Introduction

The textile and garment industries, especially garment play a crucial element in the country export drive. And the export success in the industry will be the forerunner to the emergence of a broad-based export-oriented development strategy. In both garment and textile industries have achieved notable achievement to date. The export sale increases from nearly 100 million USD in 1989 to about 2000 million in the year of 2000, accounted for approximately 20% merchandise commodities, nearly 41% manufactured exports. And textile and garment raking the second since 1995 after oil export.

Garment export to quota EU market takes about 40% Vietnam textile and garment exports. Although the textile and garment agreement signed on 15^th Dec, 1992 and taken effect on 1^st Jan 1993, export revenue increased sharply. This figure implies that Vietnam garment producers have a given successful in penetrating in difficult market. However, clothing export to EU market also relies on some items. The Asian financial crisis led Vietnam compete sharply with regional nations in EU market as their devaluation. When China became a member of WTO and the quota regime on textile and garment is dismantled, the competitive pressure will be stronger. Those are the challenge and obstacles of Vietnam garment industry in period 2001-2005.

To overcome the difficulties and continue penetrating into foreign market, Vietnam garment and related industries should have reforms such investment strategy, oriented development, marketing effort, trademark creation that all together stimulate export.

The thesis focuses some issues: Assessment the export activity of garment industry and export to EU market in period 1993-2000 such the condition for market penetration, the main categories exported, current garment production, the Asian rivals in EU market. The last part is to evaluate the export potential of Vietnam garment industry to EU market period 2001-2005 that is based on the previous assessment . And  the objective  of the thesis is to answer the central question:

Has Vietnam garment industry got export potential to EU market?

- How about the garment export capacity and garment export quota level of China and regional competitors in EU market are in compared with Vietnam?

What are achievements and obstacles of Vietnam garment export activity in EU market? Are there any changes with main exporting clothing categories over years?

The chapter would answer some questions:

- Why do countries carry out export activities, and why do developing countries often export garment products in the first phase of industrialization process?

- What are the gains that garment export would bring to the economies?

- What are the factors affect garment production and garment export?

- How do macroeconomic policies affect garment export activities?

2.1. Mechanism of trade and position of export in the economy

2.1.1. Mechanism of trade and export activities

Trade has been understood that all transactions of goods, and services and even capital between parties. If parties reside in different countries, the trade is international.

There are some well-known theories to explain trade among nations.

2.1.1.1. Trade and arbitrage between countries

The theory states that trade occurs as result of price differences (arbitrage) among nations of a given commodity. Parties engage to trade to get price gap benefit. In the absence of transaction and trading cost, arbitrage will occur till the prices of a commodity traded converge.

The theory only shows the price differences of a commodity leading trade occur, but it does not explain why the price differences happen.

2.1.1.2. The theory of comparative advantage and Ricado’s model

The law of comparative advantage: even if one nation is less efficient than (has an absolute disadvantage with respect to) the other nation in the production both commodities, there is still a basic for mutually beneficial trade. The first nation should specialize in the production of and export the commodity in which its absolute disadvantage is smaller- that is the commodity having comparative advantage, and import the commodity in which its absolute disadvantage is greater- the commodity has comparative disadvantage.

However, the theory states that the value or the price of a commodity depends on amount of labor for production of a commodity. This means that: (1) either labor is the only factor of production or labor is used the same proportion in the production of all commodities and (2) labor is homogeneous. Since neither both assumptions is true. And G. Haberler in 1936 explained that relative price ratio based on the opportunity cost. Inspite of the limitation, the comparative advantage has importance to explain a partial trade flow.

2.1.1.3. Heckscher- Ohlin theory

The typical idea in Heckscher-Ohlin trade theory is that endowments and abundant resources of a country will decide comparative advantage in producing. The theorem as: A nation will export the commodity whose production requires the intensive use of the nation’s relatively abundant and cheap factor and import the commodity whose production requires the intensive use of the nation’s relatively scarce and expensive factor.

In reality, the industrial nations have relative abundant amount of capital, and advance technology, but they face a relative scarce unskilled labor, the wage paid highly. These countries have comparative in producing intensive capital goods. The less developed and developing countries with large unskilled labor, and lack of capital will have comparative in producing labor intensive goods.

Heckscher-Ohlin trade theory explains a large amount of trade flow. Based on the theory each nation should pursue trade strategy that it obtains endowments in each period.

2.1.1.4. Economies of scale

Some firms can benefit from large scale in production as cost reduction. Instead of producing a series of products or sizes, they concentrate on some few variety of products to supply  for international market as mass production makes cost reduce.

2.1.1.5. Trade based on differentiation

The amount of international trade between products of the same industry or product group based on the differentiation (on function, or service) among them that produced in different nations takes a large proportion. The development of differentiated products of an industry is as the result of different taste, preference among territories. And there has a need, or demand to fulfil the requirements such tastes and preferences.

2.1.1.6. Technology gap and product cycle

Industrial nations have strong R&D activities, obtain new technology and often create new products. The products are firstly consumed at and standardized in the innovating countries with high selling price and then exported to other countries that have lower technological level (there has a difference technological levels among nations that is called technology gap).

When products are in the mature stage, the technology for producing products can be transfered from advanced nations to developing countries. These countries combined the new technology they have just got with exploitation the existing advantageous- abundant labor, and they can produce the same products with lower cost compared to innovating nations. The products with lower price are exported against to advanced nations which are trying to innovate other technology and newer products for market the technology as they perceived that import the products from developing countries is more benefitable than production themselves because of high wage for labor.

In the theories above the Heckscher- Ohlin theory is the most suitable with explaining the trade among developing and advanced countries, including Vietnam’s trade in terms of exploiting national advantages.

