Cotlook A Index - Cents/lb (Change from previous day)

05-08-2019 70.90 (-2.50)

08-08-2018 97.85

08-08-2017 80.85

New York Cotton Futures (Cents/lb) As on 07.08.2019 (Change from

previous day)

Oct 2019 58.08 (-0.19)

Dec 2019 63.40 (-0.44)

Mar 2020 64.43 (-0.25)

07th August

2019

MSME loans: FM Nirmala Sitharaman to address delay in disbursal

5th National Handloom Day celebrations on August 7

Apparel exporters want Centre to continue with support scheme

Gujarat High Court ruling gives relief to fabric manufacturers

IIP base, methodology review in the works

Maharashtra may ask for imposing import duty on raw cotton to control domestic

prices

Cotton and Yarn Futures

ZCE - Daily Data (Change from previous day)

MCX (Change from previous day)

Aug 2019 19950 (+220)

Cotton 12835 (-190) Oct 2019 19670 (+310)

Yarn 20475 (-195) Nov 2019 19500 (+390)

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2 CITI-NEWS LETTER

-------------------------------------------------------------------------------------- MSME loans: FM Nirmala Sitharaman to address delay in disbursal

Handlooms take the technology leap

5th National Handloom Day celebrations on August 7

India to continue engaging bilaterally with RCEP members for favourable

deal

Apparel exporters want Centre to continue with support scheme

Gujarat High Court ruling gives relief to fabric manufacturers

IIP base, methodology review in the works

Maharashtra may ask for imposing import duty on raw cotton to control

domestic prices

GST on discounts puts retailers in a spot

EU-Vietnam FTA: Big deal

Pratibha Syntex bags Woolworths Supplier Excellence Award

------------------------------------------------------------------------------ Vietnam: Garment, textile industry sees decline in orders

Zimbabwe to legalise growing of industrial hemp

Industrial sector contributes 19.52 percent to economic growth

African markets seek higher quality used clothing

The Next Generation Of Solar Cells Could Come From Fabric

---------------------------------------------------------- ----------

NATIONAL

---------------------

GLOBAL

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3 CITI-NEWS LETTER

NATIONAL:

MSME loans: FM Nirmala Sitharaman to address delay in disbursal

(Source: Financial Express, August 07, 2019)

The minister’s meeting was part of a series of such sessions lined up with

representatives of various sectors till August 11

Lack of credit disbursal by banks even after sanctions and long delays in settlement of

dues by the government departments and PSUs have undermined the MSMEs’ ability to

sustain their business cycles, liquidity-starved micro, small and medium enterprises

(MSMEs) told finance minister Nirmala Sitharaman on Tuesday.

The minister’s meeting with MSME representatives was part of a series of such sessions

lined up by her with important stakeholders up to August 11 to devise plans for critical

sectors amid fears that the economy might be slipping into a protracted slowdown.

The minister promised to study the issue of delay in release of dues by the government

departments and promised remedial steps to alleviate the difficulties of MSMEs.

“As against sanctioned, only 10% is being disbursed by banks under 59-minute scheme,”

said Ashok Saigal, co-chair of CII MSME Committee. Under the scheme, MSMEs

registered under the GST are eligible for loan up to `1 crore in just 59 minutes through

‘psbloansin59minutes.com’ portal. The MSMEs also complained that despite 70%

guarantee from the Credit Guarantee Fund Trust for Micro and Small Enterprises

(CGTMSE), the firms have not been able to secure loans from banks in many cases.

Another demand was to revise the the turnover/investment-related definition of

MSMEs upwards. The definitions were brought in 2006 and have since become dated

due to inflation. “Currently a firm with `5 crore investment is classified as ‘small’ while

investment over `5 crore are ‘medium’. But machine that cost `5 lakh in 2006 is not

valued at `15 lakh,” said Rajive Chawla,Integrated Association of Micro, Small and

Medium Enterprises of India (I am SME of India). Sitharaman was positive and she

would look into the issue.

The minister asked all the industry bodies to give in writing their suggestions for the

sector in 3-4 days to prepare an action plan for the MSME sector.

Other issues raised by MSMEs included a demand to exempt from capital gains tax for

the sector if gains are reinvested in business. Among others, they sought rationalisation

of penalty for late filing on MCA as it is same for large and small companies. They also

raised the issue of VAT refunds not being transferred to GST regime by states.

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4 CITI-NEWS LETTER

MSMEs are the backbone of the Indian economy, contributing nearly 30% of the gross

domestic product and 49% of country’s exports. MSMEs are also the largest employers,

next only to agriculture. Over six crore such units provided employment to about 11

crore people (NSSO, 2016).

Home

Handlooms take the technology leap

(Source: M Soundariya Preetha, The Hindu, August 06, 2019)

New designs and concepts raise the income of weavers; they also get awards

At Kalikkavalasu, near Chennimalai in Erode district, as many as 580 looms are in

operation for eight to 10 hours a day, making fabrics that go into making bed sheets,

bags, stoles, quilts, etc.

The Kalikkavalasu Industrial Weaver Co-operative Society, which was started in 1985

with 100 handloom weavers, was initially making bed sheets. Now, with 1,400 members,

the society makes a wide range of products that are sold across the Co-optex outlets.

K.N. Subramaniam, manager of the society, says there are about 12,000 handloom

weavers in Chennimalai area. Most of them are attached to co-operative societies.

At the Kalikkavalasu society, the weavers used to make fabrics with designs. Then came

the use of jacquards. Now, the society is gearing up for use of electronic jacquards.

“Almost 90 % of the goods are sold to Co-optex for domestic and export markets. They

develop new products regularly and give us the design and product concept a year in

advance. Complicated products get better price and demand,” he says.

As the weaving society adopts new technologies, it also trains its weavers. They undergo

15 to 20 days training with stipend, Mr. Subramaniam says.

For the weavers, new designs and concepts also mean higher income. A weaver used to

earn ₹150 to ₹300 a day four years ago. Now, the earning goes up to ₹700 for a

skilled weaver.

Forty-seven-year-old R. Subramani started weaving at the age of 17. He works from

morning to evening at the Kalikkavalasu society and says that jacquard designs have led

to higher wages. With his experience in weaving, it is easy to adopt the new concepts

and designs, he says.

