MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY ……. MASTER THESIS AN ANALYSIS OF THE EUROPEAN UNION– VIETNAM FREE TRADE AGREEMENT'S NON- TARIFF MEASURES ON GARMENT AND TEXTILE AND THE SUGGESTIONS FOR VIETNAM’S EXPORTS Specialization: International Trade Policy and Law DANG THI HUYEN Hanoi – 2022 MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS AN ANALYSIS OF THE EUROPEAN UNION– VIETNAM FREE TRADE AGREEMENT'S NON- TARIFF MEASURES ON GARMENT AND TEXTILE AND THE SUGGESTIONS FOR VIETNAM’S EXPORTS Specialization: International Trade Policy and Law Code: 8310106 FULL NAME: DANG THI HUYEN SUPERVISOR: DR. HOANG NGOC THUAN Hanoi – 2022 i DECLARATION OF ORIGINALITY I declare that this thesis has been composed solely by myself and that it has not been submitted, in whole or in part, in any previous application for a degree. Where other people’s works are used, this has been properly acknowledged and referenced in accordance with regulations of the Foreign Trade University.
Hanoi, 15 October 2022 Dang Thi Huyen ii ACKNOWLEDGEMENTS First, I would like to send sincere thanks to my supervisor, Dr. Hoang Ngoc Thuan for his enormous support and concrete guidance on scientific research methodologies to help me complete this thesis. I am very grateful for his prompt action and patience in reviewing every single line of my thesis, from the very first draft to this final version. Special thanks also go to all teachers at the Graduate Department of the Foreign Trade University, especially to A/Prof.
Tang Van Nghia and Ms. Cao Thi Hong Vinh. Without their timely encouragement and support, I might not have completed the full master’s programme in international trade policy and law. I would like to take this opportunity to thank colleagues at the British Embassy Hanoi and the United Nations Development Programme in Vietnam, MITPL7 classmates, and especially two dearest friends, Ms.
Dinh Thi Bich Xuan, Deputy Director at the VCCI Office for Sustainable Business Development and Dr. Nguyen Phuong Mai, Lecturer at the VNU-International School for always standing by my side, cheering me on whenever I am depressed with work-life balance. Finally, I wish to thank stakeholders and partners at the Ministry of Industry and Trade, the Vietnam Chamber of Commerce and Industry, the Central Institute for Economic Management, and the Vietnam Textile and Apparel Association for valuable expertise advice, constructive suggestions, and provision of data and substantial inputs for this thesis. iii LIST OF ACRONYMS AND ABBREVIATIONS ASEAN Association of Southeast Asia Nations AVE Ad valorem equivalent BREXIT The withdrawal of the United Kingdom from the European Union CEPII Centre d’Études Prospectives and d’Informations Internationales CGE Computable General Equilibrium CIEM Central Institute for Economic Management CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership EU European Union EVFTA European Union-Vietnam Free Trade Agreement EVIPA European Union-Vietnam Investment Protection Agreement FDI Foreign Direct Investment GATT General Agreement on Tariffs and Trade GDP Gross Domestic Production GDVC General Department of Viet Nam Customs GSP Generalized System of Preferences IMF International Monetary Fund ITC International Trade Centre MAST Multi-Agency Support Team MoIT Ministry of Industry and Trade of Vietnam NTB Non-tariff Barrier NTM Non-tariff Measure OECD Organisation for Economic Cooperation and Development PSR Product Specific Rule RCEP Regional Comprehensive Economic Partnership ROO Rule of Origin RVC Regional Value Content SPS Sanitary and phytosanitary iv SWOT Strength, Weakness, Opportunity, Threat TBT Technical Barrier to Trade UNCTAD United Nations Conference on Trade and Development UNESCAP United Nations Economic and Social Commission for Asia and the Pacific VCCI Vietnam Chamber of Commerce and Industry VFTAP Vietnam Free Trade Agreement Portal VITAS Vietnam Textile and Apparel Association WB World Bank WTO World Trade Organisation IJEPA Indonesia-Japan Economic Partnership Agreement v TABLE OF CONTENTS DECLARATION OF ORIGINALITY.
ii LIST OF ACRONYMS AND ABBREVIATIONS. iii TABLE OF CONTENTS .v LIST OF FIGURES. vii LIST OF TABLES. viii SUMMARY OF THESIS RESEARCH RESULTS .1 CHAPTER 1: THEORETICAL BACKGROUND ON FTAs AND NTMs .1 Definition, classification, main content, and effects of FTAs .1 Definition of FTAs .2 Classification of FTAs .3 Main contents of FTAs .4 Effects of FTAs .2 Definition, classification, and effects of NTMs .1 Definition of NTMs .2 Classification of NTMs .3 Effects of NTMs .3 Overview of EVFTA and its NTMs .1 Overview of EVFTA.