2.1.2. The position of export in the economy

The role of export activities can be interpreted into three ways as follow:

-         Firstly, according to the traditional trade theory, stimulating export activities based on comparative costs will increase the direct gains from trade, thus it promotes economic development.

-          Secondly, exports have a crucial role in making foreign exchange for importing capital commodities, materials, and other inputs for production.

-          Thirdly, in the condition of free trade and export expansion in the open economy, the new outside technology that may be penetrated into domestic production freely grades up the skill level of domestic worker, facilitating spread of new skill and technology.

Garment industry appears as a labor- intensive industry whose technical requirements are not high. Thus, the industry has capabilities of creating jobs for workers relative easily, solving employment for the economy.

Another feature should be emphasized is that garment production can be organized on small and medium scale, creating sub-contract networks. Such production scale facilitates job creation and mobilization of funds among resident. Combination of different production scales large, medium and small can be made relative easily.

With main characteristics above, garment industry has a big role in the development of the developing nations, especially in the early development process.

2.2. The process of trade liberalization on textile and garment products

The multiple-fiber agreement (MFA) signed in 1961 to regulate trade on textile and garment by quota and other trade barriers. This took effect in 1974. Agreement on textile and clothing (ATC) in 1994 replaced MFA, and applied for WTO members. According to ATC, trade liberalization on textile and garment will be in 4 periods since 1.1.1995:

1.1.1995 integrating not less than 16% amount of imported commodities in 1990 based on the commodity list of agreement.

1.1.1998 integrating not less than additional 17% following amount of imported commodities.

1.1.2002 integrating not less than additional 18% following amount of imported commodities.

1.1.2005 all the rest commodities have to integrate; the limitations of MFA will be dismantled

ATC has positive effects on world trade. And the developing countries have more chance to penetrate into world market, expand their export activities.

2.3. Factors affecting garment production and export activities

-         The supporting and related industries supply input or affect to garment production process.

-         Demand factor

-         Factor conditionse: general and specialized factors

-         Rivalry in the market

-         The government policies

-         The chances

2.4. Assessment of the export potential of an industry

Based on the current condition to forecast the future export capability such: current export, the advantage of the industry, foreign demand of the industry’s products, purchasing power of the market, consumption for the goods/GDP, the growth of import yearly… And the export potential of an industry can be classified into two groups: the internal factors such the development of the industry, the business environment and macro policy. The external factors such foreign demand, and international competitive pressure.

Chapter III: achievements of Vietnam garment export in EU market period 1993-2000

3.1. The bilateral trading agreement between Vietnam and European Union on textile and garment products

According to the agreement textile and garment between Vietnam and EU, Vietnam can export its 21,938 tone textile and garment products (including 106 categories in which 45 cats. are non-quota export) to EU market with the value of 450 million USD yearly. After comprehensive co-operation Vietnam-EU signed 17^th July 1997, the agreement on textile and garment had some modification on main articles such increase import quota of 23 hot cats from 20% to 25%, reduce number of cats controlled by quota… On 17^th November 1997, the agreement period 1998-2000 signed in Brussels has much favor for Vietnam, export turnover can increase by 40% in comparison with that in 1997.

3.2. EU market for textile and garment products

EU has fifteen members, GDP was 9000 billion USD in 1996, GDP per capita was 23,000 USD with 391.3 million resident. EU is a very crucial center for both import and export garment and textile products, and ranks the first in garment and textile import products. Table 3.1 will show the import activity in the market recently:

Table 3.1:EU’s import textile and garment

Unit: million USD                                                                           Source: Textile Asia- 12/1997

            The trading among EU nations takes a large part (53%). The second crucial source is Asian countries, for garment products the figure is 28% with main partners China, India, Turkey. And the processing imports also have increased recently.

3.3. Vietnam’s garment exports to EU market

3.3.1. Export turnover of textile and garment industries

Since trading bilateral agreement on textile and garment products signed on 15^th December 1992, textile and garment export turnover has increased sharply ranking the second after crude oil export. Table 3.2 shows the export of textile and garment result in period 1993-2000:

Table 3.2: Textile and garment export turnover period 1993-2000 (Mil.USD)

Export Revenue	1993	1994	1995	1996	1997	1998	1999	2000
Total revenue	350	537	845	1,150	1,349	1,450	1,500	1,942*
- Textile revenue	61.7	107.8	147.8	175.5	171	222*	285*	370*
- Garment revenue	288.3	429.2	697.2	974.5	1,178	1,228*	1,215*	1,572*

*: Estimated by Ministry of Trade               Source: Ministry of Trade and Hal Hill report 1998

            Export turnover increased from 350 million USD in 1993 to nearly two billion USD, the figure indicates that Vietnam has ability to produce and export textile and garment products, and his products can compete successfully in foreign market, although the regional financial crisis has negative effect on export.

            The table above also shows the limitation of textile in the total export revenue. We continue analyze deeply this issue in the next chapter.

            3.3.2. Markets for Vietnam textile and garment products period 1993-2000

            The thesis will focus on analyzing main and (or) high growth export rate markets such Japan, US, EU markets.

            3.3.2.1. Japan market

            Japan is the biggest non-quota market of Vietnam garment textile and garment exports. Export sales have increased rapidly since 1994. Vietnam was one of the ten leading exporters to Japan market in 1995. In 1996 Vietnam garment textile and garment exporters ranked the 8^th, and 7^th in 1997 among other exporters in Japan market. The revenue of most exporters in Japan market reduced in 1997, Vietnam exports increased both items and quantity.

Textile and garment exports to Japan market have high growth rate and relatively diversified categories. The following table will present the total export revenue of Vietnam producers to Japan market as well as main export categories.

Garment products takes over 80% of total export revenue. And categories are simple, the items required high quality and complicated design are not be able to export as domestic producers have no ability. Vietnam exporters inherit preferential tax based on Japan’s GSP system. This is a crucial reason leading textile and garment export to Japan increased sharply in the last period.

