TPP can belie export expectations

  However, local firms with limited material production capacity would find it hard to make use of the opportunities because of stricter regulations on products’ origins imposed by the agreement, experts said.

Vietnam, together with 10 other countries - the United States, Canada, Mexico, Australia, New Zealand, Chile, Peru, Malaysia, Brunei and Singapore - completed the 16th round of talks on the TPP last month.

The agreement aims to eliminate barriers to goods and services and address issues including the movement of electronic data, market access for financial firms and copyright protection. It is expected to phase out tariffs on most goods traded between the member countries over 10 years, while other free trade and bilateral agreements allow open markets and cut taxes on a more limited range of goods.

 The garment sector, Vietnam’s key exporter, hopes to enjoy great benefits from the country’s participation in the TPP as tariffs on local garment exports to the United States would be reduced to zero percent from the current average of 17.2 percent after the agreement comes into effect.

Lower tariffs would help raise Vietnam’s garment exports to the United States to 12-13 percent each year of all total garment exports from the current 6-7 percent, according to the Vietnam Textile and Apparel Association (Vitas).

With this growth, garment exports to the United States would leap to US$30 billion by 2020 and $55 billion by 2025, generating jobs for nearly six million people, Vitas says. Shipments to the US are expected to account for 55 percent of Vietnam’s total garment export revenues thanks to the TPP from the current 49 percent.

  However, it is not easy for Vietnam to make use of the opportunity. Le Tien Truong, vice chairman of the Vietnam Garment and Textile Group, expressed concerns about technical barriers that TPP members may set up.

To penetrate the US market further under the TPP’s preferential tariffs, local products would also need to meet requirements on material origins. Most of the material for Vietnam’s garment production is imported from non-TPP members, mainly China, so it would be very difficult for local garment exporters to meet the requirements, he said.

 Vietnam can, each year, produce some 500,000-600,000 tons of textiles, mainly poor quality products, which are not good enough for the production of garments for export, he said.

Meanwhile, there are no indications that foreign investors would expand investments in Vietnam to make use of the TPP, he said.

In fact, Vietnam should have increased textile production to meet the materials origin requirements of some free trade agreements, but it has not yet done so because foreign investors have not been interested in making needed investments, Truong said.

The situation can be repeated in other key export sectors of Vietnam, industry insiders warn.

Diep Thanh Kiet, vice chairman of the Vietnam Footwear and Leather Association, said its low localization rate will make it very difficult for the sector to boost exports despite lower tariffs under the TPP.

Currently, the sector imports nearly half of the materials it needs for footwear production, and 80-90 percent of materials for bag production, mainly from China, he said.

It is not easy to establish a materials production zone because it requires big investments, an industry insider said.

A material production line also takes two years to break even and produces must be prepared to accept losses for that period, he added.

Meanwhile, sale of locally made materials would face fierce competition with low-priced products coming from China. Local firms that don’t have advanced technology and strong financial capacity would not be able to compete well.  

Nguyen Van Nam, former head of the Institute for Trade Research, said Vietnam would not be able to enjoy any benefit from TPP in boosting exports if it cannot meet the strict requirements.

Furthermore, it could face more risks from opening up the local market.

Once Vietnam has to commit to lower import tariffs on the majority of product groups from other countries under the TPP, tax collections to the state budget will decrease, while more imported products will infiltrate the country because they would become cheaper. The risks seem to be particularly high for farm produce, which would hurt farmers badly, he said.