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5 CITI-NEWS LETTER

N. Nagaraj, who was initially into agriculture, is weaving for the last two decades. He

was working for a private master weaver who made bed sheets.

Five years ago, he joined the society and now makes value-added products. More

youngsters will be attracted to weaving if there are training programmes, says 50-year-

old Mr. Nagaraj.

Mr. Subramaniam adds that apart from awareness among consumers, awareness among

weavers about handloom has also improved.

The societies nominate the works of the weavers for awards given by the government

every year.

The National Handloom Day is observed on August 7 every year to honour handloom

weavers and to highlight the handloom industry, says a press release from the Union

Ministry of Textiles. “It seeks to focus on the contribution of handloom to the socio

economic development of the country and increase the income of the weavers,” the

release said.

Home

5th National Handloom Day celebrations on August 7

(Source: Press Information Bureau, August 06, 2019)

The 5th National Handloom Day will be celebrated tomorrow across the country. Union

Minister of Textiles and Women and Child Development, SmritiZubinIrani, will preside

over a function at VigyanBhawan in New Delhi to mark the occasion.

Minister of Petroleum & Natural Gas, Dharmendra Pradhan, and Minister of State for

Animal Husbandry, Dairying & Fisheries and Micro, Small & Medium Enterprises,

Pratap Chandra Sarangi, will also be present on this occasion.

The main event will be held in Bhubaneswar, Odisha. Bhubaneswar has been chosen as

the venue for the main event due to its rich tradition of Handlooms. More thanfifty

percent of total weavers population of India resides in Eastern and North Eastern

Regions and most of them are women. The prime objective of holding the National

Handloom Day in Bhubaneswar is to empower women and girls.

The following activities will be undertaken all across the country

Distribution of Pehchan Cards and Yarn Passbooks

Distribution of MUDRA loan

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6 CITI-NEWS LETTER

Distribution of lighting units and certificates for construction of work sheds.

National Handloom Day to be observed at Weavers’ Service Centres in different

States.

At 16 NIFT Campuses and Handloom Mela and exhibition, workshops, panel

discussions, special stalls for handloom products at Gandhinagar and Kolkata

NIFT campuses.

Live broadcast of discussion on Twitter from digital studio of IMG Reliance,

involving young designers and prominent personalities from the handloom

sector.

Symposium at Crafts Museum in New Delhi by Fashion Design Council of India

with participants from Ministry of Textiles, master weavers, textile designers,

fashion designers and textile experts.

Workshop through IGNOU/NIOS to impart information about educational

opportunities to weave and their wards.

The National Handloom Day is observed annually on 7th August to honour the

handloom weavers in the country and also highlight India’s handloom industry.

National Handloom Day seeks to focus on the contribution of handloom to the socio

economic development of the country and also increase the income of weavers.

The Union Government had declared 7th of August as the National Handloom Day in

July 2015 with the objective of generating awareness about the importance of the

handloom industry to the socio economic development of the country. August 7 was

chosen as the National Handloom Day to commemorate the Swadeshi Movement which

was launched on this day in 1905 in Calcutta Town Hall to protest against the partition

of Bengal by the British Government. The movement had aimed at reviving domestic

products and production processes.

The first National Handloom Day was inaugurated on 7th August 2015 by the Prime

Minister, Narendra Modi, at the centenary of Madras University in Chennai.

Home

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7 CITI-NEWS LETTER

India to continue engaging bilaterally with RCEP members for favourable

deal

(Source: Amiti Sen, The Hindu Business Line, August 06, 2019)

RCEP Trade Ministers reiterate keenness on meeting year-end deadline for talks

India will continue to hold bilateral discussions with the 15 countries it is negotiating

the mega Regional Comprehensive Economic Partnership (RCEP) agreement with,

including China and the 10-country ASEAN, to try and ensure that the pact, if

implemented, would result in substantial market access for its goods and services.

“Indian officials had a number of intensive discussions with RCEP countries such as

China, Thailand, South Korea, New Zealand, Australia, Singapore, Indonesia, Japan and

ASEAN Economic Ministers at the sidelines of the Trade Ministers’ meet in Beijing.

“It was made clear to all partners that India cannot be part of an agreement that would

give its industry and farmers a raw deal. The discussions on what India wants from its

partners and what it can give will continue,” a government official said. The 16-member

RCEP is keen on meeting the year-end deadline for wrapping up the negotiations for the

mega trade pact, but New Delhi has said that it would go for it only if its own demands,

in goods as well as services, are met.

“The Ministers highlighted that as growth outlook remains overcast by rising

uncertainties, it is in the region’s collective interest and highest priority to conclude a

modern, comprehensive, high quality, and mutually beneficial RCEP in 2019, as

mandated by the 16 RCEP Leaders,” according to the joint communiqué issued at the

end of the two-day RCEP Ministerial meet on Saturday.

India decided to adopt an aggressive posture at the RCEP negotiations following a series

of meetings that Commerce and Industry Minister Piyush Goyal and senior officials of

the Commerce Ministry had with industry representatives numbering more than 500.

Chinese imports threat

“Almost all industrial sectors that were consulted, be it steel, engineering goods,

pharmaceuticals, textiles, marine goods or automobiles, did not want to be part of the

RCEP as they feared that competition from China could hurt them badly if tariffs were

to be eliminated or slashed.

“It became very clear then that India should become part of the RCEP only if it is getting

a lot of actual market access for its goods and services to compensate for the losses in

the domestic market,” the official said.

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8 CITI-NEWS LETTER

In his interaction with China’s Vice-Minister of Commerce Wang Shouwen, India’s

Commerce Secretary Anup Wadhawan sought market access in both goods and services,

including larger exports of drugs, sugar, rice, dairy, soybean, IT and other services.

During the meeting with ASEAN Economic Ministers, the Commerce Secretary stressed

on the importance of services trade that supported both trade in goods and investment.

“Since services is an area where the ASEAN is reluctant to make substantial offers under

RCEP, India highlighted the importance of higher ambition in the area,” the official said.

As per the joint press statement, annexes on Telecommunication Services, Financial

Services, and Professional Services, have been completed, bringing a total number of

seven concluded chapters and three concluded annexes, and noted that some of the

remaining chapters or annexes are nearing conclusion.