However, Vietnam producers also face to some difficulties such quality standard, competition with other rival in the market. In 1998 export revenue of Japan market decreased sharply as the result of regional financial crisis.

Table 3.3: Export revenue and some main categories’ revenue of Vietnam textile and garment producers in Japan market

Source: Statistic of Japan ministry of finance

Over period 1995- 2000 Japan market accounted for 38- 40% of Vietnam’s total export revenue of textile and clothing industries. This figure shows the importance of the market for Vietnam textile and garment exporting activities, especially for garment sector- taking large and crucial part in total revenue.

            3.3.2.2. US market

US market is evaluated as a potential market for Vietnam export textile and clothing industries. Although Vietnam does not inherit preferential tax (GSP) and MFN after US lifted the embargo toward Vietnam, textile and garment producers have penetrated into this market. Export turnover to US is not as high as to Japan or to EU market, but the rate of growth is highest. Average growth rate in period 1994- 2000 is 114.23%, which is much higher than that of textile and garment industries 35.76%.  The export turnovers to US during 1994- 2000 are in figure 3.1.

Note: 1,2,3…7=1994,1995,…2000                                  Source: Vietnam customs report

Main exporting products to US markets are woven children gloves, children shirt, (count 85% export turnover), and knitted children shirt, man shirt, lady shirt, knitted gloves, cardigan… Although US has high demand on knitted products Vietnam can only fulfil a very limited requirement as tax rate is high over 30% per product on average. The biggest obstacle for Vietnam producers is that Vietnam has not yet inherited preferential tax (GSP) and most favor nation (MFN) from US. When these issues solved textile and garment producers have a very good opportunity to export to US, and export revenue is able to increase more rapidly.

3.3.2.3. European Union market

European Union (EU) market has been the biggest Vietnam quota market. After seven years the trading agreement on textile and garment products implemented, export turnover has increased over years from 250 million USD in 1993 to 650 million USD in 1998 and 705 million USD in 2000, the rate of growth is above 16% on average. Among fifteen nations formed EU market, garment and textile exports to Germany takes the largest part, and France ranks the second, the third is Holland. However, the proportion has a slight change over years:

Table 3.4: Vietnam garment and textile export revenue in some major countries in EU market period 1993- 1997

Unit: Million USD                                                  Source: Institution of trading research  

The export revenue of Vietnam garment and textile in table 3.5 shows textile products take a very small part in export revenue around 3-4% in export revenue. Garment products are main turnover of the industries in EU market, taking 96% sales. The export value of garment products in EU market will be presented in table 3.5. After trade agreement between Vietnam and EU had some modifications the sales has grown faster. In 1998, garment export revenue reached to 621.3 million USD, and 637.75 million USD in 1999 in comparison to 450 million USD in 1997 and 245 million USD in the first year of exporting garment and textile to EU market. The reduction in price of the main exported product leads total export revenue in 1999 cannot increase highly.

Table 3.5: Textile and garment export to EU market period 1993- 1999

Source: Institution of trading research

Vietnam export textile and garment industries also had inherited preferential tax rate 0% of EU’s generalized system of preferences (GSP). This is an important reason making Vietnam garment products have price competition with other rivals such China, ASEAN… and stimulate export over years.

EU market has opened for Vietnam textile and garment products only for seven years, but export activities have achieved very good results. High growth of export revenue over years is one indicator to assess the Vietnam clothing industry’s success. Taking over 90% revenue garment export plays a key role in the market penetration success of textile and garment industries. The development of textile and clothing export activities to EU market in period 2001- 2005 will still mainly base on the export ability of garment industry.

Three markets mentioned are main and promising markets. Vietnam textile and garment industries, especially garment industry have got notable achievements. And in this section the discussion will only be about the export turnover from Japan, US and EU markets. From exporting clothing products to EU market trade policies among countries, particularly trading treaties are very important in opening commercial transactions.

3.4. Contribution of Vietnam garment export to EU market to the economy

Enforcing employee asorbability and generating linkages of garment industry

Vietnam garment and textile industries absorbs about 1.6 million workers (according to VINATEX statistic in 2000). There are 187 state textile and garment firms in which there are 70 textile firms, 117 clothing firms. In 800 textile and garment Ltd companies, 600 are garment firms, 200 are textile cooperatives up to the year of 2000. Total production value of the industries in 2000 is 16,000 billion VND.

 Creating lot of work compounded with low capital requirement are two outstanding characteristics that are very useful for current situation as Vietnam is in lack of capital and high rate of unemployment (the rate of unemployment in 2000 is 6.7%). On the other hand, the development of related and supporting industries such textile or polyester spread or button as accelerating export in garment industry is a good way to create jobs for local laborers. In 2000, due to the development of export activities there has been 70 thousand laborers in planting cotton seed and processing raw cotton.

The number of quota export firms had increased in period 1993-1998. The limited companies and joint venture firms have impediment in export quota access. In general, up to 1998 for three types of firms the number of companies has quota all increased about thee times: from 99 to 302 for state firm, from 37 to 108 for limited company, and 12 and 47 for joint venture. These figures show that Vietnam producers have had improvement in production and in foreign market penetration.

Table 3.6: firm structure getting export quota to EU market period 1993-1998

Source: export-import department of Ministry of Trade

There are 178 foreign investment projects in textile and garment fields (report of ministry of Planning and Investment) up to 2000. A linkage between garment industry and related and supporting industries has favorable condition to develop. Foreign direct investment in textile and garment industries has grown since 1993; number of projects in 1993 was 19, with total capital is 587,842 million USD. Due to the impact of regional financial crisis the number of foreign investment projects has reduced. In the first half of the year of 2000 foreign investment activities stated recovering there were 19 projects with 35,581 million USD mainly for clothing industry.

