How to Grasp Opportunities from TPP?

According to the Ministry of Industry and Trade, the TPP will open up opportunities for Vietnam to increase production and expand foreign markets for agricultural products. Once signed, the TPP will become a free trade area with 800 million people, accounting for 30 percent of global trade and nearly 40 percent of global economic output. Joining the TPP will help Vietnam to access investment sources, modernise production, improve product quality, and penetrate further into global production chains.

 

Garment - textile and leather - footwear sectors are seen to enjoy the largest benefit from the TPP. According to the TPP rules of origin and “yarn forward” rule, to enjoy zero tax, inputs cannot be made in non-TPP countries. This is a major drawback for the garment and textile industry as it currently relies on China for supplies, a non-TPP country.

 

Other than 8 free trade agreements (FTAs) that Vietnam has joined or signed, the FTAs with the EU and TPP demand a strong abolition of import duties and immediate effectiveness. Besides, the TPP also demands export tax cuts because it sees it as a form of subsidies and protection for domestic firms.

 

Vietnamese exporters will not benefit much on tax rates in such markets as Singapore, Malaysia, Brunei, Chile, Japan, Australia and New Zealand, since Vietnam has already signed FTAs with them and import tariffs have been basically reduced to 0 percent. For four remaining signatories, Vietnam’s imports from two of them are also subject to zero tax because of other commitments. In general, Vietnamese exporters do not have much benefit from import tax cuts according to TPP commitments.

 

TPP is a new generation FTA enabling enterprises to attract foreign capital by selling bonds and shares. International investment flows into Vietnam will increase, helping the banking system to enhance liquidity and widen access to global trust funds with lower costs. Nevertheless, it will be more difficult to control large foreign capital inflows. In case investors massively withdraw investments or deposits in a short time, this will risk imbalance in financial markets.

 

Among 12 TPP negotiating countries, Vietnam has the lowest competitiveness index, according to a survey on competitiveness in 2014 - 2015 by the World Economic Forum (WEF). Not only that, Vietnam was ranked bottom in many criteria like technology transfer, innovation and creativity capacity and infrastructure. Meanwhile, Japan, Singapore and the United States develop based on creativity; Chile and Mexico develop based on productivity; and Peru and Vietnam are in the lowest group whose development depends on natural factors.

 

The livestock sector will suffer most, because animal products made with modern technologies in some TPP countries will hold competitive advantages over Vietnam. TPP negotiations tend to strengthen protection of domestic agricultural products. Meanwhile, non-tariff barriers will become common and requirements on higher product quality tend to be opted for, but this is the weakness of Vietnam's agricultural production. Vietnam’s imports will increase while its exports cannot find a way to reach foreign markets, thus placing greater pressure on local products. It is vital to control imports, otherwise Vietnam will become a consumer of low-quality, harmful products.

 

In spite of certain progress, Vietnam’s banking services are still underdeveloped in comparison with the region and the world. Most banking branches and transaction offices in Vietnam are concentrated in Hanoi and Ho Chi Minh City, while financial services are not very modern and flexible. This leaves domestic commercial banks hardly able to compete with international banks.

 

With the TPP, State-owned enterprises (SOEs) will be no longer entitled to receive incentives or privileges (capital access, protection). This will create opportunities for private enterprises to develop and compete fairly, while forcing SOEs to sharpen their competitiveness.