“... Determined to keep the momentum towards achieving the leaders’ mandate to

conclude the RCEP negotiations by the end of the year, the Ministers called on all RPCs

to find pragmatic and solution oriented approaches to narrow divergence on the various

remaining issues,” the statement said.

Home

Apparel exporters want Centre to continue with support scheme

(Source: The Hindu Business Line, August 06, 2019)

Apparel exporters have appealed to the Union Government to continue the Merchandise

Exports from India Scheme (MEIS) for garment exports.

A. Sakthivel, vice-chairman of Apparel Export Promotion Council (AEPC), said there

were reports that the government planned to stop the scheme. The MEIS provided 4 %

support to the exporters.

The Council had written to all the Members of Parliament (MPs) from Tamil Nadu and

requested them to take up the issue with the Prime Minister and the Finance Minister.

The chairman and vice-chairman of AEPC also met 20 MPs, who were from different

parts of the country, in New Delhi on August 5 and explained to them the benefits of

MEIS for garment exports, why it should be continued, and the impact on the exports if

the scheme was withdrawn.

A press release from AEPC said the MPs had assured them that they would take up with

the government the need to continue MEIS.

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9 CITI-NEWS LETTER

Mr. Sakthivel added that apart from MEIS, he had discussed with the MPs the other

issues that were affecting apparel exporters.

Another scheme, the Rebate of State Taxes and Levies, which included the embedded

taxes, was yet to be implemented though the government had announced it before the

elections. This was also taken up with the MPs, he said.

President of Tiruppur Exporters’ Association Raja M. Shanmugham said the Union

Finance and MSME Ministers held a meeting in New Delhi on Tuesday to know from

the stakeholders the issues that affect the industry.

There was no clarity on the MEIS and the guidelines for Rebate of State and Central

Taxes and Levies was yet to be finalised. “I highlighted these issues at the meeting.

Indian apparel exporters are at a disadvantage in the international market. If the MEIS

is removed, the lifeline of the industry will be lost,” he said.

The industry was facing three major challenges - lack of infrastructure, high interest

rates, and delay in India signing Free Trade Agreements.

Till these three issues were sorted out, schemes such as MEIS should be continued.

Further, the main financial problems for the industry were because of compliance to

new banking norms. The MSMEs should be insulated from the Basel III norms, he

added.

Home

Gujarat High Court ruling gives relief to fabric manufacturers

(Source: The Hindu Business Line, August 06, 2019)

‘Input tax credit accumulated up to July 31, 2018 will not lapse’

In what could be seen as a major relief for the textile sector, the Gujarat High Court has

made it clear that input tax credit (ITC) accumulated up to July 31, 2018 will not lapse.

This will facilitate refund of the credit for that period and thus end the working capital

woes for fabric manufacturers.

The core of the issue is the inverted duty structure which results in a situation when

there is a higher duty on raw material/input and higher duty on finished product. In

such a situation, technically speaking, refund is to be provided. In case of the textile

sector, man-made fabric attracts GST (Goods & Services Tax) at the rate of 5 per cent

while inputs for that attract levy at the rate of 12 per cent.

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10 CITI-NEWS LETTER

As power loom and man-made fabric manufacturers were facing problems, the Central

Board of Indirect Taxes (CBIC) issued a circular saying that refund will be possible from

August 2018 but accumulated ITC till July 2018 will lapse. Aggrieved by this, various

companies and association of fabric weavers (power looms) filed petitions in the Gujarat

High Court.

“The impugned Notification dated July 26, 2018 bearing No.20/2018 and Circular dated

August 24, 2018 bearing Circular No.56/30/2018-GST to the extent it provides that the

input tax credit lying unutilised in balance, after payment of tax for and up to the month

of July 2018, on the inward supplies received up to the 31st day of July 2018, shall lapse,

are hereby quashed and set aside and are hereby declared as ultra vires and beyond the

scope of section 54(3)(ii) of the CGST Act, as section 54(3)(ii) of the CGST Act does not

empower to issue such notifications and consequently, it is held that the petitioners and

members of the petitioners are entitled for the credit and it be granted to them,” a

Division Bench of the court said in its ruling.

Earlier, the Revenue Department argued that GST reduction on man made fibre yarn to

12 from 18 per cent gave significant relief to the sector and reduced the accumulation of

ITC . As there were requests for relaxing conditions related with refund of accumulated

credit, the GST Council agreed to remove the condition, however with the prospective

effect.

The Council then decided that the input tax credit lying in balance on the date of the

notification implementing the new provision will lapse. This lapse of accumulated ITC

was in the spirit of earlier rate structure which envisaged that refund of accumulated

credit was not to be allowed and accordingly circular was issued.

However, the Court did not agree with the contentions and said that no inherent power

can be inferred from the provision of GST Law empowering the Centre to provide for the

lapsing of the unutilised ITC accumulated on account of inverted rate structures. The

petitioners have a vested right to unutilised ITC accumulated on account of rate of tax

on inputs being higher than the rate of tax on the output supplies.

According to Anita Rastogi, Indirect Tax Partner with PwC, it is a well settled law as per

Supreme Court ruling in the past that credit is indefeasible and this order of High Court

of Gujarat reaffirms this position.

Home

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11 CITI-NEWS LETTER

IIP base, methodology review in the works

(Source: Kritika Suneja, Economic Times, August 06, 2019)

MoSPI sets up working group to change base to 2017-18 from 2011-12.

India will review the methodology of estimating its factory output – index of industrial

production (IIP) – and identify gaps amid concerns over the credibility of such data in

recent past.

The IIP provides a single representative

figure to measure the general level of

industrial activity in the economy on a

monthly basis. The Ministry of Statistics

and Programme Implementation (Mo-SPI)

has set up a working group to revise the

indicator’s base to 2017-18 from 2011-12

and monitor if global practices are followed

in its estimation, said an official.

“The group will revise the base and relook the methodology. Though the broad

methodology would remain the same, we will have to choose the item basket carefully to

make it coherent with the national accounts,” said the official, who did not wish to be

identified. The IIP, based on the Annual Survey of Industries (ASI), is a crucial input for

compilation of gross value added of manufacturing sector in gross domestic production

(GDP) of the country on a quarterly basis.