The development of textile firms will foster high growth for garment export activities since garment industry has reduced his dependence on the external resources by importing cloth for production, taking the initiative of producing and exporting processes. The support activities for textile have also strengthened, fiber domestic production in 2000 reached to 6.7 thousand tones. The cultivation of cotton recent years has been more 10,000 ha of land. This is a major source for domestic fiber and fabric weaving sectors. And the quality of cotton thread is now equivalent to US average thread. According to statistics, real cotton productivity has been increasing twice in the last six years.

There are some foreign investment projects in PE threads production using 100% foreign capital as Hualon Co. Ltd. and Samsung Co. Ltd. These firms will supply thread for garment industry and reduce its import. In sum among industries there has interdependence, the increase of garment export supports for the development of related industries and vice versa.

The role of garment export to EU market to the economy

Garment export to EU market takes more than 20% of industrial export revenue (note: industrial revenue here includes textile and garment products, shoes and sandal that are top exports as limited data). The figure indicates that Vietnam garment export products play a very important role in the structure of processing exports, and domestic producers have exploited national as well as industrial competitive advantages efficiently.

Table 3.7: Vietnam leading export products period 1993-1999 (mil.USD)

Export items	1993	1994	1995	1996	1997	1998	1999
Total export value	2,985	4,054	5,200	7,330	9,145	9,361	11,540
Crude oil	859.7	977	982.8	1356	1426	1239	1860
Agricultural products	1,020.9	1,491.9	1,924	2,103.7	2,498	2,796	2,801
Shoes and sandals	334.32	555.4	811.2	1,165.5	965	1,031	1,350
Textile and garment Industrial export	350 917.6	537 1357.1	845 1842.1	1,150 2500	1,349 2472.5	1,450 2486	1,500 2847.1
Garment to EU market	245	285	350	420	450	621.5	637.75
As % of industrial revenue	26.7	21	19	16.8	18.2	25	22.4

Source:  CIEM, Hal Hill report 1998, Ministry of Trade

Garment export to EU market takes an important part in total textile and garment export revenue, on average clothing export to EU- quota market accounts for about 40% of apparel export revenue. Turnover from EU market for both textile and garment products all increase steadily, but garment always plays a central role with over 95% industry’s sales. In order to evaluate the contribution of clothing export to EU market, there have some following figures:

Table 3.8: Garment and textile export revenue and revenue of EU market (mil.USD)

  Source: Ministry of Trade, Institution of  trading research, Hal Hill report 1998

Increasing both export firms and turnover shows that domestic production in garment export has achieved progress. Vietnam clothing producers are now much self-confident in producing and penetrating into international market. Clothing with Vietnam origin has established its position in foreign markets.

In sum, the contribution of garment export to EU market in period 1993-2000 to the economy is undeniable in economic, social, and political aspects. And Vietnamese export garment producers create their self- confidence through exporting their commodities to EU market, this is extremely important contribution to the economy in the context of international economic integration.

Chapter IV: problems of garment export to EU market

4.1. Unit export price

Vietnam’s unit price garment exports is very low in comparison with other regional countries’, and clothing exports to EU market is not an exception. Table 4.10 reports some garment items export widely with 4- digit SITC codes for Vietnam, in comparison with two other countries in region that are Indonesia and Thailand. The data are in kind of index for Vietnam equaling 100.

Table 4.9: Unit value of selected garment export (Vietnam = 100)

SITC	Item	Vietnam	Indonesia	Thailand
8412	Clothing accessories, not knitted
	1995	100	191	471
	1996	100	128	218
8413	Leather clothing
	1995	100	185	176
	1996	100	259	243
8414	Clothing accessories, knitted
	1995	100	105	120
	1996	100	100	119
8415	Headgear
	1995	100	148	144
	1996	100	157	144

Source: Hal Hill’s calculations based on UN data

From table 4.10 we can see that all Vietnam categories exported have been at lower price than those of Thai land and Indonesia have. There are a lot of reasons making lower unit export price, and indirectly low value- added such high proportion processing value contract, no- trademark products, marketing issues (distribution network), large import for production. Those problems together reduce price exports.

Processing contract for foreigners- the indirect export takes a large part in Vietnam garment export revenue. According to the statistic of VINATEX in 2000 the rate of processing contract values 60% of VINATEX’s export revenue, and textile and garment industries is 75% of export textile and garment turnover respectively. This kind of export has some advantages. Firstly, producers have no to prepare export markets. Secondly, Vietnam producers do not have to purchase input for production since foreign party supplies main input, and auxiliaries materials for production. Thirdly, processing contracts create jobs. Finally, through export, Vietnam commodities will internationally increase competitive ability.

However, processing contracts appear some problems. Vietnam garment products produced by the processing method do not enjoy favor tax rate, and thus Vietnam garment producers do not take advantages that EU gives to. The value- added is low and formed mainly on price of labor compounded with price of processing. Due to these reasons, regional crisis impacted severely to Vietnam garment export. Although textile and garment quota in period 1998- 2000 increases by 30%, the export efficiency reduced sharply since depreciation in Asian nations depletes Vietnamese wage advantage.

EU market tends to have favor to trademark clothing products. And price of clothing depends on the fame of producers, concretely the label or trademark. It is different from Japan market that requires high quantity products and complex hygiene standards, and US market prefers cotton and T- shirt items. However, Vietnam garment products have not built an image internationally yet, Vietnam garment products formally have presented in EU market since 1993, it is a very short period of time to build an image, and create a well- known trademark. .

One more reason that makes Vietnam garment products have lower price is that the market penetration activities into foreign markets, and here EU market are not sufficient. And in this part the concentration is on distribution network. EU market for Vietnam garment products is actually relatively new. Most of Vietnam producers wait for export order from sellers, they have not yet created distribution network widely as well as had close contacts with ultimate buyers, whole sellers, and retail sellers.

