HANOI — Vietnam could be one of the biggest winners among the 12 countries involved in the Trans-Pacific Partnership — if it can meet the trade agreement’s stringent requirements.

One of the most daunting of these is the “rule of origin,” which stipulates that only companies purchasing materials domestically or from other TPP members are eligible for tariff removals.

Localization hurdle

Vinatex, Vietnam’s largest textile company, is anticipating a surge in overseas shipments once the TPP comes into force. In March, the state-owned company started construction of the Que Son complex on a 10-hectare site in the central province of Quang Nam. The $55 million complex will handle everything from twisting yarns and weaving and dyeing fabrics to cutting and sewing garments. It is slated to come onstream in 2017 and will be able to produce more than 10 million sewn pieces a year.

     Since 2013, Vinatex has been using nearly $400 million in an investment plan to build 15 yarn-twisting, fabric weaving and other plants. The company’s local content rate is expected to rise to 60% in 2016 from 40% in 2013, helping to bring it more in line with the TPP’s sourcing requirements.

But Vinatex is one of just a handful of local companies in a position to prepare for the TPP. Of the roughly 3,000 garment companies in Vietnam, 25%, or 750, have funding from foreign companies, and they control 60% of domestic and overseas shipments. The remaining 75% of companies are small to midsize affairs not capable of investing in new facilities on their own.

Garmex Saigon, based in Ho Chi Minh City, has already given up on purchasing materials from TPP members. Instead, it is looking to expand sales to a wide range of countries beyond those involved in the trade pact by acquiring a U.S. fashion brand and planning products on its own.

Foreign sewing companies are also looking to cash in on Vietnam’s status as a TPP member. China’s Texhong Textile Group plans to build a yarn-twisting plant in Quang Ninh Province, in northern Vietnam, by the end of the year and will consider moving one of its fabric production plants from China to Vietnam.

Foreign shoemakers, meanwhile, are ahead of Vietnam’s in preparations to exploit the TPP. Chang Shin Vietnam, a wholly owned subsidiary of South Korean company Chang Shin, is investing $12 million to enlarge production facilities. Chang Shin Vietnam employs some 25,000 workers and produces 25 million pairs of shoes for Nike of the U.S. each year.

Only a few local shoemakers are investing in facilities to capitalize on the TPP, according to the Vietnam Leather, Footwear and Handbag Association. “Investing in materials is not easy due to a lack of capital and unclear environmental standards,” said Nguyen Van Khanh, the association’s general secretary.

Vietnam is also home to plants for smartphones and other electronic devices, with Samsung Electronics and LG Electronics of South Korea and Microsoft of the U.S. running plants in the country. The TPP should help increase electronics exports, but a dearth of local suppliers means Vietnam will likely see only limited benefits.

The Vietnam unit of Samsung deals with 90 parts suppliers, but only six or seven of them are Vietnamese. Vietnam’s trade ministry published a list for local suppliers in December 2014 detailing the desired performance of 144 parts Samsung was seeking. Few Vietnamese companies were able to meet the requirements.

If the current situation does not change, Vietnam’s benefits from the TPP will likely be confined to an increase in Vietnamese employed as plant workers, said Tran Thi Thu Thuy from Foreign Trade University in Hanoi.

In the food sector, marine products are expected to see the largest benefit from the TPP. The Vietnam Association of Seafood Exporters and Producers forecasts the country’s seafood exports will increase nearly 40% within several years of the pact taking effect.

Source: www.asia.nikkei.com