Its revision is timely as the government has faced flak for revising the GDP data under a

new series with 2011-12 as the base year. One such case was the sharp revision in GDP

growth for 2016-17, the year of demonetisation, to 8.2% from 7.1%. Moreover, many

economists criticised the government when an estimate of back-series GDP data for the

past decade by a committee appointed by the National Statistical Commission was at

variance with that of the Central Statistical Organisation (CSO). The CSO’s official data

sharply lowered growth estimates for the period from 2005-06 to 2013-14.

The IIP rose 3.1% in May, slower than 3.8% in the year-ago period. “We have to look at

ASI data to finalise the basket of commodities in IIP. However, the ASI 2017-18 report is

not yet out,” said the official. Individual items are included in the IIP item basket

according to their minimum contribution to national product. It is compiled and

published monthly by the CSO with a time lag of six weeks from the reference month.

The existing IIP series with base 2011-12, which came into effect from 2017, categorises

use-based sectors as primary goods, capital goods, intermediate, infrastructure/

construction goods, consumer durables and consumer non-durables. However,

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12 CITI-NEWS LETTER

independent economists have expressed apprehension at the selection of 2017-18 as the

new base year.

“The base year is supposed to be a normal year without any major disruptions. However,

2017-18 saw disruptions due to the goods and services tax and may not be ideal as the

base year. In fact, it is difficult to gauge what is a normal year 2011-12 onwards,” said

Madan Sabnavis, chief economist at CARE Ratings NSE 5.15 % . “We expect the new IIP

to bring in new products and remove the mismatch between the new and old series.

However, all variables should have a common base year,” an economist with a private

bank said on condition of anonymity. The base revision exercise is in line with the

review of another key economic indicator – the wholesale price index.

Home

Maharashtra may ask for imposing import duty on raw cotton to control

domestic prices

(Source: Partha Sarathi Biswas, Indian Express, August 07, 2019)

July prices of seed cotton have reported a dip, which trade sources attribute to sluggish

exports and increase in cheap imports.

As cheap imports and sluggish exports loom large over the domestic cotton market,

Pasha Patel, head of Maharashtra government’s committee for agriculture cost and

pricing, said an import duty on cotton could be explored to keep domestic prices steady.

Patel, speaking to The Indian Express, said adequate steps would be taken to ensure

cotton prices remain steady in the new season, set to start post-October.

Domestic prices of kapas (seed cotton ) have been well above the government declared

Minimum Support Price (MSP) of Rs 5,500 per quintal through out the 2018-19 season.

However, July prices have reported a dip, which trade sources attribute to sluggish

exports for both yarn and lint cotton.

In Maharashtra’s wholesale markets, average July price of cotton was Rs 5,850 per

quintal, compared with Rs 6,242.92 per quintal in June. The same trend has been

observed in most of the major cotton producing states in the country.

Traders claim that sluggish exports have dampened cotton sentiments in the markets.

India’s 2018-19 export is expected to be around 46 lakh bales, compared with the 69

lakh bales it exported in the 2017-18 season.

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13 CITI-NEWS LETTER

On the other hand, imports have doubled, with the country recording 31 lakh bales of

import as against the 15 lakh bales it imported in 2017-18 (one bale contains 170 kgs of

cotton).

The downturn in export is mainly due to availability of cheaper cotton in the

international market.

Patel said they are keeping a very close watch on the cotton scenario. “We are exploring

options to boost sentiments, which would keep cotton prices above MSP,” he said. One

of the measures, Patel said, was to stop the dumping of cheap import into the domestic

market and that would be done by imposing higher import duty on raw cotton.

Cotton sowing has been going on at a steady pace, with India reporting a 5 per cent year-

on-year increase in sowing. As of August 2, India has reported 115.5 lakh hectares of

cotton sowing, which last year was 109.79 lakh hectares. India on an average reports

120.93 lakh hectares of cotton sowing during kharif.

Home

GST on discounts puts retailers in a spot

(Source: Gireesh Chandra Prasad, Live Mint, August 07, 2019)

Tax on discounts that manufacturers and wholesalers extend to retailers for passing on

to consumers is becoming an area of confusion and possible litigation, say experts. The

government’s recent decision to tax such discounts has put retailers in a difficult

situation, they say.

The Central Board of Indirect Taxes and Customs (CBIC) had in June clarified that

discounts that dealers get from manufacturers and wholesalers help in boosting sales

and therefore amount to a taxable consideration flowing from the supplier to the

retailer. Such discounts are to be added to the transaction value between retailer and

consumer for payment of Goods and Services Tax (GST). Industry watchers say this is

leading to confusion at the time of sales and disputes between retailer and consumer as

the former is unable to pass this additional burden to the latter who is often willing to

pay tax only on the sale price after discount. It is hard for dealers to explain to

consumers they have to pay GST on the amount of discount they receive, they said.

The 28 June circular from CBIC was an effort to clarify the applicability of taxes on what

is called secondary or post-sale discounts. It suggested that wherever suppliers give

discounts to retailers without any obligation by the latter to render services like

advertisement campaign or special sales drive, such discounts are not to be subject to

GST. However, if discounts from the manufacturer or supplier are linked to such

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14 CITI-NEWS LETTER

obligations by the retailer, it should be taxed. The tax authority sought to distinguish

discounts in such cases as a separate transaction between the manufacturer and the

retailer from the sale of goods made by the retailer to the end consumer.

"The clarification on discounts with an obligation of passing it to the recipient, forming

a part of the value on which GST is leviable (even while the said is not commercially

payable by the recipient) opens a Pandora's box for most industry players; essentially

because companies had always viewed these discounts as price reductions and not

included them for payment of GST," said Abhishek Jain, tax partner, EY.

Tax on discounts has been an area of dispute in the pre-GST era too. The Supreme Court

had in 2012 ruled in a dispute between central excise commissioner, Mumbai, and Fiat

India (P) Ltd. that the wholesale price declared by the company, which was lower than

the cost of production, cannot be treated as a normal price for levy of excise duty as it

would result in short payment of tax. The reasoning was that discounts given to

consumers for gaining market penetration was also a taxable 'consideration'.

