the industry 3. Foreign Trade Agreements 4. Trans-Pacific Partnership Agreement 15 Part I. Business environment 2. Government Policies Relating to the industry Group of regulations and standards for textile production: TCVN 6054:1995 compiled by Technical Committee TCVN / TC 133 Apparel size and design system, proposed by the Directorate for Standards - Metrology - Quality, and issued by the Ministry of Science, Technology and Environment; TCVN 4737:1989 on textile material - garment fabrics - list of quality indicators issued by Committee on Science and Technology; TCVN 2109:1977 on Garments - sampling methods issued by the Committee of Science and Technology; QCVN 13-MT:2015/BTNMT: National Technical Regulations on textile dyeing industrial wastewater (replace NTR 13: 2008 / BTNMT from 1st June 2015)» Raising the maximum value of pollution indicators allowed for urban and residential wastewater (wastewater type A and B), helping reduce pressure for textile dyeing enterprises. Temporary Circular on permissible limits for formaldehyde content, aromatic amines that may be released from azo dyes in reducing conditions on textile products (32/2009/TT-BCT);» Ministry of Industry and Trade issued Circular 37/2015/TT-BCT to replace Circular 32/2009/TT-BCT, regulating limits and checking the content of formaldehyde and aromatic amines from azo dyes in textile products. This circular is an improvement from circular 32; it provides clear regulations on number and specification when testing product samples, hence reducing and simplifying inspection time. Since this circular only applies textile products for domestic consumption, companies have to prove that their products are eligible for formaldehyde content and aromatic amines test, which is already shown on the import declaration. This is contrary to the reform of administrative procedures which the State authorities are trying to do. Furthermore, the unclear terms also make it difficult for enterprises. Decision on the approval of laboratories performing the assessment of formaldehyde content, aromatic amines that may be released from azo dyes in the reducing conditions in textile products (1208/QĐ-BCT).» Approval Ltd. TUV Rheinland Vietnam are allowed to perform inspections formaldehyde content, aromatic amines may be released from azo dyes in reducing conditions on textile products. 16 Part I. Business environment 2. Government Policies Relating to the industry Group of regulations for textile imports and exports: Circular No. 38/2015/TT-BTC dated 25 th March 2015 issued by the Ministry of Finance on custom procedure, custom control and monitor, import tax, export tax and tax management for imported and exported products.» In general, Circular No. 38 complies with administrative reform and procedure simplification, helping save time and cost and creating favorable conditions for businesses. However, many shortcomings and difficulties have arisen in the implementation of this circular. Specifically, it stipulates that enterprises must submit tax refund documents but does not specify the form and reporting requirements, hence businesses have difficulties in preparing and checking the documents. Moreover, period of implementation of tax records and inspection procedures under Circular 38 is another barrier. According to clause 5, article 114 and clause 5, paragraph 6, article 129, tax files including import, export documents for manufacturing goods exported from enterprises which are inspected first, then refunded tax or charged no tax, and inspection must be conducted at the headquarter of enterprises.» The examination before tax refund under the provisions of Article 130 under the authority of the Director and Head of the department due to implementation. To properly perform this process will take a lot of time, hard to ensure complete reimbursement records, do not collect taxes within the 275-day grace period, leading to the risk of coerced now very high taxes and taxes will amount to hundreds of billions of dong. Group of regulations on taxes Import tariff Products MNF tariff prior WTO Preferential import tax Cotton Fibers Fabrics Clothing» After Vietnam joining WTO in 2007, import tariffs on textile materials reduced significantly, driving investment and development in textile industry. Nevertheless, huge import tariff cut in apparel made imports cheaper than locally made products, increasing domestic competition and making more difficult for Vietnamese firms to gain shares. Corporate Income Tax Decision No 1483/QĐ-TTg issued in 26 th August 2011 provides regulations on tax incentives for businesses: Natural fibers: cotton, jute, hemp, silk; Synthetic fiber: PE, Viscose; Fabrics: technical fabric, non-woven fabric; Chemicals, auxiliaries, dyes for fabric dyeing and finishing industry; Garment accessories: Buttons, mex, zippers, elastic bands» Accordingly, new investment projects in the industries listed above are subjected to preferential tax rate of 10% in 15 years, 4 years of tax exemption and a 50% corporate income tax during the next 9 years. This decision supports investment in weak links in the value chain of Vietnam T&G industry. 