FTA with EU: Is Vietnam set to overtake Bangladesh?

The diverse, dynamic and value-oriented apparel sector of Bangladesh's close competitor Vietnam has been having a robust growth for quite a long time.

Good governance, logistic performance, infrastructure, growing foreign direct investments and free trade agreements are making the country a rising star. 

Bangladesh almost lost its second position in RMG export to Vietnam during the last five months of 2019. The Southeast Asian country fetched around $2 billion more than Bangladesh ($12.7 billion) in the apparel sector during the time.

However, the country could not knock off Bangladesh from the second position last year as the country earned $422 million more than Vietnam over the whole year from January to December.

Whether they have overtaken us or not this year we will find out after the calculation of this fiscal year's figures.

Now, the Covid-19 crisis may create a pathway for them to overtake in no time. The South East Asian country with limited resources has fought a good fight against the virus – contained it promptly and successfully with zero fatality rate; while it killed millions around the world, especially in Southern European countries such as Italy and Spain, and the US – the top destinations for both Vietnamese and Bangladeshi apparels. 

Just Style, a global trade analysis project, estimates that as a result of the economic blow, the import of apparel by the US and the European Union (EU) will drastically fall. There is a projection that the US would cut 18.33 percent of apparel imports and the EU would cut 12.12 percent.

Bangladeshi garment sector has already lost $3 billion in order cancellations and halt of orders.

Although Bangladeshi factories began its operation amid lockdown to save the economy, the free-trade agreement (FTA) between the EU and Vietnam has added another big concern for Bangladesh as the EU is the largest market for Bangladesh and the country enjoys generalised scheme of preferences (GSP) in the bloc.   

Vietnam and the EU signed the FTA in June last year and it will come into effect from the summer of 2020 as soon as Vietnam ratifies the pact. Vietnam is the EU's second-largest trading partner after Singapore in the Association of Southeast Asian Nations (ASEAN) bloc.

At present, only 42 percent of Vietnamese exports to the EU enjoy zero tariffs under the GSP. It will be almost 99 percent elimination of duties after the FTA comes into effect, says a report of Just Style.

Regarding the FTA and its possible effects on Bangladesh, Indika Narasinha, chief operating officer of DRID Group who worked in Vietnam for quite a long time, said, "The FTA might create a huge opportunity for Vietnam in the EU as they were less affected by Covid-19."

The apparel expert also said Vietnam is ahead of Bangladesh as it produces 60 percent of the same products like Bangladesh and 20 percent of high-value products, for instance suits, cargo pants etc., while Bangladesh produces only suits.

"However, Bangladesh has an advantage – the availability of workers which is higher than that of Vietnam and also the labour cost is 20 percent less compared to Vietnam. Moreover, electronic giants like Samsung have set up their production units in Vietnam. Hence, their workers are more and more attracted to those industries," he added. 

According to Just Style, Bangladesh offers low-end products at a cheaper rate while Vietnam, along with producing low-end products, also produces high-end ones, which makes them a diversified market.

Additionally, proximity-wise, Vietnam is closer to the EU and other Western countries while Bangladesh is afield. Hence, Vietnam takes lower lead time than Bangladesh to deliver products to both the EU and the US. In terms of air shipment of goods, Bangladeshi manufacturers need to pay a lot more to the airline companies than Vietnam.

A big plus point for Vietnam is that it is backed by China. Educated workers with higher productivity in the factories of Vietnam is also a big advantage.

Many Chinese investors have factories in Vietnam. As a result, the benefits of product development in China also trickle down to Vietnam. This makes the job of sourcing by buyers easier in Vietnam. This is the main reason why Vietnam is doing so well in readymade garment exports in the recent times, says the Just Style report. 

One of the directors of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Md Mohiuddin Rubel, also director of Denim Expert Limited, said, "The FTA will definitely affect Bangladesh. If Vietnam gets a duty-free access, it will definitely go ahead of Bangladesh. We are also lagging behind in tackling Covid-19 compared to Vietnam. So, they started their operation before us and also delivered the goods before us."

But he thinks after all these troubles, there is a high chance that China would lose market in the US or the EU, and orders will come to countries like Bangladesh and Vietnam.

Syed M Sajjad, owner of Majumder Garments, said, "Of course, it is a concern for us. This is because coronavirus hit the US and Europe before Bangladesh and the brands have shut down their shops and we had our orders cancelled and halted even before the outbreak started in our country.

"Now, when they open, there will be a shortage of supply and hence, demand will increase. But since the outbreak of coronavirus started late in Bangladesh, there is a chance that we cannot produce for them when they give us orders. So, to keep another lifeline open, they are keeping Vietnam as an option."

Sajjad also said, "For almost half a year from November 2019 to April 2020, there was a shortage of supply globally. So, when everything goes back to normal, there will be a big shortage of supply and it will create demand for every exporting country. Then again, Vietnam cannot compete with us in price. They cannot offer products in our price. So, I do not think we will lose the EU market to Vietnam."

A garment owner seeking anonymity said, "If you consider the current global politics, the US, the UK, France and Germany are creating pressure on China for allegedly concealing information about Covid-19. So, there is a possibility that China's export to the US and the EU will decline and those will come to us.

"Well, we cannot predict anything but this is just an assumption. Now about Vietnam, although they are ahead of Bangladesh on the basis of infrastructure, lead time, workers' efficiency, their workers are low in number compared to us. So, I do not think they will overtake our market."

Towhidul Alam, executive director of Silken Sewing Ltd, said, "A few of our garment makers tried to set up factories in Vietnam but they could not succeed. The main challenge in Vietnam is the availability of labourers. Our biggest advantage is that labourers are available."

"China has been backing Vietnam and set up factories for the last five years. In these five years, they could not take our place yet," he added.