In sum, Vietnam’s unit export price is low in comparison with that of other countries that also sell their garment products in EU market as result of lot reasons mentioned above. In order to increase export price, Vietnam garment producers have to make good the weak points.

4.2. Poor clothing export categories to EU market

There are 36 categories Vietnam garment industry has no ability to produce. Garment exports rely strongly on some items, which are easy to produce, they do not require high skilled labor, simple design. The categories that require high skill labor or complex design have not exported because of low labor skill and obsolete technology. Table 4.11 together with table 3.3 indicates that Vietnam garment export relies on some items. The structure clothing export in two biggest markets that count for 95% and export revenue is similar to each other.

Ten leading categories in table 4.11 are all controlled by quota. With hard weight in export sales, Vietnam garment export to EU market has constrained as products exported are regulated by quantity. And these products are evaluated as sensitive products, EU may impose quota for such products till the end of 2004. If Vietnam garment industry does not concentrate on export other items, clothing export to EU market is not able increase sharply in period 2001-2005. However, the role of ten leading clothing exports declined from 83.81% in 1997 to 79.4% in 1999, though the absolute revenue still has grown. And it also means that revenue of other categories has increased with higher rate in comparison with growth rate of top ten items in table 4.11, and exports have been more diversified.

To strengthen clothing export to EU market, Vietnam garment industry has to find out reasons for poor export items just mentioned. The main reasons are obsolete technology- that will be presented in next section, and insufficient compounded with weak designing as well as R&D in garment and textile activities that are called factor creations.

Table 4.10: The leading category turnover to EU market

* : 506.61 mil USD turnover of first ten months in 1999.                    Source: Ministry of Trade

Note: sweater is textile products

There are only two R&D facilities supporting for garment and textile production, fashion design: Textile Research Institute, and Garment Research Institute. The Textile Research Institute includes 125 employees of whom 90 have post-graduate degree. The linkage between research and production is very weak in Vietnam especially in textile and garment fields. This presents by small orders from domestic companies. And in the government side, investment fund for the institute is very small, and insynchronous.

And Fashion Institute was established on the base of the former Institute for Garment Research with the responsibility of orienting fashion strategy, making new design for the garment industry for domestic consumption and export purpose. The institute also has to collect fashion information and train designers. The institute has two branches, one in Hanoi and another in Ho Chi Minh City. Both are in lack of staff and working conditions. In Hanoi there are 13 university graduates, while in Ho Chi Minh City the figure is 4. Because of poor facilities and employees, fashion and design creation is limited. Studies on fashion design in Vietnam are at early and inexperienced stage without sufficient interaction with foreign designers and international market.

The big amount of fashion creation depends on the foreign resource thought processing activities. The development of fashion design plays a decisive role in moving from processing to direct export. The target of increasing direct sales proportion of garment export depends heavily on investment on designing activities.

Training and re-training are very important to update progress in garment and textile industries. These activities are the original innovation and development. However, only Hanoi Polytechnics and Hanoi University of Industrial Design have specific courses on textile and garment engineering and design making. Students in these universities are unable to have sufficient basic training in the field, and do not approach to new achievement and technological progress in the world.

In conclusion, Vietnam garment export to EU market is not based on high level competitive advantages that are R&D, and high skilled labor force. To expand its export activities and diversify branch of products to this market both government and the industry should concern more on R&D, training and re-training issues.

4.3. High input import for garment production and garment export

Input for production is mainly imported. According to report of VINATEX, in each unit export there is 75% import cloth and material (by the volume), only 25% used domestic materials. Clothing export to EU market even uses lower local input, about 15%. The following table will indicate import inputs situation:

Table 4.11 : Cloth & auxiliaries import and textile and garment export period 1995-2000

Source: SIEM and statistic 1998, 1999, 2000

The situation of large import materials for garment export is the result of the influence of several factors. First, the rate of processing is extremely high- 80% in EU market. Under this type of export, foreign party prepares nearly all inputs for production.

 Second, textile industry has weak production ability to supply cloth for garment export. There are 14,000 textile machines in which 2,000 are width- textile machines. Textile industry can supply 380 million meter yearly, only 15% of which can export. Production cost of both garment and textile industries is higher than that of China 15-20% due to Vietnam- Japan joint research, resulted price of domestic textile is high but low quality.

 Obsolete technology is a key reason making high price and low quality of textile. It has impacted on efficiency of garment export activities, including garment export to EU market. Investment in textile industry appears ineffective, textile machines takes a small part in comparison with yarn reel equipment.  With the large number of 868 thousand of spindles was made in the 1960s, and have been used for over two decades. In 1990s a numbers of old equipment has been replaced, innovated or removed by new ones. However, the rate of replacement is very low, that is merely 5.2%. The old and obsolete machines and technologies take a large part in the industry, the output is not able to meet the demand for high yarns, making the industry still relies heavily on yarn imports although there are some technology innovations in textile industry.

Together with the trend of increasing foreign investment in textile and garment fields that bring about new technique and modern machines, the textile industry itself also imports some weaving machines to replace the former. But in general, textile sector operates weakly and is insufficient to fulfil the demand of garment export industry, comprising of garment export to EU market. To meet the desire of garment production and garment export, textile industry needs to continue investing in changing machines and technology.

4.4. China and ASEAN rivals

Garment export to EU market have to compete severely with clothing products that come from China and other regional countries. Competitive pressure from Chinese garment exports is the toughest challenge for Vietnam producers in all foreign markets, including EU market. The country has started his export- oriented strategy since mid of 1980s. Due to this reason he has obtained many experiences in penetrating into the world market. For exporting garment and textile products to EU market, China has implemented since 1986. Chinese garment export to EU market in 1996 achieved 1835.63 million USD, as nearly equal as the export of the industry in 2000.

