EVFTA will open chance to export textiles to EU

The textiles industry has chanced to expand export market from EVFTA. Photo: Nguyễn Huế

In 2019, the EU imported $4.4 billion of goods from Vietnam, increasing 2.2 percent over the previous year. Clothing accounts for about 10 percent of total import turnover of the EU from Vietnam.

According to SSI's analysis, Vietnam benefited from the EU's Generalized System of Preferences (GSP) for developing countries, with a preferential tariff rate of 9 percent for some limited tariff lines. After the EVFTA takes effect, the tariff rate under most favored nation treatment (MFN) will automatically replace the GSP tax rate. It means that in the first two years of implementation of EVFTA, most domestic garments will not benefit from the EVFTA, because the MFN tariff rate for these products is actually higher than the tax rate of GSP which is 9 percent currently.

Specifically, most Vietnamese products exported to the EU will experience the removal of export tariffs which will be gradually removed from the MFN tariff from 12 percent to 0 percent within 3 to 7 years after the EVFTA comes into effect. The products that will receive immediate tax reductions are goods items that are not Vietnam's main exports to the EU like yarn.

According to the rules of origin in EVFTA (ROO), fabrics used to produce products must originate from Vietnam or the EU, and tailoring stages must be done in Vietnam. There are a number of flexible points, such as garments manufactured in Vietnam, made from fabrics originating in Korea and have FTA, it will also be eligible for tax exemptions. However, more than 60 percent of fabrics imported into Vietnam are from China and Taiwan, with prices was much lower than those imported from Korea. This makes it difficult for local companies to take advantage of preferential tax rates.