Under the influence of Covid-19, many textile and garment enterprises are forced to limit their production activities, 50% of the workforce have to quit their jobs and can only produce in moderation. If the situation does not take a turn for the better, it is expected that by the end of September, the fashion and garment enterprises will shut down almost entirely.
This is the opinion of Mr. Pham Van Viet, Vice Chairman of Ho Chi Minh City Textile and Garment - Embroidery Association (AGTEK) and Chairman of Viet Thang Jean Limited Company.
With the desire to help textile enterprises gain insight into current situations and possible remedies, Vietnam International Arbitration Center (VIAC) had an interview with Mr. Pham Van Viet. and Mr. Tran Ngoc Liem, Deputy Director of Vietnam Chamber of Commerce and Industry, Ho Chi Minh City Branch, VIAC Arbitrator.
Under the pressure of the COVID-19 pandemic and the sudden change of market, what difficulties are textile enterprises facing?
Mr. Pham Van Viet: Textile is among the group of industries undergoing direct and grave consequences in both domestic and international markets amid Covid-19’s complicated development. Within the border, retailers are grappling with consumers’ pandemic spending behaviors, which involve a tendency to save and minimize spending. As a consequence, purchasing power is affected and the index of personal consumption decreases. In addition, even if the pandemic wears off, the textile and garment industry will recover more slowly than other sectors.
Regarding import and export activities, textiles, and garments export higher volumes to markets than other industries; therefore, the pandemic outbreak has inflicted significant pressure on their businesses. The uneven development of the pandemic renders both inputs and outputs negative.
Input materials for the industry are mainly imported from China. After the pandemic outbreak in the country, businesses quickly fell into a passive material situation. Without raw materials for production, companies are compelled to find alternatives in domestic sources or other similar markets.
Furthermore, even when supply is improved, businesses continue to face obstacles in accessing European and American markets. With the newly announced legislation on restricting imports into these markets, textile enterprises’ commercial activities were continuously interrupted.
For the time being, when transacting with the European Union (EU), enterprises do not export or import goods directly but through online sales. However, this method only accounts for 15–20% of the total sales and can only last until mid-April.
New York, the largest fashion market, is currently the center of the pandemic. The city authority has recommended its citizens to limit outdoor activities, which results in the consumption of textile products close to zero.
We also consider infiltrating the Chinese market since the economic situation has gradually stabilized. However, Vietnamese products are not popular in China. Moreover, Chinese people prefer brand names; therefore, this is not a "promising" land for Vietnamese textile enterprises.
Overall, at this stage, businesses are forced to limit their production activities; 50 percent of the workforce have to quit their jobs and can only produce in moderation. If the situation does not improve, it is expected that by the end of September, the fashion and garment enterprises will have to shut down almost entirely.
Do EU travel restrictions violate the EVFTA?
Mr. Tran Ngoc Liem: The EU's travel restriction policy made a major impact on goods. Import consignments are also required to undergo similar quarantine to humans, such as sterilization, inspection, thereby slowing down "trading trajectory.”
Since the outbreak of the pandemic, consumption has dramatically altered in which normal goods have maintained consumption, but luxury goods have been limited, which include Vietnam's main exports.
We should not consider the EU's policy on suspending imports, restricting trade and traveling to be inconsistent with the EVFTA. Article 6.14 of the EVFTA provides that EU member states and signatories may take emergency measures when a Party has serious concerns regarding a risk to human, animal, or plant life or health affecting products for which trade between the Parties takes place.
With its widely acknowledged destructive properties, Covid-19 is undoubtedly a severe risk that can affect the European market. It is appropriate that the EU applies the orders mentioned above to certain countries and demand strict quarantine procedures. The main issue, in this case, is how the parties should have a plan for facilitating trade and avoiding prolonged disruption.
In compliance with the agreement’s object and purpose, in any case, the application of emergency measures must be considered in the most suitable and proportional way. The importing Party may request consultations from the other Party’s Contact Points; or, if the consultation or application is not taken immediately, the importing party must consider the most suitable and proportional solution in order to avoid unnecessary disruptions to trade.
The Party taking the measures shall inform the other Party as soon as possible so that the other Party has sufficient time to respond, and more importantly, to consider the handling of the goods. Although the agreement does not provide for the legal implication of "force majeure" as in the case of Vietnamese or other domestic laws, however, in the current context and regarding similar measures imposed by the EU, businesses may request cancellation rights.
At the same time, clause 5 Article 6.14 of the Agreement states that "The Parties may consider options for the facilitation of the implementation or the replacement of the SPS measures." Thus, if the affected party finds emergency measures result in trade disruption, the parties should agree on more suitable options, such as extending or adjusting the contract term to cater to the situation.