Home

EU-Vietnam FTA: Big deal

(Source: Subir Ghosh, Fibre2Fashion, August 06, 2019)

The European Union has inked a landmark free trade deal with Vietnam, paving the way

for tariff reductions on 99% of goods between the 28-member bloc and the Southeast

Asian country.

The negotiations between Vietnam and the European Union (EU) over a free trade

agreement (FTA) was keenly watched by many other countries and blocs, particularly

India. When the talks eventually led to a deal being signed on the last day of June, it

came somewhat as a double whammy for India-mostly from the textiles-apparel point of

view. First, Vietnam's textiles-apparel industry has decidedly gained an advantage over

India as far as exports to most European countries are concerned. And second, Vietnam

has got the FTA that it badly wanted, stealing a march over India-the former's parleys

with the EU began just as those of the latter ran into a bottleneck.

Of course, it is a big deal that will have a far-reaching effect on global supply chain.

There were two distinct agreements-a Free Trade Agreement (FTA) and an Investment

Protection Agreement (IPA) under the ambit of the Vietnam-EU Comprehensive

Partnership and Cooperation Framework Agreement (PCA) that will together see tariff

reductions on an overwhelming 99 per cent of goods traded between the EU bloc and

Vietnam.

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15 CITI-NEWS LETTER

Technically, however, it is not a done deal yet-it will now have to be presented to

Vietnam's National Assembly for ratification and the European Parliament for its

consent, besides the respective national parliaments of the EU member states in the

case of the IPA. The passage in Europe may not be a cakewalk, given the strident

opposition to the agreement by groups that are critical of Vietnam's human rights

record.

Nevertheless, the agreements, signed in Hanoi by the EU trade commissioner Cecilia

Malmstrom and Vietnam's minister for industry and trade Tran Tuan Anh, remain

intrinsic to the framework established by the EU-Vietnam Partnership and Cooperation

Framework Agreement, which would govern overall bilateral relations in areas,

including development cooperation, peace and security, trade and investment, judicial

cooperation, social affairs, good governance, rule of law and other issues of common

interest. Both sides also agreed on the importance to ensure the implementation of the

obligations under the Trade and Sustainable Development chapter of the trade

agreement.

The Immediate Backdrop

The timing of the EU-Vietnam agreement may not have been remarkable, but the

context certainly was. It came just two days after the EU and South American bloc

Mercosur (an economic and political bloc comprising Argentina, Brazil, Paraguay,

Uruguay and Venezuela) agreed to a free-trade treaty following two long-drawn decades

of intensive talks.

As a result of the agreement, EU companies will now benefit from privileged access to a

market of over 260 million consumers. EU exporters will gain from progressive tariff

cuts that over time will bring these European companies annual savings of more than €4

billion. The agreement will, in a staggered manner, remove duties on 91 per cent of

goods that EU companies currently export to Mercosur. In turn, the Mercosur countries

will remove high duties on industrial products. This includes textiles (taxed up to 35 per

cent) as well as clothing (also taxed up to 35 per cent).

The EU bilateral trade with Mercosur totals €88 billion a year for goods and €34 billion

for services, according to the EU website. Every year, the EU exports to Mercosur

countries goods worth €45 billion and imports products of nearly the same value. As far

as services are concerned, the EU exports more than twice as much as it imports: €23

billion of services supplied by EU firms to clients in Mercosur versus €11 billion in

services delivered to EU clients by firms from Mercosur countries.

The EU has been hyper-active. In Asia, the Union already has trade agreements in place

with South Korea, Japan and Singapore, and is in advanced stage of talks with

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16 CITI-NEWS LETTER

Indonesia, Malaysia, the Philippines and Thailand. The EU-Singapore agreement is

likely to come into force later this year.

Vietnam too has not been sitting idle-it has already signed about a dozen free trade

pacts, including the Comprehensive and Progressive Agreement for Trans-Pacific

Partnership (CPTPP)-an 11-country trade deal that will slash tariffs across much of the

AsiaPacific.

Both the EU trade agreements were watched with some apprehension from India,

especially its textiles and apparel industry which has been given a run for its money by a

spunky Vietnam. Negotiations over a possible FTA between India and the EU were

launched in 2007 and suspended in 2013 when the differences between the two parties

came to a head. India would now want to ink that deal at the soonest possible, and

maybe also look at the Mercosur grouping as well.

The European Front

Bilateral trade and investment negotiations between the EU and Vietnam were launched

in 2012 and concluded last year. The EU's agreements with Vietnam are the second

(following those with Singapore) to have been concluded with a Southeast Asian

country. The trade and investment agreements are governed by the PCA that entered

into force in October 2016. At the moment, Vietnam benefits immensely from the

Generalised Scheme of Preferences (GSP) of the EU.

The EU-Vietnam agreement, once it comes into force, seeks to eliminate 99 per cent of

tariffs, although some will be cut over a 10-year period and other goods, notably

agricultural products, will be limited by quotas. The agreement is also expected to open

up public procurement and services markets, such as for the postal, banking and

maritime sectors in Vietnam.

"The European Commission and the Government of the Socialist Republic of Viet Nam

welcome the signature of the Free Trade Agreement and the Investment Protection

Agreement," Malmstrom and Tuan Anh said in a joint statement in June. "Both sides

share a strong commitment to the effective implementation of both agreements and are

cooperating closely to ensure full compliance with the obligations under these

agreements." The EU said it will "support Vietnam through technical assistance in order

to define and follow up on an implementation plan to facilitate the necessary reforms

and adjustments, including in areas such as non-tariff barriers."

The EU is Vietnam's second-largest export market after the United States (US), with

main exports including apparel and footwear products. In 2018, Vietnam exported

$42.5 billion worth of goods and services to the EU, while the value of imports from the

region was $13.8 billion, according to official data. According to the Vietnamese

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17 CITI-NEWS LETTER

government, the EVFTA would boost EU exports to Vietnam by 15.28 per cent and those

from Vietnam to the EU by 20.0 per cent by next year. The trade deal is expected to

boost Vietnam's gross domestic product (GDP) by 2.18-3.25 per cent annually in

another four years and by 4.57-5.30 per cent annually between 2024-2028, the

government said.

