Real-world scenario: A European fashion brand needs a new garment plant for 60% of output exported to the EU. Two finalists: Vietnam (a large existing garment cluster, EVFTA in force) and India (abundant cotton–yarn supply, a huge domestic market). The sourcing director puts it bluntly: “Preferential tax rates are numbers on paper — what decides my landed cost is whether my shirts enter the EU at zero duty.”
He has the key. For garments — where MFN duties in the EU/US typically run at double digits — rules of origin in FTAs are the single biggest variable in the location equation, bigger than wage or land-rent gaps. A shirt sewn in Vietnam but made with fabric imported from a non-EVFTA country may fail to earn preferential duty, rendering every other cost advantage meaningless. This article puts rules of origin at the centre of the comparison, with Vietnam’s legal framework updated to 18 October 2026. The India section is framework-level; local counsel should confirm details.
Why garments differ from other industries
Three traits flip the location logic of garments versus many industries:
First, “origin” does not mean “made in”. A shirt labelled “Made in Vietnam” is not automatically recognised as Vietnamese-origin for EVFTA preferences — it must satisfy the agreement’s origin rules (degree of processing, HS-code transformation, qualifying input ratios). Textiles face the strictest origin rules in FTAs, typically requiring “double transformation” (yarn to fabric to finished garment) performed in the preference-receiving country.
Second, backward linkages decide everything. Vietnam is strong in cut-make-trim but depends on imported fabric — most fabric comes from China and Korea (countries whose materials do not straightforwardly count under EVFTA cumulation). India is the reverse: an integrated domestic chain from cotton to yarn to fabric to garment, with higher input self-sufficiency. The same shirt has a fundamentally different chance of meeting origin rules in the two countries because the supply-chain structures differ.
Third, the domestic market is a buffer. India’s enormous consumer market means an India plant can live on domestic orders when export orders stall. Vietnam is more export-dependent — when EU/US demand softens, Vietnam plants feel it directly. This is a risk-mitigation factor, not a cost factor.
The comparison axis: origin rules per destination market
With 60% of output going to the EU in our scenario:
Vietnam → EU (EVFTA): textiles enjoy a tariff-elimination schedule, but only with proven origin under the agreement’s rules. In practice: build an origin-management system from the fabric-purchasing stage — keep documents proving qualifying fabric/yarn origin, declare and obtain origin certification (C/O or self-certification under the agreement’s mechanism). The most common failure point: buying fabric from suppliers who cannot provide origin documents — then the whole export shipment loses preference.
India → EU: India and the EU have been negotiating an FTA (negotiation status changes over time — update at decision date). Without a bilateral FTA in force, Indian garments entering the EU face MFN duties or unilateral preferences (such as GSP — conditional and reviewable). Never compare “Vietnam’s EVFTA” against “India’s imaginary FTA” — compare only on agreements actually in force at decision date.
Other destinations: Vietnam also has CPTPP (Japan, Canada, Mexico…), each with its own origin rulebook — a plant serving multiple markets must run several rulebooks in parallel. That operating cost (an origin/documentation team) is something many companies forget when choosing a location.
Vietnam legal framework for a garment plant
Investment: IRC under Investment Law 143/2025/QH15 (1 March 2026) and Decree 96/2026/ND-CP; enterprise registration under Decree 168/2025/ND-CP. Garment projects in IZs work with the IZ Management Board under Decree 35/2022/ND-CP.
Land: IZ sub-lease under Land Law 31/2024/QH15 (1 August 2024). Garment plants need large floor areas but modest technical requirements — however the dyeing stage (if investing in an integrated yarn–fabric–dyeing–garment chain) faces strict environmental conditions; verify local licensing feasibility before committing to integration.
Tax: 20% CIT under Law 67/2025/QH15 (1 October 2025); incentives by location. Note QDMTT (Resolution 107/2023/QH15 + Decree 236/2025/ND-CP) for in-scope groups — though for garments the impact is usually smaller than in high-margin industries.
Domestic product quality: goods sold in Vietnam must carry a declaration of conformity to QCVN 01:2017/BCT (Circular 21/2017/TT-BCT): formaldehyde limits of 30/75/300 mg/kg by product group and azo-derived aromatic amines capped at 30 mg/kg, with the CR conformity mark before circulation. Exports are not subject to this regulation but must meet the importing market’s requirements (e.g. EU REACH on chemicals — check with customers/consultants).
Labor: garments are labor-intensive — mandatory insurance costs and overtime caps under the 2019 Labor Code (40 hours/month, 200 hours/year; 300 hours/year in special cases) directly shape peak-season production planning. This TCO variable matters far more than in highly automated industries.
Decision matrix
| Criterion | Vietnam | India |
|---|---|---|
| Duty preference into the EU | EVFTA in force (with origin conditions) | Depends on agreements in force at decision date (track FTA talks) |
| Input supply chain | Strong in sewing; fabric-import dependent | Integrated cotton–yarn–fabric–garment; high self-sufficiency |
| Domestic market (buffer) | Smaller, export-dependent | Large — cushions export downturns |
| Labor | Competitive cost; 2019 Labor Code overtime caps | Abundant supply; details per local law (local counsel) |
| Dyeing stage (if integrated) | Strict environmental conditions | Equivalent conditions need local assessment |
Decision rule: if the main destination is the EU and you lack an origin-qualifying fabric chain — Vietnam wins on EVFTA provided you can solve the fabric-sourcing puzzle. If the strategy is an integrated self-sufficient chain plus a large domestic market — India has the structural edge. If both matter — a two-foot strategy (one plant each) is what many large brands now run.
Garment companies evaluating sites in Vietnam and needing a review of EVFTA/CPTPP origin rules and the investment–tax–labor legal framework can speak with our team.
Frequently asked questions
1. Does “Made in Vietnam” automatically earn EVFTA preference?
No. A commercial origin label differs from agreement-based preferential origin. You must meet EVFTA’s origin rules and hold valid origin documentation — the documentation team’s job, starting at input purchasing.
2. Fabric from China sewn in Vietnam and exported to the EU — preferential?
It depends on EVFTA’s product-specific origin rules per HS group and cumulation possibilities. The general FTA textile principle requires a qualifying degree of processing in the preference country — fabric from outside the bloc can disqualify. Check each HS code specifically; there is no blanket answer.
3. What should we watch when investing in dyeing in Vietnam?
Dyeing faces strict environmental conditions (wastewater). Verify local licensing feasibility before committing to an integrated investment — many projects fail after securing land only to learn the IZ does not admit dyeing.
4. What certification is needed to sell in the Vietnamese market?
Domestically consumed textile products need a declaration of conformity to QCVN 01:2017/BCT (formaldehyde, azo-derived aromatic amines) and the CR mark. Exports do not use this regulation.
5. How do overtime caps affect a garment plant?
Garments are highly seasonal. The 40-hour/month and 200-hour/year caps (300 in special cases) under the 2019 Labor Code force early peak-season workforce planning (seasonal hiring, compliant overtime, shift splitting) instead of improvising.
6. Should we build in both Vietnam and India?
If the brand is large enough: Vietnam serves the EU (EVFTA plus the ready garment cluster), India serves the domestic market and destinations where India holds FTAs. Two plants mean two origin-management systems — only worth it at sufficient scale.
This article has been quality-reviewed by the FLAW AI Legal Council