VOV.VN - Raw cotton imports of Vietnam have been on the upswing for the past six consecutive years with roughly 40% of the demand being filled by the US cotton industry, according to official statistics.
Much of the growth in demand has resulted from the ASEAN-China Free Trade Agreement that provides duty free access for Vietnam-produced yarn that is shipped to its northern neighbour.
If Chinese mills were to import raw cotton directly from the US they would be required to pay a 40% above-quota duty. However, by relocating their mills to Vietnam the yarn manufacturers benefit from the tax savings.
Foreign sector mills in Vietnam account for an estimated one-half to two-thirds of the cotton spinning in the country with the lion’s share of the output shipped to Chinese mills for further processing.
A key factor driving the growth of the cotton spinning segment in Vietnam is the rapidity of the implementation of the China-ASEAN Free Trade Agreement that came into force in 2010.
With full implementation, the customs duty on yarn transported into China from Vietnam, or from any of the other nine Southeast Asian ASEAN member countries, is reduced to zero.
Other ASEAN members such as Indonesia also recorded a rise in yarn exports to China since 2010, while yarn exports to China from major non-ASEAN countries including Uzbekistan and the Republic of Korea (ROK) dropped during that same time frame.
The chief suppliers of cotton to Vietnam, apart from the US, are currently India, Brazil, Australia and Cote d’Ivoire. Together, these five countries account for roughly 70-80% of the Southeast Asian country’s cotton imports.
There had been some concern that China might step up its own cotton production to meet its growing need for materials for the manufacture of finished textile products, lessening its demand for yarn from Vietnam.
However, as more and more Chinese citizens move away from the farms to the larger metropolitan areas of the country, it appears unlikely the country would be able to find sufficient workers to meet this in addition to its other agricultural needs.
Currently, Vietnam exports roughly 65% of the yarn (cotton and other) it produces with China, Turkey, and the ROK the largest purchasers. Export volume of yarn rose 12% in 2015, totalling 961,777 tons. Out of this, 498,100 tons went to China, which was an increase of 26% over the previous year.
Estimates put the volume at 1.17 million tons or 5.37 million bales for the 2015-2016 year, up 25% over 2014-2015.
The future looks strong for the cotton spinning segment in Vietnam. There have been a number of investments both from within the country and from abroad to improve manufacturing processes such as spinning, weaving, and dyeing.
Vietnam is also a part of several free trade agreements that are creating more opportunities for its industries. These agreements include a free trade agreement with the EU, one with the ROK, and a third with Eurasia.
While cotton cultivation by farmers in Vietnam may be falling as they opt to grow other commodities, the country’s position in the global cotton spinning industry appears to be under little threat.
Though the country relies heavily on imports to sustain its yarn production, current prices combined with the country’s portfolio of free and bilateral trade agreements mean that the segment should have little concern over the long-term.