For example, the parties sign the transport and delivery contracts for each batch of goods. The delivery time of batch 3 and 4 coincide with the pandemic time of translation; therefore, they can be exempted. However, when the pandemic ceases, batch 5 must be transported and delivered pursuant to the contract. The obligations influenced by the pandemic must be clearly defined, but cannot be aggregated so that waiver can be applied.
However, due to the complicated development of the pandemic, it was impossible to determine the time force majeure ceases to exist so that the contract can resume performance. Therefore, Vietnamese enterprises will continue facing hardship; thus they must draft force majeure clauses carefully to avoid ambiguity when referring to such clause.
How is the textile and garment industry coping with the above situation? What solutions have the businesses offered?
Mr. Pham Van Viet: Facing increasing medical demands and solutions to economic difficulties, almost all textile enterprises initially turned to importing bagging machines to manufacture cloth face masks.
Currently, medical masks are scarce, and there is a plan to export fabric masks to replace medical masks. As a product affecting human health, when masks are exported to other countries, the issue of inspection and quarantine is strictly controlled.
In the beginning, Vietnam adapted quickly; however, it has not prepared sufficient materials, sterilization technology and has not taken into account the demand and standards of other markets.
Up to the present, Vietnamese enterprises can only export samples in a limited number, ranging from 100,000 to 200,000 products, and cannot ship in large quantities because the products have not met set standards. Therefore, businesses face tremendous challenges in deciding whether raw materials meet global standards, export markets, whether finished products meet the export country’s requirements.
Identifying potential markets is key to import and export. While masks are gradually meeting demand, protective gear becomes scarce globally. Vietnam entering the US market is a good sign of adapting to the pandemic. Recently, Vietnam exported 450,000 protective suits to the US and gained public attention, thereby creating opportunities for the manufacturing and export industry amidst the gloomy Covid-19 market.
We are delighted that the US Embassy in Vietnam and the Government of Vietnam have been working to facilitate the delivery and approval required to accelerate the transfer of personal protective equipment to the USA. This is an opportunity for essential medical products to enter the US market when they are currently in great demand.
In addition to exporting to markets other than the EU, the government has also taken feasible solutions to support textile businesses. The Ministry of Health announced the Decision on Temporary Technical Guidelines for fabric anti-droplet and bacteria prevention facemasks to simplify standard requirements for fabric facemasks for businesses, and create market transparency.
However, this is only a "temporary" solution that applies to the Vietnamese market and is not enforceable worldwide. Therefore, even if masks meet the standards under Decision 870 / QD-BYT, they still encounter hardship when entering international markets.
Also, when direct export complies with regulations, paperwork is handled more efficiently, For example, conformity, registration of mask standards under Decision 870 / QD-BYT, barcode registration, ISO proof, etc. are all completed in just ten days. It can be seen that the government has actively implemented regulations to quickly clear border goods for the prevention and treatment of Covid-19.
As a national trade promotion organization, do you have any comments on the government and other organizations’ support for the textile and garment industry and other sectors under the influence of Covid-19? Does association/ union’s support have any impacts?
Mr. Tran Ngoc Liem: As for the government and state agencies, I appreciate the timely and strict promulgation of economic and health policies. It has a significant impact on the psychology of people and economic organizations. At present, we must both adapt and lay a strong foundation to recover quickly when the pandemic is over.
VCCI has proposed to accelerate the application of information technology to administrative procedures. The application benefits the prevention of the pandemic while creating an open business environment and maximum favorable conditions for businesses in the current pandemic and is also a premise for modern system development in the future.
As the link between businesses and the government, VCCI has cooperated with associations to identify current difficulties and foresee situations that may arise in the future, thereby synthesizing opinions and requests for the government. The most popular demand is extending the time for tax obligations fulfillment, allowing late tax payment, and reducing some corporate tax.
In addition, the issue of insurance premiums for employees is also among the main concerns of businesses when production is shrinking, wages are reduced and employees may have to take leave without pay. Therefore, companies also want to postpone such a period because they are unable to pay employees.
As an arbitrator of the Vietnam International Arbitration Center (VIAC), I would also like to shed light on current legal issues. Recently, under the pandemic’s ìnluence, suspension and termination of contract have occurred frequently in the textile industry, causing businesses to face financial losses, loss of customers, and risk of legal action in the future.
Other sectors also face a similar situation. Businesses will experience difficulties when tackling many problems simultaneously. However, legal issues should not be ignored because their impact is implicit and long-term. Paying attention and preparing counter-measures for legal issues, in my opinion, is equally important.
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