The US-China Angle

Long before US President Donald Trump decided to go hammer and tongs at China,

many firms were already either shifting factories from China to Vietnam or switching

over to apparel suppliers there. China was slowly losing its marked advantage as a cheap

source for products with manufacturing costs going up both in pace and scale. Wages

had increased and an indeterminate number of factories were shut down over

environmental violations over the last two years.

The best move for many multinationals was to shift base, but only by a notch, to

neighbouring Southeast Asian countries like Vietnam and Cambodia. And with the

flaring up of the US-China trade war, ASEAN has been the new preferred sourcing

region. As things stand, African countries lag far behind their Southeast Asian rivals

both in quality and efficiency. To repeat for emphasis: as things stand. It could be only a

matter of time before African economies ramp up matters.

However, as things also stand, Vietnam is said to have gained the most from US-China

trade war. According to a study titled Exploring US and China trade diversion conducted

by Nomura Holdings Inc economists Rob Subbaraman, Sonal Varma and Michael Loo,

Vietnam has been a clear winner with US importers looking to divert their orders to

bypass higher tariffs.

Vietnam gained orders from trade diversion on tariffed goods equal to 7.9 per cent of

gross domestic product (GDP) in the year through the first quarter of 2019. The findings

were based on the study of world's 50 biggest economies from the first quarter of 2018

(Q1CY18) till the first quarter of CY19 (Q1CY19). The study covered US tariffs on $250

billion worth of imports from China and Chinese tariffs on $110 billion worth of imports

from the US. The Nomura researchers saw evidence of US and China import

substitution in 52 per cent of the 1,981 tariffed products.

Taiwan was a distant second with gains equivalent to 2.1 per cent of GDP. According to

the study, both economies gained far more from US tariffs on China than from Chinese

duties on the US. "American and Chinese orders for more than half of the 1,981 tariffed

products in the US-China trade dispute thus far have been re-routed, upending the

winners and losers in the global supply chain," it remarked. Incidentally, Taiwan's total

direct investment capital in Vietnam is to the tune of $31 billion, focusing mainly on

production and processing, and also contributing to the country's exports, particularly

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18 CITI-NEWS LETTER

in the textiles-apparel and footwear sectors. The Vietnam Textile and Apparel

Association (VITAS) wants to soon set up an information exchange channel with

Taiwanese textiles-apparel firms in Vietnam in order to connect sources of materials.

Besides the two, Chile, Malaysia, Argentina, Hong Kong, Mexico, Korea, Singapore and

Brazil are the other countries / economies among the top 10 that, according to the

researchers, will benefit the most. Canada, Thailand, South Africa, Saudi Arabia,

Portugal, Australia, France, India, Egypt and Colombia are the next ten. For India, the

benefit was pegged at 0.2 per cent of 2019 GDP.

There have been other appraisals that have come up with similar indicators. According

to a survey conducted by the Vietnam Chamber of Commerce and Industry and a US

industry association, out of 566 firms surveyed, 31 per cent respondents said they had

expanded output, and another 31 per cent anticipated rising sales in the years ahead.

The survey drew responses from 200 local firms, 81 from South Korea, 66 from Japan,

35 from Europe, 22 from China and 14 from the United States as well as from other

countries and regions. By industry, 26 per cent were textile firms.

Meanwhile, US Census Bureau statistics in early June showed that even though US

tariffs were driving some manufacturing out of China, much of it still remained outside

of the US. US imports from Vietnam were up 38 per cent during the first four months of

2019, compared to last year. Imports also increased by 22 per cent from Taiwan, 17 per

cent from South Korea, and 13 per cent from Bangladesh. The numbers vindicate the

Nomura findings.

Domestic Issues

There is also that proverbial "other side" of the story. Media reports, shortly after the

EU-Vietnam agreement, pointed to the possible increase in labour costs in the coming

days. "For many of these companies-who supply to some of the biggest brands in the

world, including Nike, Adidas, Uniqlo and H&M- Vietnam is their biggest

manufacturing base. But as Apple, Dell, Google and Amazon suppliers seek new

production locations to avoid US tariffs on China, competition for land and local talent

is expected to heat up," a news report indicated.

It went on to lay matters bare, "The minimum wage in Vietnam has risen over the last 10

years from 1 million Vietnamese dong ($43) a month to 4.18 million dong per month in

2019, according to the government, although this is still lower than China. The

Vietnamese government also requires all manufacturers to raise wages by more than 10

per cent each year. Most foreign companies already offer much higher than the base pay,

while the total compensation package should also include insurance as well as other

employee benefits and bonuses."

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19 CITI-NEWS LETTER

A Fitch Group report earlier in May had asserted that Vietnam's low labour cost allure

for foreign investors has been on a decline, in spite of reaping benefits from the US-

China stand-off. It noticed that "Vietnam was among three countries with the largest

minimum wage growth in East Asia, with an average year-on-year growth rate of 8.8 per

cent between 2015 and 2019. Ahead of Vietnam were Laos and China, where the

minimum wages rose 14.6 and 9.8 percent each year respectively."

Similar forebodings came from a World Bank report in December 2018. It found that

Vietnam's labour costs, which it defines as the cost of all payments to all workers in a

firm divided equally, was the highest among comparator countries in Southeast Asia. It

said wage costs of about $2,739 per worker for the median Vietnamese firm was about

twice as high as in Laos, Myanmar and Malaysia, and about 30- 45 per cent higher than

in Cambodia, Thailand and the Philippines.

Home

Pratibha Syntex bags Woolworths Supplier Excellence Award

(Source: Fibre2Fashion, August 07, 2019)

Woolworths has feted Pratibha Syntex Ltd (PSL) with 'Supplier Excellence Award' for

'Supplier of the Year Sustainability 2019' during their annual FBH Supplier Conference

held recently. Around top 40 Woolworth suppliers and stakeholders had participated in

the event where they were recognised for their performance and contribution to

Woolworth's business.

Ratika Kotwale, marketing manager of PSL, had received the award on behalf of the

company. During the programme, Woolworths also outlined to partners on its

performance and key strategic shifts.