One more favor for China counterpart is that he can inherit quotas from Hongkong, and in a circumstance from Taiwan, since these nations lost labor comparative advantage. Both territories (Hongkong and Taiwan) have international markets for textile and garment products, are used to getting to customs procedures and fashion demand of difficult markets. Chinese textile and clothing companies can get benefit by know-how transfer from Hongkong and Taiwan. And in 1994 the Chinese central bank devaluated Chinese currency, compounded with low inflation rate, China clothing exporters have increased their competitive ability in international market, including EU market.

China textile and garment export to EU market is very diversified categories with big amount (see index 5). Both sector garment and textile all have developed that create a strong positive correlation for garment industry, strengthening export activities. The export capability of clothing industry is presented in index 5.

Competitive pressure also comes from regional countries such Indonesia, Malaysia, Philippine, Thailand, etc. These nations also export their garment products earlier than Vietnam does. The structure clothing export of regional countries is also similar to that of Vietnam, it is presented in index 5. Moreover, both ASEAN and China members have higher technical production, and more experiences in clothing export as they have pursued export- oriented strategy very early (ASEAN members have started since late 1970s). And most of them concentrated on textile and garment export such Indonexia, Thailand in the first stage of economic development.

EU imposes quota on textile and garment products for not over ten categories for ASEAN members and China in comparison with 29 categories for Vietnam. This implies that EU gives less favor for Vietnam producers than China and ASEAN members’. As a late comer and low production capacity as well as low quota level that EU gives for Vietnam, domestic garment exporters have to compete hard with these rivals in EU market. Index 5 will show more detail the quantity of selected categories of some countries (including China, Thailand, Malaysia, Indonesia and Vietnam). And only Malaysia among ASEAN members has weak garment export industry and its contribution to export is smaller than textile industry.

The regional exporters also rely on some categories like Vietnam, but for each export item they concentrate and specialize the volume is high. And the cost of basis goods is lower than that in Vietnam, that leads to be able to reduce the production cost and their products are able to compete in foreign market (export revenue of these nations at least 3 times higher than that of Vietnam), China is a typical case. Thus, the international competitive ability of domestic producers in international market on both price and design is less than that of rivals.

To illustrate the export activity of these nations to EU market in value term some figure about export revenue will be given out in 1996 as follow:

Table 4.12: Garment export revenue of selected Asian countries in 1996

Source: Hall Hill report, 1998.

Export revenue to EU market of Indonesia is as about five times as that of Vietnam, and 4.5 times, three times in comparison with China and Thailand respectively. From index 1 ASEAN members count for 10% of EU import value on textile and garment sector. It also means that the potential export to this market of these nations is very high, and it will be a big obstacle for Vietnam garment and textile producers in EU market.

Since 1^st January 2005, the constraint on textile and garment trade will be dismissed among members of WTO. ASEAN members will have more favor to strengthen their clothing and textile export to EU market that now still control garment import by quota. And by the end of this year, China may have been a member of WTO, and apparel exports to EU market will be free since 2005. In contrast, Vietnam is not a member of WTO garment and textile export still based on the bilateral and multilateral treaties- this is a weak point for Vietnam garment exporters in penetrating into EU market.

Chapter V: the evaluation on export potential of Vietnam garment industry to EU market and policy implications

5.1. Evaluating the export potential of Vietnam garment industry to EU market

The comparative advantage of Vietnam garment industry to EU market

Vietnam clothing export revenue to EU market has increased over the year. This implies that this industry has obtained (a) comparative advantage(s) and exploited them efficiently. And now we should indicate what kind of advantage(s) Vietnam garment export industry possesses. Because of the industry’s characteristic, labor for producing is the main resource for garment production.

Table 5.13: Wage of textile and garment industries of selected countries

Unit: USD/hour                                                Source: Textile Industrial Report 11/1995

Wage calculated by hour of Vietnam labor in textile and garment industries is much lower than regional countries 0.18USD/hour in comparison with 0.34, 0.87USD/hour in China and Thailand, respectively. Table 5.14 also indicates that Vietnam garment industry is able to exploit labor advantage to strengthen its export. The advantage based on labor’s price of Vietnam is higher than ever that of the nations selected in table 5.14. and Vietnam garment and textile industries have labor comparative advantage in trading.

The EU demand for garment products

The EU countries have high living standard, GDP per capita is 23,000USD that shows the purchasing power of this market is high and this is an ideal market for selling garment products. EU imports nearly 50% world garment products with rather stable import growth - 5.56%. These indicators imply that Vietnam garment industry can continue expanding its export activities in EU market, and this market is highly potential.

One more important point in EU market is that the rate of import tax for textile and garment products is lower than other countries such US. The tax rate for textile and clothing import in EU market is 9.1-11.9% while it is 10.3-13.4% for GSP tax rate, and the common rate is 55.1-68.9% in US market. With lower importation tax Vietnam garment products can expand its marketshare and increase export revenue. These are favourable conditions for Vietnam garment exporters in trading with EU partners.

  The current export of Vietnam garment industry in EU market

Clothing export to EU market in last period (1993-2000) has been increasing in revenue and plays a very important part in total garment and textile export sale. This is the most crucial achievement of Vietnam garment industry. But actually the other indicators such direct export ratio, input import for production (the contribution of related and supporting industries), technology for production, indicate that garment export has depend hard on external resources (table 4.12 and VINATEX statistic on direct export figures). And the structure product exported presents the underdevelopment of garment industry although there has a change in this (table 4.11). One more point making the current export more difficult is that the ATC agreement has been taking effect for WTO members, the number of quota categories will be reduced for them, while Vietnam has still based on the bilateral agreement.

