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Of major consequence

Released at: 11:56, 11/08/2015 Trans-Pacific Partnership

Of major consequence

Mr. Herb Cochran, Executive Director of the American Chamber of Commerce Vietnam (AmCham Vietnam), tells VET's Hoang Thu about the TPP's impact on Vietnam's economy.

by Hoang Thu

During his visit to the US in July, Party General Secretary Nguyen Phu Trong met with President Barack Obama and the two approved the Shared Vision Statement. They also agreed that negotiations over the Trans-Pacific Partnership (TPP) were steadily proceeding. What are your thoughts these matters? 

The Shared Vision Statement is an excellent overview of the new relationship between Vietnam and the US. The TPP will certainly lead to increased economic and social development in Vietnam, with integration into the global economy. In addition to the increased interaction between the two governments, between the Communist Party of Vietnam and the Republican and Democratic Parties in the US, similar communications between the legislatures, the National Assembly and the US Congress, would be welcome and would certainly help improve mutual understanding. 

In addition, cooperative relations between key agencies, such as the US Customs and Border Protection and Vietnam’s General Department of Vietnam Customs, the US Food and Drug Administration and Vietnam’s Food Safety Administration, and Vietnam’s Ministry of Labor, Invalids, and Social Affairs and the US Department of Labor would also be welcome and promote understanding and cooperation on some of the key elements of the TPP. 

How will the TPP further impact on Vietnam’s exports, FDI and GDP?

Vietnam accounted for over 20 per cent of exports from ASEAN to the US in 2014 and could account for over 30 per cent by 2020 if present trends continue. Based on an extensive economic quantitative analysis of the TPP, it is estimated that Vietnam’s exports will increase by 28.4 per cent with the TPP. The TPP would increase Vietnam’s exports from the expected “baseline” in 2025 without the TPP of $239 billion (of which apparel and footwear exports would total $113 billion) by $67.9 billion to $307 billion (of which apparel and footwear exports would increase by $51.9 billion to $165 billion). In percentage terms, total exports would increase by 28.4 per cent over the baseline and apparel and footwear exports would increase by 45.9 per cent over the baseline. Total Net Exports increase is 67.9 / 239.0 = 28.4 per cent, with textiles, apparel, and footwear being the sectors to see the most growth.

In addition, the expected GDP growth benefits are substantial. Vietnam’s GDP in 2025 with the TPP would be 10.5 per cent higher than the baseline estimate. This is particularly important now that Vietnam is in a “structural growth decline” period, according to the World Bank. Those are economic projections that give a general idea. 

Already, more than $3 billion of new FDI in Vietnam has been announced since 2013 by companies from South Korea, Taiwan, Hong Kong, China, Australia, and India, to develop the textiles, apparel, and footwear support industries so that exports from Vietnam to the US and other TPP countries will benefit from duty free rates.

Experts have predicted that Vietnam’s exports of textiles and apparel, in particular, could increase very quickly. One estimate projects Vietnam’s apparel exports to the US under the TPP “would be as high as $22 billion” by 2020. Another projects that Vietnam’s apparel and footwear exports would increase by 45.9 per cent over the baseline by 2025. A third expert said she expects the TPP will “change the sourcing landscape drastically and Vietnam’s share of the US apparel import market could go from 10 per cent to 35 per cent very quickly.” And Mr. Le Tien Truong, Deputy Director of VINATEX, said that Vietnam’s exports of textiles and apparel could reach $50 billion by 2025.

Have there been new commitments and interest among AmCham Vietnam’s members in investing in Vietnam as the TPP negotiations approach an end? 

Yes. It was recently reported that Jabil, an AmCham member, will increase its investment in Vietnam by $500 million. In addition, several US companies have expressed interest in investing in Vietnam. They range from large global companies with as many as 220 factories around the world and annual revenue of over $25 billion to small and medium-sized enterprises (SMEs) with global manufacturing and sourcing operations and SMEs in agricultural processing and trade. Not long ago, P&G Vietnam increased its investment by $100 million to build a new Gillette razor factory in Vietnam to supply not only Vietnam but also other countries in ASEAN and the Asia-Pacific.

Which industries and sectors in Vietnam will be the most attractive in the eyes of US investors after the TPP is signed? 

According to the economic quantitative analysis mentioned above, the leading sectors will be textiles, apparel, footwear, and electronics. 
However, all sectors are of interest, since Vietnam is strategically located in ASEAN and in Asia-Pacific, which is predicted to account for 59 per cent of global middle class consumer spending by 2030.

Growth of both multinationals, regional firms, and the global economy will depend increasingly on emerging market consumers, especially in Asia (India, ASEAN, and China). They are spending more on basic necessities like homes and food and also extras such as meat, mobile phones, and air conditioners. Global middle-class spending should rise from $21.3 trillion in 2009 to $55.7 trillion in 2030. Asia’s share should increase from 23 per cent in 2009 to 59 per cent in 2030.

What should Vietnam do right now to promote the TPP negotiations as well as prepare to seize the opportunities it will present?

Vietnam has been extremely successful in attracting FDI and benefitting from significant export growth from FDI factories, but its enterprises have had limited results in participating directly in that success. Over two-thirds of Vietnam’s exports are from FDI factories and Vietnam’s main contribution to FDI production/supply chains is low-skilled labor. The cost of imported materials and components is estimated to equal 90 per cent of the value of Vietnam’s exports of manufactured goods.

By way of comparison, more than 300,000 small businesses accounted for 97.8 per cent of all US exporters and 34 per cent ($551.2 billion) of all US goods exported ($1.612 trillion) in 2014.

Vietnamese companies should learn the new TPP rules and prepare to follow them, in order to join global supply chains and benefit from the TPP. AmCham and AmCham companies have cooperated and will continue to cooperate with the Vietnam Chamber of Commerce and Industry (VCCI) and other business associations to help enterprises in Vietnam learn how to meet the requirements to join global supply chains under the TPP. 

At the same time, Vietnam’s government agencies and the central and local level need to cooperate by providing encouragement and support to both FDI and Vietnamese enterprises and business associations in their efforts.

Can you tell us about recent AmCham Vietnam efforts to support Vietnam in the TPP negotiations?

In 2013 AmCham joined with VCCI, the Leading Business Club, the Ho Chi Minh City Union of Business Associations, and others in organizing seminars and workshops to promote understanding and support for the TPP. Partly as a result of our efforts in cooperation with Vietnam’s business associations, 89 per cent of Vietnamese think that the TPP will be “a good thing” for the country. Beginning in 2014, AmCham has cooperated with Vietnamese business associations to help understand and prepare for the WTO Trade Facilitation Agreement, which contains commitments that are also in the TPP Chapter on Customs and Trade Facilitation, the EU-Vietnam Free Trade Agreement, and in the ASEAN Economic Community 2015.

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