The free trade agreement with the EU is likely to have a marginal impact on Vietnam’s textile industry in the short term. This is despite the fact that the textile and garment industry is expected to benefit the most from the agreement. The average tariff applied by Europe on these products is at nine per cent which will be eliminated within three years or right after the FTA comes into force for less sensitive products. Under the tariff reduction roadmap, tariffs on most yarn and fabric products will be immediately exempted while tariffs on garments will gradually decrease to zero in the next six to eight years.

But the agreement only opens up opportunities for businesses with material autonomy as well as those with large EU groups of customers. The lack of local suppliers for input materials is proving to be a major challenge for Vietnam’s textile and garment industry to enjoy preferential treatment from the agreement as it fails to comply with the rules of origin. At present, nearly 90 per cent of the inputs for the industry is currently being imported from countries which are not members of the EU or those which the bloc has signed trade deals with.