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Vietnam Looks to Scale up Apparel and Footwear Production Ahead of EU FTA

With TPP on the rocks and the U.S. out whether TPP 11 happens or not, Vietnam has its efforts focused on preparing for more robust trade with the European Union.

Vietnam and the European Union have been working on the EU-Vietnam Free Trade Agreement (EVFTA) for years now, and the negotiations concluded in August 2015. Since then they’ve been working out other kinks, and the deal is expected to be signed next year.

“The EU is a very important partner with significant impacts on the development of Vietnam,” the country’s former trade minister Truong Dinh Tuyen, told Vietnam News. “The EVFTA has become more important to the country after the U.S.’s withdrawal from the TPP.”

Times are somewhat tense for free trade agreements, and that, among other factors, like an economic downturn in Europe—which has cost the region jobs and heightened concern about competition—have reportedly been to blame for stalling the forward movement of the deal. Issues related to sustainable development have also been a point of concern in the talks, according to leader of the European Trade Policy and Investment Support Project (EU-MUTRAP) Dr. Claudio Dordi.

“There is still a lot of work to be done in Europe,” Dordi said, adding that both sides are still pushing to put signatures to the agreement as early as next summer.

Once the FTA is in place, the EU will eliminate all import taxes on Vietnamese goods within seven years, and Vietnam will do the same for the EU within 10.

Some goods, including apparel and footwear, which are two of Vietnam’s key exports, will see tariffs cut upon the trade deal taking effect, according to Vietnam News.

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To meet with the EU’s demands when it comes to quality and standards, however, Vietnam will have to elevate its offering, upgrade its value chain, focus on ‘Made in Vietnam’ manufacturing and improve its capacity to produce higher value-added products in order to take the most advantage of the free trade deal, Dordi said.

“In general, many key export sectors such as footwear, textiles and garments, fisheries, wood and wooden products are growing at slow speeds because most of the production in these sectors is based on low value-added stage of production,” he told Vietnam News. “EVFTA will provide a lot of important opportunities for Vietnamese business, but of course they should be able to exploit them.”

If Vietnam can adequately advance its manufacturing capabilities, an EU-MUTRAP study says the FTA could boost Vietnam’s GDP by $3.2 billion by 2020 and $7.2 billion by 2030. The trade deal could also lift Vietnam’s exports to the EU to $42 billion by 2025 (up from $33.1 billion in 2016), and those exports could reach as high as $47 billion by 2030.

That growth could position Vietnam to be an even bigger apparel manufacturing powerhouse, as its exports to the U.S. are on the rise as well. According to the latest data from the U.S. International Trade Administration’s Office of Textiles and Apparel, Vietnam’s apparel shipments to the U.S. jumped 6.5% to $8.7 billion in the year to date, bringing the country’s share of the U.S. apparel import market up more than 1 percent to 14.4% and positioning it to gain further ground on China.