The structure of quota reallocation seems to be in favor for domestic firms especially for state-owned enterprises, and foreign joint venture companies get difficult to have export quota to EU market. In period 2001-2002 there is an unstable change in quota allocations. And foreign investment in textile and garment about 250,000 million USD up to the year of 2000. This figure was small in comparison with the possibility of Vietnam’s development in these sectors.

In period 2001-2005, with current production capacity and experience, Vietnam garment industry can continue increasing its export revenue in EU market, especially from 2001-2004 when about 50% amount of garment integrated that are actually not regulated by quota are in kind of surveillance or free. The pressure of competition for Vietnam exporters will increase since 2005, when all members of WTO can freely trade in textile and garment products. And to increase export revenue should have synchronous effort from the industry, from the government.

The role of the government

Export activities of garment and textile sectors to EU market period 1993-2000 were based on the trading bilateral agreement between Vietnam government and EU. The government has a crucial role in capturing EU market for Vietnam clothing export. By renovating for textile industry and stimulating foreign investment in textile and garment fields, the government creates favor conditions for the development of clothing export activities including export to EU market.

Since the beginning of 1999, there have been changes in financial policy value, added tax has been taking effect, income tax has changed to suit with the current economic conditions. The new tax system compounded with the export tax reimbursement to exporters gives favor to all exporters and these are the main tools to stimulate export expansion, including garment export. Due to the change in taxation sector, Vietnam export activity achieved the good results although the international economic condition was not favorable in last two years.

The Circular No 106/1998/TT/BTC of Ministry of Finance has permitted that the time for nonepaid import tax of input materials is from 90 days up to 270 days. And during this period if export firms can export their products, they have not to pay import tax. This decision dismantled the persistent obstacle for export garment firms.

By analyzing the achievement and difficulties that Vietnam garment export to EU market has gained for seven years, in period 2001-2005 Vietnam garment industry has the export potentiality and garment export to EU market is stable. The international market demand is high and stable (especially EU market), the domestic industry has favor conditions to develop, and in the short-run the advantage of labor cannot easily to nullify.

5.2. The target of textile and garment industries and garment export activities in period 2001-2005

The target of Vietnam garment export is based on analysing two big factors such as international environment, and domestic production capability.

The target of garment and textile industries in period 2001-2005 includes the indicators in table 5.16. These indicators are in accelerating strategy of garment and textile industries from 2000 to 2010. The target is to achieve high growth rate, especially high export growth rate for garment sector, and to increase the competitive possibility internationally such the average growth rate of export turnover in period 2001-2005 is 17.1%, labor using growth rate is 12%…

Table 5.14: The main indicators for textile and garment industries in period 2001-2005

Source: VINATEX, November//2000

With current production capability compounded with foreign investment mobilization, textile and garment industries can fulfil the demand for producing export textile and garment products based on accelerating strategy for garment and textile development.

Besides the indicators that garment and textile industries, including garment export targets to achieve in period 2001-2005, the industry also has market development oriented. Each market with specific conditions requires particular policies to develop.

For Japanese market, the purpose is to continue exporting garment products to Japan, stabilizing market share and developing new materials that are used for producing products. Vietnam garment and textile producers now still have tax favor with preferential treatment- it is a favorable point to compete with other rivals in Japan market.

For US market, the discriminatory treatment is a big obstacle for Vietnam garment exporters when they penetrate into the market. Importation tax level for some garment products is much higher than NTR tax level. With high tax rate, Vietnam garment products get difficult from accessing to US market, and local exporters hope that when Vietnam gets NTR regime the export revenue can increase sharply and may be equal to revenue in EU or Japan market. Based on US textile and garment consumption forecast in 2000 the import knitted products was 12 billion USD. Thus, garment exports to US in period 2001-2005 are knitted clothing’s that are high demand. And domesitc production can meet this need.

For the EU market, garment and textile industries target to increase export revenue steadily and concentrate on producing some items that Vietnam producers can produce favorably and use lower proportion of import input such cotton products. In period 2001-2005 Vietnam garment industry expands production of cotton yarns and garment (including blends of cotton and synthetic fibers). The reason for implementing this policy is that from 2001 to 2020 China concentrates on developing chemical fiber and chemical-fiber products. Vietnam’s policy on developing is to help his products differentiate from those of China. For garment export all materials for producing clothing may be equal opportunity in selling, the design and marketing issues are decisive role in orienting purchaser’ consumption. The product development policy is for all export markets. And the industry also tries to stable current export market share in these EU nations with the support of government and related agencies.

5.3. Policy implications

Combined both assessment on garment export to EU market and the policies that are constructed by VINATEX, the unsuitable points in these policies for garment export are aimed to change with the purpose is that the policies can be undertaken well in all foreign markets, and in EU market period 2001-2005 in particular.

In order to reduce import input for production, the textile sector should be restructured, and developed in some main regions. According to VINATEX report the fibre tree planting distributions are red delta area counts for 30-40% raw material for production, southern delta presents 40-50% and the rest middle of Vietnam is 10% respectively. And up to 2005 domestic material meets 30% of the demand of textile sector. To achieve this target the textile industry and the government have to co-operate to do some works such:

-         Encouraging farmers plant cotton tree- the input for textile to provide material for garment export that is targeted to export cotton clothing and cotton products in all current market.

-         The government should have support for cotton planting farmers such financial support by medium and long- term loan with low interest rate. And the government should also regulate or establish the scientific agencies to farmers to apply new progress in production to increase their productivity.

-         Investing into storehouse to preserve post-harvested products. The financial resources can be used by textile industry. And the textile industry has to buy all cotton products from the farmers with liberalized price as well as technical support for cotton planting farmers.

The textile sector can absorb only 30% demand of garment industry, so the garment industry should continue increasing its import material (a large amount of cotton cloth) for production and export including export to EU market.

