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Vietnam Gov’t Earmarks 65 Billion Dong for Textile Industry

Positioning itself to mature into a premier exporter of textiles and apparels, Vietnam’s government pledged 65.57 billion dong ($3.1 million) for factory worker training.

Vietnamese Prime Minister Nguyen Tan Dung allocated the funds to the Vietnam National Textile and Garment Group (Vinatex) for the purposes of supporting the education of workers, gradually creating a more skilled labor force. The training will focus on technical skills like production management and design and fabric analysis. Additionally, new programs will be created that teach social compliance regulations, emphasizing environmental and labor standards.

The textile and garment industries are central to Vietnam’s economy. Last year, its more than 4,000 companies earned in excess of $20 billion, accounting for about 15 percent of its GDP. In 2013, it exported more than $700 million worth of the goods, according to the Vinatex.

Many anticipate that Vietnam’s garment export industry is soon to balloon in growth, especially following the conclusion of the Trans-Pacific Partnership (TPP) which is expected to conclude in the proximate future. Vietnam has been a central seat of controversy for nations embroiled in TPP negotiations, especially regarding the “yarn forward rule of origin.” The U.S.-proposed rule stipulates that any garment must be made of either fabric or yarn supplied by the U.S. or any signatory TPP nations to be eligible for duty-free benefits when shipped back to the U.S. For obvious reasons, many importers have strenuously objected to the rule. Conversely, many American textile producers declaim that it is absolutely necessary for them to remain competitive in the future.

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Vietnam is also quickly progressing toward a settlement with the E.U. over another major trade deal, which will radically usher in market liberalization, eliminating tariffs on more than 90 percent of its goods and reducing high duties on its imports. The E.U. is Vietnam’s largest export market and second largest trading partner. Vietnam is the E.U.’s fifth largest trading partner, reaching $30 billion in bilateral trade in 2012.

Vietnam’s exports jumped an impressive 15.4%, defying the global trend toward slackening demand. According to the HSBC study, the garment and textile sectors are disproportionately responsible for that growth. Vietnam’s exports are expected to leap another 20 percent in 2014 on the strength of surging demand from both the U.S. and the E.U., which account for 18 percent and 14 percent of its exports, respectively. As Western demand continues to balloon, especially with respect to the garment industry, orders will increase while inventories shrivel, making it likely that output will be forced to rise to meet the new levels of demand. The HSBC Purchasing Managers’ Index, an important bellwether of future growth, demonstrated a considerable increase in Vietnam’s manufacturing output for the month of December, achieving the highest level since April of 2011.

Rao Nguyen, Manager of Dezan, Shira & Associates, commented, “As production costs in China continue to rise, Vietnam, with its low wages and land costs, is increasingly being seen as an attractive destination for the manufacturing of products for resale back into the China market — whose consumer class is expected to double to 600 million by 2020.”

Nguyen observed that some Chinese manufacturing firms have already begun to relocate to Vietnam. He said, “The signs are already there that manufacturing is on the move. Over 5,000 manufacturing companies in Guangdong, China, have packed up and relocated to Vietnam in the past three years alone, according to the Hong Kong General Chamber of Commerce.”

The funds dispensed to Vinatex are a component of a larger strategic vision that aims to establish Vietnam’s textile industry as one of the most successful in the world by 2020.