EVFTA’s opportunities and challenges. 32 CHAPTER 2: ANALYSIS OF THE CURRENT SITUATION OF APPLICATION OF EVFTA’S NTMS ON VIETNAM’S GARMENT AND TEXTILE EXPORTS .1 Overview of EU-Vietnam trade and current situation of Vietnam garment and textile exports to the EU .1 Overview of EU-Vietnam trade .2 Current situation of Vietnam’s garment and textile exports to the EU .2 Current situation of application of EVFTA’s NTMs on Vietnam’s garment and textile exports .1 Application of EVFTA’s NTMs on Vietnam’s garment and textile exports .2 Application of CPTPP and RCEP’s NTMs on Vietnam’s garment and textile exports.3 Impacts of EVFTA’s NTMs on Vietnam’s garment and textile exports: empirical analysis .1 Gravity equation model .4 Results and discussions .4 Opportunities and challenges from EVFTA’s NTMs for Vietnam’s garment and textile exports: a SWOT analysis. 68 CHAPTER 3: SUGGESTIONS FOR VIETNAM’S EXPORTS .1 Lessons learned from Indonesia .2 Suggestions for Vietnamese Government .3 Suggestions for Vietnamese businesses .96 vii LIST OF FIGURES Figure 2. Vietnam’s trade in goods with EU vs.
Exports/imports from Vietnam to the EU from 2010-2020 (Unit: $bil). Exports/imports from Vietnam to the EU in 2021 (Unit: $bil). Key import and export markets of Vietnam in 2021 (Unit: $bil). Most traded products between EU and Vietnam in 2020 (Unit: € billion).
Garment and textile exports of Vietnam 2010-2021 (Unit: $bil). Export value of top 10 exported goods of Vietnam in 2021 compared to 2020 (Unit: $bil). Top garment and textile exporting countries 2016-2020 (Unit: $bil). Market shares of garment and textile exports to EU in 2020 (Unit: $bil).
Vietnam’s garment and textile exports to the EU in 2010 and 2020 by member country (Unit: $bil). Exports of Vietnam’s garment and textile materials to the EU from 2015 to 2020 by HS code (Unit: $). Exports of Vietnam’s garment and textile materials to the EU from 2015 to 2020 by country (Unit: $). Vietnam’s garment and textile exports to the EU 27 member countries in 2021.
SWOT analysis of opportunities and challenges for Vietnam garment and textile exports from EVFTA’s NTMs. Average monthly salary of garment and textile workers in some countries (Unit: $/month). Forecast of demands of 5 largest exporting countries of Vietnam’s garment and textile products in 2022 (Unit: $bil). Gross Domestic Production of garment and apparel of Indonesia 2014-2021 (Unit: US $bil).
Indonesia’s textile and clothing export to Japan 2008-2019 (Unit: US $ thousand) .76 viii LIST OF TABLES Table 1. Classification of non-tariff measures by chapter. Key contents of EVFTA compared to CPTPP and RCEP. Schedule and percentage of export tariff removal of EU and Vietnam under EVFTA.
Description of the variables in the gravity equation. Summary statistics of variables in the gravity model .60 ix SUMMARY OF THESIS RESEARCH RESULTS The overall objective of this thesis is to analyse the current situation of application of the European Union-Vietnam Free Trade Agreement (EVFTA)’s Non- tariff Measures (NTMs) on garment and textile exports to the European Union (EU), pointing out opportunities and challenges, and making suggestions for the government and businesses in the sector on the way forward. To this end, a thorough research is conducted to find answers to five key research questions on issues relating to the theoretical background on free trade agreements (FTAs) and NTMs, main contents of EVFTA’s NTMs, the current situation of application of EVFTA’s NTMs on Vietnam’s garment and textile exports to the EU, opportunities and challenges for Vietnam's garment and textile businesses, and measures to be implemented by the Government and businesses to take advantage of opportunities and to minimize adverse effects of EVFTA’s NTMs. The research uses both quantitative and qualitative methods to analyse effects of EVFTA’s NTMs on Vietnam’s garment and textile exports to the EU.
