Clothing exports stall as TPP prospects sour

Nguyen Hong Giang, vice chair of the Association, said the growth rate is the lowest for the eight-month period since 2010 and far below expectations due to mounting scepticism regarding ratification of the TPP.

Foreign direct investment in the clothing and textiles segment of the economy is dwindling in comparison to prior years as prospects for passage of the Trans Pacific Partnership (TPP) dim, said Mr Giang.

The TPP involves 12 countries: Vietnam, the US, Japan, Malaysia, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.

The pact aims to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. The agreement could create a new single market something like that of the EU.

In 2014 and 2015, foreign companies were rushing to Vietnam to invest in the segment to capitalize on opportunities brought about by the trade pact, which allows firms to enjoy tax breaks when exporting products to member states.

But now investors are in standby mode as it is becoming increasingly apparent that the TPP will most likely not be ratified by the US, a death knell for the accord.

Low labour productivity in Vietnam also continues to be at the forefront of holding back export growth, says Mr Giang. Though Vietnam has comparatively lower regional wages, the benefits are negated by low labour productivity.

We are seeing overseas orders from markets like the EU rapidly decline, he said, and increasingly being shifted away from Vietnam to China, India, Cambodia, Bangladesh, Myanmar, and Sri Lanka.

In addition, he said, companies operating in Cambodia and Myanmar enjoy lower tariffs on their exports to the EU, which results in their exports becoming even more price competitive.

If the situation continues, the segment will mostly likely not hit the annual revenue target of US$29 billion in revenue for 2016, which is even lower the original target of US$31 billion set earlier this year.

In the past two weeks, a number of textile and garment exporters have had no orders to fill, said Pham Xuan Hong, chairman of the HCMC Association of Garment-Textile-Embroidery-Knitting (AGTEK).

Given fierce competition on global markets, Hong suggests that companies regroup and invest in high-tech machinery and equipment to improve labour productivity and implement quality controls to produce a better quality product.

Besides competition, domestic clothiers are struggling with difficulties, brought about by the new minimum wage rise and regulations on inspections in Vietnam.