17 TABLE CONTENT Part I. Business Environment 1. Macroeconomics Situation 2. Government Policies Relating to the industry 3. Foreign Trade Agreements 4. Trans-Pacific Partnership Agreement 18 Part I. Business environment 3. Foreign Trade Agreements (Vietnam-Korea FTA) On August 6th 2012, Vietnam and Korea officially launched VKFTA negotiation based on WTO principles, improving their commitments in ASEAN Korea FTA. After eight rounds of formal negotiations and eight mid-term meetings, chief negotiator level meeting, the two sides formally signed VKFTA. Although Korea has been a partner with Vietnam in ASEAN Korea FTA, but VKFTA is still a major step to move forward in trading relations between the two countries; the agreement became effective on 20 th December Tariff reduction 24 apparel product lines exported from Vietnam to Korea will enjoy a 0% tax instead of instead of the current rates of 8-13%. Among goods that Korea incurs tax favour for Vietnam, textile and apparel products are the only one whose tariff will be eliminated as soon as the agreement takes effect. Textiles are the groups with the largest export turnover of Vietnam to South Korean market, the level of this cut is considered to be the most important in VKFTA. Rules of origin VKFTA applies Regional Value Content - RVC 40% or Change in tariff Classification - CC . Accordingly, the goods is considered originating their regional value content (hereinafter referred to as RVC) is at least 40% by FOB, or undergo a Change in Tariff Classification. CTC applies only to non-originating materials. To meet these criteria, materials or spare parts with no origin used in the manufacture of goods must differ from HS code of final products. CTC criterion is taken to ensure the non-originating materials undergone a transformation within FTA territory to prove the goods are produced in the territory of the FTA. Minimis exemption applies: Goods that do not meet the criteria for CC are considered originating if the weight of all non-originating materials used to produce the goods that do not meet CC may not exceed 10% of the total weight of the goods, or the value of all non-originating materials used to produce the goods that do not meet CC does not exceed 10% of the FOB value of the goods. In general, the rules of origin for textiles stipulated in VKFTA are quite similar to that of AKFTA, and comply with the production and export of textile in Vietnam because Vietnam is importing many input materials from Korea. Roles of VKFTA Korea is the 4th largest textile export market of Vietnam, after the US, EU and Japan in 2014 with exports of US$2,089 million, main products are clothing, fibers, yarns of different types. In recent years, the growth rate of garment exports from Vietnam to Korea also increased, reaching 53.3% in 2013 and 27.5% in It is projected that total exports of clothing to the Korean market could reach US$ 16.3 billion in 2015, increased by 11.6% yoy. Korea is not only is the main export market, but also one of the important market supply raw materials for Vietnam s apparel industry. Currently, Korea is providing nearly 20% of raw and other auxiliary materials cloth for Vietnam. In addition, Korea is also the biggest investor in Vietnam textile industry with many significant projects. With VKFTA milestone successfully negotiated, many experts believe that Korean firms will continue to shift production and investment for functional fibers, printing and dyeing, fashion, etc. to Vietnam, and strengthen cooperation with Vietnam in importing of textile products to Korea or export to other markets. Part I. Business environment 3. Foreign Trade Agreements (Vietnam-EU FTA) Negotiations of Vietnam - EU Free Trade Agreement was commenced from June After nearly three years of negotiations, with 14 sessions and many midterm session at the ministerial level, leader and technical teams, Vietnam and the EU have reached agreement on all the principles of the basic contents of the Agreement on 4th August Agreement is expected to take effect in Tax reduction All fabric exports of EU to Vietnam will have tax exempted as soon as the agreement takes effect; vice versa, EU will completely exempt import tax from current average of 12% for all Vietnam s textile products within 7 years since the validity of EVFTA. Rules of origin In order to receive preferential tariffs in EU market, Vietnam s apparel products shall meet the requirements of from fabric onwards . This means apparel products from Vietnam will only enjoy tax incentives when using raw fabric materials in or only one exception which is clarified for fabrics made in Korea (another FTA partner of EU), fiber and yarns can be imported from other countries. This is a challenge for Vietnam enterprises because textile industry was in a state of bottlenecks for years due to undeveloped textile, dyeing and finishing sectors. Raw textiles originating in Vietnam with 88% made of imported material which is mainly made in China. In order to enjoy preferential tax rates, businesses need to shift investment and focus on promoting the textile, garment to help reduce reliance on raw material supplied by foreign companies Roles of EVFTA EU is Vietnam s 3rd largest textile importer with the exports of US$1.54 billion in the first half of 2015, increased by 4.9% yoy. The value of textile and garment exports to the EU contributed to 2.77% of the total export value of Vietnam in In the EU market, Vietnam grows strongly and steadily, currently ranked No. 6 among textile exporting countries to EU in 2014, accounting for 3.1% of the value and 2.6% of volume.. Complete elimination of tax will be very beneficial for textile enterprises. Vietnam s textile exports Vietnam to EU is expected to prosper as in the case of Bangladesh after GSP preferential tax. According to calculations by the EU-MUTRAP (European Trade Policy and Investment Support Project), Vietnam s textile exports to EU will grow by 20% as a result of the EVFTA. However, the textile enterprises should be cautious with strict p
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