"Sustainability is at the core of PSL's business strategy. All our endeavours are towards

maximising social impact and minimising environmental impact. PSL has introduced

Women Empowered Initiative, wherein women from far flung areas are brought to the

campus and imparted textile manufacturing skills like spinning and sewing. After

training they are inducted into the company's manufacturing processes. The trainees are

provided free lodging and boarding facility and to give them a home away from home,

PSL organises festival celebrations, sports events, health sessions, health check-up

camps etc. Under Vasudha Swaraj initiative of PSL, we are working on holistic

development of farming communities. The farmers, associated with PSL, are imparted

organic cultivation training and techniques to develop quality organic seeds and

manure," said Atul Mittal, executive director of PSL in a company press release.

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20 CITI-NEWS LETTER

Mittal also added that PSL played pivotal role in developing C2C Gold certification

range. Besides, it has introduced various sustainable blends in yarn, fabric and garment

production.

Committed to reducing the environmental impact, PSL has been recycling 100 per cent

of water through its state-of-the-art Effluent Treatment Plant (ETP) and four stage RO

(capacity of 2MLD), thus recovering 97 per cent of water, which is infused back into the

manufacturing processes. Remaining 3 per cent of water gets evaporated by three stage

multi-stage evaporators. In the process of recycling of water, PSL has reduced its fresh-

water consumption from 1400 kilolitres per day in 2010-11 to 500 kilolitres per day as

on date, confirmed Amrit Pal Singh Chhabra, engineering head of PSL. Besides, water

and energy efficient technologies are incorporated in processes to conserve environment

for coming generations.

Home

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21 CITI-NEWS LETTER

GLOBAL

Vietnam: Garment, textile industry sees decline in orders

(Source: Saigon Online, August 06, 2019)

With plentiful orders right at the beginning of this year, garment and textile industry set

export target of US$40 billion for this year. However, recently, orders have suddenly

dropped drastically, concerning garment and textile enterprises.

A drop in the number of orders spread from small enterprises to large-scale ones.

Mr. Nguyen Van Nam, director of Thanh Binh Garment Company, said that his

company has three production lines of spandex products with more than 100 workers.

Lately, his partner – a local company - unexpectedly cut orders, urging him to seek for

new sources with low prices or even without profits to get job for his workers.

Other large garment enterprises, including May 10, Viet Tien and Nha Be also

experienced the same situation. According to Mr. Truong Van Cam, general secretary of

the Vietnam Textile and Apparel Association (Vitas), scarcity of orders is quite popular

so export turnover will not be as optimistic as it was expected at the beginning of this

year. The number of orders of several garment and textile enterprises merely accounted

for 70 percent of that in the same period last year. This makes it impossible for garment

and textile industry to achieve export target of this year.

Representative of Vitas said that the main reason of the decline in orders is the ongoing

trade war, showing most clearly via a sharp drop in export volume of fiber of Vietnam.

Previously, Vietnam produced an average 2.2 million tons of fiber annually, of which 1.5

million tons was for export, accounting for 68 percent of total production. However,

since the end of last year, export of fiber has seen uncertainties. This year, fiber

consumption has encountered difficulties. In the first six months of this year, fiber

export has merely grown 1.1 percent.

Moreover, some countries devaluated their currencies so as to create advantages for

export whereas the Vietnamese dong remained stable, causing export products of

Vietnam to have higher cost prices, putting export of garment and textile industry at a

disadvantage. The industry expected that recently-signed free trade agreements, such as

the EU-Vietnam Free Trade Agreement, will strongly promote export.

Nevertheless, up to now, although free trade agreements were signed, they are merely

potential markets and have not showed actual effectiveness, leading to the situation that

export products are still imposed import tariffs. This might be the reason that importers

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22 CITI-NEWS LETTER

shifted orders to other countries, causing a shortage of orders for Vietnamese garment

and textile firms.

In addition, since the beginning of this year, both firms and experts in garment an

textile industry expected that the trade war will help to increase orders for Vietnam.

However, in reality, the difficult situation of global economy has caused purchasing

power to decline while a shift of orders has not been clear so far.

According to Mr. Pham Xuan Hong, chairman of the Ho Chi Minh City Textile and

Garment - Embroidery Association, a shortage of orders has happened but only at some

enterprises, especially in the northern region, instead of the whole industry. In Ho Chi

Minh City, members of the association still have received orders as normal.

‘Although a decline of orders occurred at some enterprises, overall growth rate of the

industry was still higher than the same period last year. Export turnover of the garment

and textile industry still might reach $40 billion as although Vietnamese firms are

unable to increase export, FDI enterprises are capable of increasing export and making

up for the whole industry,’ Mr. Hong said optimistically.

Vitas suggested that firms should put more efforts in order to achieve export target of

this year. Especially, in the last half of this year, the industry must gain a growth rate

from 11 percent upwards in order for export turnover of this year to reach the $40-

billion mark. Of which, firms should try their best to look for orders and maintain

production from now to the end of this year. As for large enterprises which are able to

sign big contracts, they should share their orders with small enterprises. Domestic

enterprises collaborate with customers to establish production chain, meeting rules of

origin in accordance with commitments of free trade agreements.

In long term, in order to stabilize orders, domestic enterprises must comply with

requirements of brands for sustainable development, hereby they will be recognized by

brands for transparency and will attract orders in the future. Besides, enterprises in the

industry need to improve their competitiveness as well as apply solutions, such as

reducing input costs, standardizing production procedure and management procedure

in accordance with their actual situation.

Only by managing production and human in the spirit of the fourth industrial

revolution, aiming to turn regular factories into smart factories and not wasting any

resource, enterprises are able to survive in the current inconsistent market, said Mr. Cao

Huu Hieu, director of the Vietnam National Textile and Garment Group.

According to Vitas, in the first half of this year, garment and textile exports reached

$17.97 billion, up 8.61 percent over the same period last year. Of which, ready-made

garments touched $14.02 billion, up 8.71 percent; fabric hit $1.02 billion, up 29.9

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23 CITI-NEWS LETTER

percent; fiber reached $2.01 billion, up 1.1 percent; and geotextile fabric rose 16.9

percent.

The US remained the largest export market of the industry with turnover of $7.22

billion, up 12.84 percent over the same period last year, accounting for 46.9 percent.

Exports to countries in the Comprehensive and Progressive Agreement for Trans-Pacific

Partnership hit $2.57 billion, up 11.13 percent, accounting for 16.71 percent. Exports to

the EU reached $2.05 billion, up 10.46 percent, accounting for 13.36 percent.