The government has a policy to innovate technology in both textile and garment industries and total investment in period 2001-2005 is 35,000 billion Vietnam Dong. And capital is mobilized from some sources such textile and garment companies’ self-investment, equitizing state enterprises, mobilizing foreign investment…However, according to my opinion Vietnam unskilled labor is abundant and the wage in textile and garment is much lower than that in other nations- this a big comparative advantage of Vietnam garment industry as well as textile industry. And for garment industry, we only change technology in the following conditions to avoid waste capital resource, and inefficient labor exploitation:

-         If  the final products require new materials and the current technology cannot produce the products or the efficiency of using obsolete technology is much low, and leads to incur waste resources. Changing technology is originated from advanced and more complex production requirement and final demand. The investment in textile sector appeared inefficient such investment in NamDinh textile company. We should learn the production method of China textile and garment producers. Production is organized by three teams per day (24 hours) and machine is exploited maximum. After about five years, machine is all depreciated and the new machine and technology are replaced for the old ones. In case of Vietnam, garment producers should use most efficient current technology and import new technology in the necessary condition as just mentioned.

-         In foreign joint venture companies, the technology is required to be advanced and have to satisfy the complex production since most products of these companies is exported. The government encourages these companies export their products, and to be pioneers in innovating technology. And in period 2001-2005, the government should increase to mobilize foreign capital for grading up both textile and garment industries by giving more priorities for foreign companies and foreign joint-venture firms (mainly administrative policies).

-         One more solution for grading up technology is to strengthen foreign investment by removing the obstacles that reduce attractive investment environment such administrative procedure, import procedure, tax repayment issue. In the period 2001-2005, foreign investment firms will be the leading drive in technology innovation.

For direct export and trademark issues, the current solutions seem not to be efficient. The government and textile and garment industries all try to increase direct export (FOB) up to 40% but there has been no method for implementing the target yet.

The target of garment industry is to increase its direct export proportion to 40% of export sale on  average. The government has had policies to grade up supporting industries but the market for garment export policies have not formed. According to my own opinion we should expand EU market by:

-         The government should open foreign trade departments in EU countries that have responsibility to investigate the demand for garment and forecast the demand, the style in future. The departments also have to connect with Vietnamese in these nations to build a selling network, and establish distribution network. The unprompted method China has exploited very efficiently.

-         And the Ministry of Trade should also establish another method to regulate garment export to EU market to help export more effective. The Ministry of Trade should announce garment and textile companies that they have plan export products that will be produced yearly at the beginning of each year and then submit to Ministry of Trade. After collecting all the plans the government knows the garment export demand of domestic firms to EU market. Combined both the demand export and the demand EU market, the Ministry of Trade will reallocate the export products that are planned by domestic firms through a kind of permission (non-fee). However, if a given firm has new customer(s) and the demand for producing a product increase the Ministry of Trade and increase permit volume for the firm(s). The regulation will reduce mass- production of one or some products like jacket in previous years.

Trademark for garment products cannot be established in short time, this is challenged by the high consumer’s satisfaction in long term. Each producer needs himself to create his own label through marketing activities, compounded to increasing product’s quality. This is also means that design staffs in textile and garment products have to be trained and retrained by sending them to advanced countries which have long histories in fashion to meet the quick changing market demand. The industry may invite foreign designers to go to Vietnam to train and retrain for current designers and student in the universities specializing in fashion.

Increasing direct export activity is a crucial element to establish trademark for Vietnam garment export products. With the rate of direct export rate offered above, Vietnam garment exports have favor condition to establish. For foreign joint-venture firms, all trademarks and labels for garment export should be written “made in Vietnam” and have their own trademarks as most of these kind of companies are used foreign counterparts’ trademark. To do this work, the government should have trademark regulations in the foreign direct investment law for garment and textile sectors. And Vietnam foreign trade departments in all EU countries have to advertise all domestic garment products and their trademarks. Through activity, Vietnamese trademark for garment is established and publicized efficiently.

All the implications as mentioned above target to strengthen Vietnamese garment export activities to EU market. In period 2001-2004 the textile and garment trading in the process of liberalization, the pressure of competition among Vietnam garment exporters and other regional rivals is not much change. And the solutions such input for production, trademark issue or market forecast are to strengthen garment export activities to all foreign markets, especially to EU market.

The aforementioned implications are to hope that Vietnam garment industry establishes a necessary base in the new international market environment and these are also the development tendency of the industry when quota regime will be abolished by the end of 2004. And Vietnam garment producers’ export with a careful preparation can compete with all other exporters in the condition of liberalized textile and garment since 2005.

Garment export to EU market is potential, the role of government and textile and garment industries here is how to stimulate the export potentiality. In order to increase garment export to EU market period 2001-2005, according to my opinion the government and garment industry as well as textile industry should have changes in their policies as mentioned above.

conclusion

Export to EU market period 1993-2000 has achieved big result with annually high export growth rate, contributed a very important for the industrial development. And it also a crucial element in the country export drive, and more generally its efforts to integrate itself into the international economy. The figures indicated in all the chapters show the successful activities of garment export to EU market.

However, in export garment to EU market process, the garment industry appears some shortcomings and they are also the weak points of Vietnam textile and auxiliaries industries. And the author tries to gives out some implications for garment export, and garment export to EU market that is evaluated to be potential. The implications such open foreign department in EU nations, reforming garment export to EU market method, and trademark establishment here are originated from the current situation of garment exports and the government’s interference into textile and garment industries.

In order to continue expanding garment export activities and get achievement in the international market, especially in EU-the market assessed to ba potential, the industry should have reforms. The changes in regulation method and market-oriented strategy are the central element in integrating into foreign markets in general, and in EU market in particular.