Friday, June 14, 2024

Vietnam and the EU Strategy for Sustainable and Circular Textiles

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The EU Strategy for Sustainable and Circular Textiles is likely to significantly impact textile production in Vietnam. Here’s an overview of what that impact might look like.


In March of 2022, the European Union adopted the EU Strategy for Sustainable and Circular Textiles. Recognizing the vast environmental cost of the EU’s clothing and apparel consumption, this strategy encompasses a series of environmental regulations aimed at mitigating those costs.

Notably, however, a huge volume of the clothing and apparel consumed in the EU comes from emerging markets like Vietnam. Big-name European brands like Adidas and H&M, for example, both have a number of factories in the emerging Southeast Asian country.

In this light, Vietnam Briefing looks at the details of this new strategy and what the implications might be for textile and garment manufacturers in Vietnam.

What is the EU Strategy for Sustainable and Circular Textiles?

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The EU Strategy for Sustainable and Circular Textiles (EUSSCT) is the foundational blueprint for the transition to more sustainable consumption of clothing and apparel by member states of the European Union.

The strategy outlines the core tenets of the transition, which include:

  • Textiles sold within the EU should be repairable, recyclable, and durable; made of recycled materials where possible, hazardous substance-free, and made in a manner that respects the environment and social rights.
  • ‘Fast fashion’ is no longer viable, and consumers stand to benefit for longer from textiles that are high-quality and affordable rather than cheap and quick.
  • Services dedicated to the reuse and repair of clothing are widely available and profitable.
  • The apparel production sector should be resilient, innovative, and competitive.
  • Producers should take responsibility for what they produce and the value chains they use to produce them, including ensuring they have sufficient capacity for recycling and ensuring that only the bare minimum of excess clothing is incinerated or goes to landfill.

How will the strategy ensure these tenets are met?

The EU has outlined a number of actions it will take to meet its objectives. These include:

  • Issuing design requirements that will ensure textiles last longer, that repairing them is easier, and that they are easier to recycle. There will also be regulations on the quantity of recycled content they should include.
  • Cutting down on overconsumption and overproduction by discouraging the destruction of returned or unsold textile items.
  • Tackling the release of microplastics into the environment from synthetic textiles.
  • Empowering consumers to identify greenwashing and increase sustainable fashion awareness.
  • Introducing Extender Producer Responsibility rules to ensure the cost of an item at the point of sale includes all of the environmental costs generated by the item throughout its lifecycle.
  • Providing producers with incentives to ensure their manufacturing processes are sustainable.
  • Promoting a global approach to sustainable textiles and limit the export of textile waste.
  • Providing businesses with incentives to transition to circular business models.

What is the waste framework directive?

The waste framework directive forms a cornerstone of the EU’s strategy to reduce the volume of waste it produces and to increase the volume of waste that it recycles. A 2023 amendment to the directive has been proposed specifically targeting textiles. Whereas it specifically targets sorting and recycling of textiles in the EU, this can have carry-over effects in that it may reduce demand, particularly for brand new products, from major textile manufacturing locations like Vietnam.

A second key component of the directive will see greater monitoring of exported recyclables. The amendment notes that waste is sometimes exported from the EU under the guise of being recyclable material but in fact, is not. This amendment will see this practice better policed and provide clear guard rails to ensure materials shipped abroad to be recycled, are in fact recycled. In this light, clothing manufacturers in Vietnam using recycled materials may find themselves under increased scrutiny.

What does this mean for Vietnam?

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Vietnam has become a major player in the global garment and textiles sector. In 2022, the burgeoning Southeast Asian nation exported US$37.6 billion worth of apparel garment, and textile products around the world. Of those exports, €5.4 billion (US$5.8 billion) worth went to the European Union.

This is in part due to increased engagement between the bloc and Vietnam as a result of the European Union-Vietnam Free Trade Agreement (EVFTA). But whereas since its inception it has seen strong growth in two-way trade, it has also seen an increasing dependence on the EU as a key buyer of Vietnamese goods. In this light, when these new rules are implemented, the implications may be greater for Vietnamese enterprises than previously.

Already, over the last year or so, Vietnam’s garment and textile industry has struggled on the back of falling demand in key export markets like the EU and the US. This has created a challenging environment whereby growth forecasts outlined at the beginning of the year are looking increasingly difficult to reach.

That is not to say this policy won’t pay dividends for Vietnam in other ways. Green production practices can only serve to better the local environment and quality of life of Vietnamese people. They could also create new production lines and sustainable business opportunities, opening prospects for foreign investment.

Furthermore, the EU may only be the first mover with respect to pressuring its trading partners to manufacture in green and sustainable ways. Moving forward, as consumers around the world become more environmentally conscious these types of policies may arise in other markets—the US for example, which is Vietnam’s biggest export market. Moving now to meet the EU requirement may make Vietnam better prepared in the event that other markets enact similar policies.

The response so far

For all the challenges these new regulations present, firms in Vietnam are taking it in their stride and are already taking steps to reduce their environmental impact.

A number of textile and garment businesses are already using renewable energy to power their operations—the US$17 million Specter garment factory in An Giang, for example. Recycled fashion is also already being produced. Korea’s Hansae Group and the Hanoi Textile and Garment Joint Stock Corporation have joined forces to make recycled textiles for export to the EU.

Furthermore, these new regulations have been well publicized in Vietnam and have been a point of debate for some time, with Vietnam well aware of its extended dependence on the manufacture of garments and textiles. This is important in that it gives local manufacturers sufficient time to prepare.

See also: Green Production in Vietnam’s Textile Industry: Progress Report

Green textile production in Vietnam moving forward

The EU Strategy for Sustainable and Circular Textiles can only be a good thing; however, it will present challenges and may generate additional costs for garment and textile makers in Vietnam. Firms operating in this area should be aware of these upcoming regulations and should prepare their business strategies accordingly.

Foreign firms looking for more information on what these regulations might mean for their garment and textile manufacturing enterprises in Vietnam should contact the legal and regulatory experts at Dezan Shira and Associates.

About Us

Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEANChinaIndiaIndonesiaRussia & the Silk Road. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com

 

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