Specifically, the gravity model is used to link trade flows to economic masses and distances with most important NTMs in EVFTA including technical barriers to trade (TBTs), sanitary and phytosanitary measures (SPSs) and rules of origin (ROOs) with data collected from the General Department of Vietnam Customs (GDVC), the Ministry of Industry and Trade of Vietnam (MoIT), the Vietnam Textile and Apparel Association (VITAS), the Centre d’Études Prospectives and d’Informations Internationales (CEPII), the Organization for Economic Cooperation and Development (OECD), and the United Nations Conference on Trade and Development (UNCTAD). In addition to the gravity model for quantitative results, the qualitative approach taken for this thesis comprises an extensive desk study of available literature in the public domain, followed by in-depth interviews with key stakeholders and top experts in the field from the Ministry of Industry and Trade (MoIT), the Vietnam Chamber of Commerce and Industry (VCCI), the Vietnam Textile and Apparel Association (VITAS), the Central Institute for Economic Management (CIEM), and the Research Centre for Employment Relations (ERC). A group discussion following the SWOT x approach (on strengths, weaknesses, opportunities, and threats) was conducted with representatives from garment and textile companies as part of a workshop on responsible business conduct in the apparel and footwear industry organized by VCCI. Based on results of desk study, in-depth interviews and group discussions, the thesis then uses collective and synthetic methods to analyse impacts of EVFTA’s NTMs on garment and textile exports to make suggestions for the Government and businesses in the sector.
Research results confirm that EVFTA’s NTMs create both opportunities and challenges for Vietnam’s garment and textile exports to the EU. Vietnamese businesses have enjoyed great benefits in terms of improved competitive advantage thanks to preferential tariff treatments under EVFTA. They also have more opportunities to expand the EU market share, attracting FDI on domestic supporting industries, and upgrading modern and environmental-friendly technologies in garment and textile industry. However, Vietnamese garment and textile businesses are also facing a number of challenges caused by EVFTA’s NTMs especially requirements on TBTs, SPSs, and ROOs.
Among these, meeting ROOs requirements seems the most challenging one as most of raw materials for Vietnam’s garment and textile industry are imported from non-signatory countries. To solve this issue, it is recommended that the Government should issue long-term strategies and directions on investment in raw material production to meet ROOs requirements in new-generation FTAs, facilitating localisation of raw materials, encouraging changes from the Cut-Made-Trim (CMT) processing to higher value-added processes in the value chain, promoting trademarks based on advanced technologies, improving quality assurance, protection of labour rights and environment in compliance with international standards. Meanwhile, Vietnamese garment and textile businesses should take initiative in enhancing competition capacity through strengthening qualification and skills of workers, diversifying products, and improving marketing and promotion. The long-term goal for the industry should be changing from price competition to non-price competition where the value of Vietnamese garment and textile products increases to a higher level in the global supply chain.
Research rationale Participation in FTAs is one keyway of boosting trade and economic development. Traditional FTAs only aim at removal of tariffs and other restrictions on goods traded between countries. As trade liberalization becomes more and more extensive, new-generation FTAs have expanded their scope to include provisions on opening of services markets and other areas including NTMs, investment, competition policy, government procurement, intellectual property rights, e- commerce. Understanding opportunities and challenges of extended areas in these new-generation FTAs, especially NTMs is essential for any nation to ensure sustainable trade and economic growth in the changing world today.
It is estimated that the number of NTMs has risen significantly while their trade costs are more than double that of ordinary customs tariffs. Therefore, NTMs have become a key concern for both traders and trade policy makers (UNCTAD, 2019). Vietnam has implemented comprehensive economic reforms since the renovation in 1986 with a focus on market-oriented institutional reforms, macroeconomic stabilisation, and pro-active integration.