EVFTA: As Vietnam looks to make hay, Bangladesh prepares for challenging times

by Apparel Resources

04-July-2019  |  5 mins read

Bangladesh Garment Industry
Image Courtesy: betterwork.org

After a long three-and-a-half years of negotiations, the much-hyped EU-Vietnam Free Trade Agreement (EVFTA) took shape on Sunday, 30 June 2019. The European Union Trade Commissioner Cecilia Malmstrom and Vietnam’s Minister of Industry and Trade Tran Tuan Anh signed on the dotted lines in Hanoi to mark a new chapter for Vietnam’s garment and textile sector.

As per experts, The EVFTA is a very good, balanced and comprehensive agreement which includes the elimination of almost all tariffs for goods originating from Vietnam. Naturally, the country’s garment and textile sector is euphoric with industry insiders outlining the next course of action to ensure Vietnam is able to exploit EVFTA to the fullest.

With EVFTA coming into effect, Vietnam’s total export turnover to the EU market is expected to increase by around US $ 16 billion. As per the Vietnamese Government, EVFTA has the potential to boost Vietnam’s exports to the EU by 20.0 per cent by 2020.

Currently, EU is Vietnam’s largest export market (together with the US).

Exports to the EU have multiplied by three over the last five years, representing US $ 30.9 billion in 2015.

Majority in Vietnam’s  garment and textile industry are of the opinion that as most of the countries exporting textiles and garments to the EU don’t have FTAs with the bloc, EVFTA will open up enormous opportunities for exports, for Vietnam.

On one hand, if there’s a sense of déjà vu in Vietnam, it’s quite the contrary when it comes to Bangladesh, considered Vietnam’s competitor in the trade of apparel manufacturing and exports!

Europe is the largest destination of Bangladesh’s garment export. It made a shipment of US $ 19.63 billion in 11 months (July-May) of the last fiscal year (FY), 2018-19 to Europe. But now with the EVFTA coming into effect subject to approval of the European Parliament, industry insiders and analysts are apprehensive as to the adverse impact of EVFTA on Bangladesh’s flourishing readymade garment industry.

“Currently, the EU is the largest RMG export destination of Bangladesh. If Vietnam, the country’s one of the main competitors, gets zero tariff facility to the EU, Bangladesh’s market share will shrink…In terms of capacity, Vietnam’s RMG industry is more developed than Bangladesh’s, as it has only 7-8 days lead time in export compared with Bangladesh’s nearly 22 days,” explained Anwar-Ul-Alam Chowdhury (Parvez), Former President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), speaking to the media, adding, “Besides, Vietnam will be able to offer competitive prices for its products, like Bangladesh, when its current tariff of nearly 8-9 per cent for exporting goods to the EU markets will be withdrawn. In this case, Bangladesh can lose its market.”

Anwar, as such, sought policy and fiscal supports from the Government to further develop the capacity of the local RMG industry.

“Vietnam’s FTA signing is not good news for us. The country’s readymade garment export may face setback. Bangladesh will face more troubles when it will have to pay tariff for sending its products to the EU market after graduating as a developing nation in 2024,” maintained Professor Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD), while another trade analyst Dr. Zaidi Sattar (Chairman of the Policy Research Institute-PRI, Bangladesh) on his part maintained, “Vietnam is already a strong competitor of Bangladesh in the EU market. If it gets zero tariff facility under the FTA, Bangladesh will lose market share in its largest export destination….In addition, when Bangladesh will graduate as a developing nation, its GSP facility will be eliminated and will have to pay tax to enter the EU market.”

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