A cornerstone of the European Green Deal, the EU's Circular Economy Action Plan (CEAP) poses both challenges and opportunities for Vietnam’s textile exports, emphasised experts at a seminar organised by Vietnam's Ministry of Industry and Trade on Nov 27.

CEAP introduces stringent standards that may impact Vietnam’s ability to sustain this momentum. The plan focuses on extending product lifecycles, reducing waste, and promoting resource reuse. A critical regulation, the ‘Ecological Design and Sustainable Products’ directive, will be implemented in July 2024. It requires Vietnamese exporters to adapt their practices across design, production, and waste management to comply with the EU's sustainable production and consumption model.

The regulation impacts key industries such as textiles, plastics, footwear, and electronics. Products that fail to meet requirements, such as incorporating a ‘digital product passport,’ risk being rejected by EU customs.

Despite the challenges, CEAP also presents opportunities for Vietnamese businesses to improve their competitiveness. Dr Mai Thanh Dung, Deputy Director, Institute of Strategy and Policy for Resources and Environment, notes, compliance with CEAP standards could reduce energy and material consumption, extend product lifecycles, and enhance production efficiency.

Nguyen Xuan Duong, Chairman, Hung Yen Garment Corporation, points out, meeting CEAP requirements not only allows businesses to benefit from EVFTA tariff preferences but also attracts new customer segments prioritising sustainability.

Companies investing in green technologies, circular economy principles, and waste management can unlock long-term benefits, including material savings and production optimisation, opines Do Huu Hung, European-American Market Department.

Products compliant with CEAP standards will not only gain access to the lucrative EU market but also build credibility in other global markets where demand for sustainable goods is rising.

In the first eight months of 2024, Vietnam’s exports to the EU increased by 17.3 per cent to $34.14 billion, as per figures from the Ministry of Industry and Trade. The EU remains a key market for Vietnamese exports and a significant investor, with 2,500 projects and nearly $28 billion in registered capital.

To maximise the benefits of EVFTA, Vietnamese businesses need to focus on investments in green technology, upgrading production and innovating waste management techniques. Making these changes will help Vietnamese businesses achieve long-term success in a more sustainable global economy, say experts

A joint study by the Research and Policy Intergration for Development (RAPID) and Friedrich-Ebert-Stiftung (FES) warns, the EU-Vietnam Free Trade Agreement (EVFTA) and Bangladesh’s graduation from Least Developing Country (LDC) status to a developing nation may cause the country’s RMG exports to the EU to decline by 20 per cent.

Presented at an event in Dhaka titled The EU-Vietnam Free Trade Agreement: Implications for Bangladesh’s Export Competitiveness, the study predicted, loss of duty-free access after 2029 may cause a 21 decline in overall exports from Bangladesh

To maintain its competitiveness, Bangladesh needs to invest in backward linkages, especially in MMFs, it needs to upgrade its infrastructure to adapt to global trade dynamics, negotiate with the EU for an extended transition period post-LDC Graduation and advocate for relaxed rules of origin under the Generalised Scheme of Preferences Plus (GSP+), recommends the report.

It also urges Bangladesh to pursue a free trade agreement (FTA) with the EU to maintain market access and leverage its strategic trade position.

To achieve the $100 RMG export target, Bangladesh also needs to sign FTAs with Japan, Singapore and other partners to diversify its exports, says M Masrur Rear, Chairman, Policy Exchange Bangladesh. The country also needs to emphasise on the use of recyclable single-fiber garments besides addressing labor union issues and workplace safety to meet EU standards, notes Felix Gerdes, Representative, FES Bangladesh.

Labor shortages in China and Vietnam provide Bangladesh with an opportunity to attact shifted orders, opine Fazleen Shamim Ehsan, Executive President, BKMEA. However, persistent challenges such as inconsistent energy supplies and inadequate banking facilities hinder growth, he adds. With strategic planning and robust reforms, Bangladesh can sustain export growth and strengthen its position in global trade.

A rise in year-end demand along with favorable global economic trends have brightened the outlook for Vietnam’s textile and apparel sector which aims to achieve exports worth $47–48 billion in 2025.

In 2024, driven by a shift in orders from competitors like China and Bangladesh, and declining inventory levels in key markets such as the US, EU, and Japan, Vietnam’s textile and apparel exports increased by 11.2 per cent to $44 billion. However, despite this positive outlook, the sector continues to face challenges like the need for stricter sustainability standards in the EU and US and rising competition in Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) markets. To navigate these hurdles and capitalise on the emerging opportunites, the industry needs to accelerate investments in new technologies, opines Vu Duc Giang, Chairman, Vietnam Textile and Apparel Association (VITAS).

Textile and apparel companies in Vietnam also need to penetrate new markets like the Middle East and South America, adds Nguyen Xuan Duong, Chairman, Hung Yen Garment Corporation (Hugaco). They need to invest in automation besides accelerating digital transformation, adopting greener practices and reducing costs to improve product quality and competitiveness, he states.

Many firms in Vietnam have bagged confirmed orders through Q1 2025, with negotiations extending into the latter half of the year. This renewed consumer demand is being driven by recovering export markets, particularly in the US, notes Le Tien Truong, Chairman, Vietnam National Textile and Garment Group (Vinatex). Political instability in competing nations such as Bangladesh and Myanmar is also helping Vietnam capture shifting orders.

To sustain growth, Vietnam needs to manage input costs, optimise labor resources and respond to fluctuating exchange rates, adds Truong. Firms need to also embrace sustainability, digitalisation, and automation to meet evolving buyer expectations, he affirms.

China's textile and apparel exports in the first three quarters of 2024, was mixed, with growth slowing down in the latter part of the year. While the overall export value increased by 0.5 per cent year-on-year to $238.55 billion, the momentum weakened in the third quarter, particularly in September.

Key trends

Total export value increased by 0.5 per cent year-on-year to $238.55 billion in the first three quarters of 2024. In terms of market share, in the four traditional markets of ASEAN, US, EU, Japan, China still dominates accounting for 53.2 per cent of total exports.

Exports to the US increased by 5.7 per cent year-on-year, with a rebound in the economy and easing monetary policy. Exports to ASEAN grew by 6.1 per cent year-on-year, benefiting from the region's economic recovery, especially in Vietnam and Cambodia. However, at 2 per cent year-on-year exports to the EU was not much, despite a weak economic recovery. On the other hand exports to Japan declined by 9.9 per cent year-on-year, due to economic recovery, declining inbound tourism, and high inflation.

In terms of products, knitted and woven apparel exports increased by 4.6 per cent year-on-year, while yarn and fabric exports to ASEAN grew by 10.8 per cent. However, geopolitical uncertainties, exchange rate fluctuations, and weakening demand from emerging markets pose significant challenges for the future.

Data Table: China's Textile and apparel exports by market (Jan-Sep 2024)

China's textile and apparel exports were impacted by a combination of factors, including global economic conditions, geopolitical tensions, and domestic policies. The strong performance in the first half of the year was primarily driven by a recovery in key markets like the US and ASEAN. However, the slowdown in the third quarter reflects the challenges posed by weak demand in some emerging markets and rising geopolitical uncertainties.

To maintain its position as a global textile and apparel powerhouse, China needs to focus on product innovation, value addition, and diversification of markets. Additionally, addressing challenges related to labor costs, environmental sustainability, and intellectual property rights will be crucial for long-term growth.