Vietnam has become a huge competitor in the global RMG sector for Bangladesh. The South-Asian country has been an emerging giant in the global textile and apparel industry.
Due to the sustainably developed industry and strong labor codes, the country has been attracting a huge amount of progress in the textile sector making it one of the strongest competitors for Bangladesh in apparel export.
The newly signed Free Trade Agreement (FTA) between the European Union (EU) and Vietnam has made the competition stronger.
The European Union has signed the landmark free trade deal with Vietnam on June 30th, 2019. By the signing of this agreement, Vietnam is now the first of its kind with a developing country in Asia who received tariff reductions on 99% of goods between the 28-member bloc and the Southeast Asian country.
The agreement still needs to be ratified by the European Parliament.
However, some of the lawmakers have shown their concern about the country’s human rights issue. Because Vietnam did not ratify 2 fundamental conventions of ILO include 87 – freedom of association and protection of the right to organize, and 105 – abolition of forced labor.
According to Amnesty International, Vietnam currently has at least 128 political prisoners, with 10% jailed for social media posts. The 88 Project, which monitors rights abuses in Vietnam, says the country is currently holding more than 200 political prisoners.
The EU is Vietnam’s second-largest export market after the United States, with main exports including garment and footwear products. In 2018, Vietnam exported $42.5 billion (€37.32 billion) worth of goods and services to the EU, while the value of imports from the region reached $13.8 billion (€12.12 billion), according to official data.
Bangladesh is the 2nd exporting nation to the EU with a market share of 19 percent, but it is going to face tougher competition in the markets after the FTA agreement.
Vietnam is the sixth largest RMG exporting nation to EU possessing 4% of the total market. After the ratification of the FTA by the European Parliament, Vietnam won’t have to pay the 12% duty anymore on RMG export to the EU.
Almost 11% of Vietnamese apparel exports to EU will get complete duty waiver at the time of enforcement of this agreement. These items (147 in number) will face stiff competition and the possibility of trade diversion is higher in this category.
Bangladesh exported $19.32Bn apparel products to the EU in FY2018 which was 11.17% more than the previous fiscal year. During the same year, Vietnam exported a total of $3.92 billion worth apparel goods with an annual growth of 9.74%.
Vietnam also has 6 regional FTAs signed as a member of ASEAN, including ASEAN Free Trade Area (AFTA), five FTAs with China, Japan, South Korea, India, Australia and New Zealand, and 4 bilateral FTAs with Chile, Japan, South Korea and the Eurasia Economic Union (EAEU).
All these facilities are making Vietnam one of the largest attractions for importing RMG products for the buyers.
As a result, Bangladesh will face a tough situation on getting proper prices from the buyers of the EU. In 2027, the situation will get worse as Vietnam will continue exporting textile products on duty-free access whereas Bangladesh will have to pay 12% duty for the same business.
In a reaction President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Dr. Rubana Huq said, “Almost 11% of Vietnamese apparel exports to EU will get complete duty waiver at the time of enforcement of this agreement.”
“12.18% share of Bangladesh’s apparel export to EU competes with Vietnam on these items. These items (147 in number) will face stiff competition and the possibility of trade diversion is higher in this category,” Rubana Huq added.
She informed, within five years, 49% of Vietnam’s and 62% of Bangladesh’s total exports to EU will be competing directly. Apart from erosion of competitiveness and resulting trade diversion, this FTA may take a severe toll on the price level of the Bangladeshi manufacturers.
Bangladesh apparel exports have lost 3.64% value in terms of price per unit during 2014-2018, whereas Vietnam’s price has gone up. With the gradual elimination of tariff on Vietnam’s exports, the price competition will be more intense.
In the near future, the gap between the market shares in the EU of the two countries will shrink. If Bangladesh doesn’t sign an FTA with the EU in the long run, it’ll be tough for the country to hold its current position in EU, some experts opined.