Home

Zimbabwe to legalise growing of industrial hemp

(Source: Reuters, August 06, 2019)

Zimbabwe will change its laws to allow farmers to grow industrial hemp for export,

cabinet ministers said on Tuesday, adding that the government saw the plant as a future

substitute for tobacco, the country's biggest export earning crop.

Industrial hemp is a strain of a cannabis species that is grown specifically for industrial

uses of its derived products. Its fibre is used in textiles and paper, and it also produces

edible seeds.

The southern African nation's laws only allow cultivation of cannabis for medical and

scientific uses.

Authorities said last year in April that Zimbabweans could apply for licences to grow

cannabis for medical and research purposes, but the process has been slow as

authorities try to put in place laws to ensure cannabis farms are secure.

"But with hemp, it's not toxic as cannabis," acting industry and commerce minister July

Moyo told a post-cabinet media conference.

"The minister of justice has been directed to say 'go and make amendments' to the

criminal code in our system so that people who will grow hemp don't have to be

criminalised."

Information Minister Monica Mutsvangwa told the same meeting that "industrial hemp

will widen the country's industrial and export base."

Home

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24 CITI-NEWS LETTER

Industrial sector contributes 19.52 percent to economic growth

(Source: Antara News, August 06, 2019)

The industrial sector contributed the most at 19.52 percent to the national economic

growth of 5.05 percent in the second quarter of 2019.

"Our manufacturing industry is growing positively. The spirit and trust of business

agents to invest and expand their businesses is also high," Industry Minister, Airlangga

Hartarto, said in Jakarta on Tuesday.

According to the Central Statistics Agency (BPS), the manufacturing industry was the

largest contributor to the national economic growth in the May-June 2019 quarter,

contributing 0.74 percent to the growth.

In the meantime, the agricultural sector contributed 0.71 percent to the economic

growth, the trade sector 0.61 percent and the construction sector 0.55 percent.

Three sectors that supported the non-oil/non-gas manufacturing industry in the second

quarter of 2019 were the textile and garment industry which expanded 20.71 percent

and the paper and paper product, printing and recording media reproduction industry

which grew 12.49 percent.

The textile and garment industry grew significantly, driven by the increasing production

in several production centers.

The food and beverage industry grew 7.99 percent, fueled by the rising domestic

demand and exports.

The performance of the manufacturing sectors exceeded the economic growth in the

same quarter. Overall, the non-oil/non-gas manufacturing industry in the second

quarter of 2019 grew 3.98 percent year-on-year (yoy).

The minister said the textile and textile product industry has increasingly become

competitive in the global market because it has a high competitive edge.

The industrial structure of the textile and textile product industry has been integrated

from upstream to downstream industries and its products are well known in the

international market, he said. The Indonesian economy expanded 5.05 percent in the

second quarter of 2019, indicating a downward trend owing to the continued export

contraction and slow investment growth, the BPS stated.

The figure decreased from 5.27 percent during the same period last year and from 5.07

percent in the first quarter of 2019.

Home

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25 CITI-NEWS LETTER

African markets seek higher quality used clothing

(Source: Recycling International, August 06, 2019)

In recent months, we have seen a slight easing of values of original unsorted

used clothing, although some might say that these have not really changed

at all.

Whilst demand in Africa generally is remaining firm, delays in payments are an ever-

present issue as are the seemingly ever-decreasing value of African currencies against

major currencies such as the Euro or US Dollar. However, with Sterling at one of its

lowest-ever values against both the Euro and the dollar, British exporters have been less

exposed to this particular issue. Even so, the low value of the Pound is increasing

pressures on operating costs within the UK.

A number of exporters are also reporting that African customers are continuing to

specify higher-value clothing for their orders. A consequence is that the volume of

clothing going to Pakistan, where they accept a wider range of clothing, is increasing.

With the fast fashion phenomenon still looking as though it will operate at full pelt for

many years to come, we are going to have to get used to these continued and increasing

pressures on quality. A recent report by the UK children’s charity Barnardo’s suggest

that the British public will spend £2.7 billion (EUR 3 billion) this summer on outfits that

they will only wear once.

Home

The Next Generation Of Solar Cells Could Come From Fabric

(Source: Utilities, August 06, 2019)

New textile-based solar cells developed by Fraunhofer researchers, semitrailers could

soon be producing the electricity needed to power cooling systems or other onboard

equipment

New textile-based solar cells developed by Fraunhofer researchers, semitrailers could

soon be producing the electricity needed to power cooling systems or other onboard

equipment. In short, textile-based solar cells could soon be adding a whole new

dimension to photovoltaics, complementing the use of conventional silicon-based solar

cells, reported Power Engineering International.

In the future, we may well see other surfaces being exploited for photovoltaic

generation. Truck tarps, for example, could be used to produce the electricity consumed

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26 CITI-NEWS LETTER

by the driver when underway or parked up for the night, or to power electronic systems

used to locate trailers in shipping terminals.

Similarly, conventional building facades could be covered with photovoltaic textiles in

place of concrete render. Or the blinds used to provide shade in buildings with glass

facades could be used to create hundreds of square meters of additional surface for

producing power.

At the heart of such visions are pliable, textile-based solar cells developed at the

Fraunhofer Institute for Ceramic Technologies and Systems IKTS, in collaboration with

the Fraunhofer Institute for Electronic Nano Systems ENA and Sächsisches

Textilforschungsinstitut e.V.

“There are a number of processes that enable solar cells to be incorporated in coatings

applied to textiles,” explains Dr. Lars Rebenklau, group manager for system integration

and electronic packaging at Fraunhofer IKTS.

In other words, the substrate for the solar cells is a woven fabric rather than the glass or

silicon conventionally used. “That might sound easy, but the machines in the textile

industry are designed to handle huge rolls of fabric – five or six meters wide and up to

1000 meters in length,” explains Dr. Jonas Sundqvist, group manager for thin-film

technology at Fraunhofer IKTS.

“And during the coating process, the textiles have to withstand temperatures of around

200 °Celsius. Other factors play a key role too: the fabric must meet fire regulations,

have a high tensile strength and be cheap to produce. “The consortium therefore opted

for a glass-fiber fabric, which fulfills all of these specifications,” Rebenklau says.

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