Yarn-forward rules spur investment in textiles

At least US$1.12 billion out of the nation’s total estimated US$5.85 billion worth of pledged investment for the January-July period was designated for manufacturing and processing projects in the textile industry.

Leading experts have stressed that foreign-invested transnational companies, particularly those related to yarn manufacturing, are rushing to shore up their supply chains in anticipation of free trade agreements in the offing.

Specifically, the yarn forward rules of origin do not allow for Vietnam based textile, garment or footwear manufacturers to benefit from the reduced tariffs of the proposed Trans Pacific Partnership (TPP) unless all yarn is manufactured in Vietnam or another of the 11 other TPP nations.

Similar provisions are applicable to other free trade agreements and these same experts have suggested the complex rules of origin provisions are driving higher levels of inward FDI into the yarn industry in Vietnam.

In other words, if a Vietnam based textile company imported yarn from China, it could not avail itself of reduced tariffs for product shipments to the US or any of the other TPP member nations.

One of the new projects for the period was a US$660 million yarn factory in southern Dong Nai province of an investor from Turkey.

Another US$300 million project was listed by a British investor in Ho Chi Minh City and yet a third was a US$160 million project in Tay Ninh province by a Hong Kong investor.

According to the Vietnam Textile and Apparel Association (VITAS), once the TPP is fully implemented, Vietnam based manufacturers would enjoy tariff free exports when exporting textile and garment to other TPP member nations in lieu of the current 17-30% tariff, subject to the rules of origin limits.

The biggest problem Vietnam based textile manufacturers currently face is the heavy reliance on imported materials.

A recent report showed they need to import 50% of their raw materials, mostly from China.