Not Easy for Garment and Textile Firms to Embrace CPTPP Opportunities
Besides opportunities, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) poses challenges that require Vietnamese garment and textile companies to have thorough preparations and long-term strategies to enhance competitiveness, said Mr. Truong Van Cam, Vice President and Secretary General of the Vietnam Textile and Apparel Association (VITAS). Huong Ly reports.
CPTPP is already in effect for Vietnam but it is still quite early to assess impacts of this new-generation free trade agreement. What opportunities will Vietnamese garment and textile companies take from CPTPP?
Deep and quick tariff cuts which will result in more competitive prices are the outstanding advantage that Vietnamese garments and textiles get from CPTPP. Currently, export duties on textiles and garments exported to markets with which Vietnam has no free trade agreements (FTAs) are quite high (Canada, 17%; Peru, 17%; and Mexico, 20-35%). When CPTPP takes effect, a majority of Vietnam's export products that meet rule of origin requirements will are entitled to zero tax, the rest will be slashed to zero in 3-10 years and at most 16 years (in Peru).
The second advantage is the opportunity for market expansion. Garment and textile companies will be able to approach many big, potential markets such as Australia, Canada and Chile and many markets without FTAs with Vietnam, such as Canada, Mexico and Peru.
Thirdly, they can easily utilize input supplies, master production technologies and acquire management skills from CPTPP member countries for joint development.
Fourthly, regulations on “yarn forward” rule of origin will attract more foreign investors into the stages of domestic weakness such as weaving and dyeing. When TPP negotiations enter final rounds, investors from South Korea, China, Taiwan and others started to increase their investment in the garment and textile industry. Foreign direct investment (FDI) channeled into the garment and textile industry approximated US$9.5 billion from 2013 to 2018 out of the total of US$17.5 billion from 1998 to 2018. Investors can take advantage of tax incentives when they export garment and textile products to 10 other CPTPP countries.
Finally, institutional changes are motivating them to grow. In my opinion, benefits of a favorable investment and business environment are even much greater than economic benefits such as tax reduction.
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Many experts say that the biggest challenge from CPTPP to the garment and textile industry is the “yarn forward” rule of origin. What do you think about this?
Strict CPTPP requirements on rule of origin are expressed with the yarn forward regulation rather than fabric forward as specified in the EU - Vietnam Free Trade Agreement (EVFTA). Specifically, to be entitled to zero export tax, companies must prove that inputs are entirely domestic or imported from CPTPP countries.
However, CPTPP has some exceptions such as a list of supply shortages with 187 commodities allowed to import from non-CPTPP countries, including 179 permanently applied items and eight items applied in five years. Besides, three items require only one stage of sewing such as suitcases and handbags; women's undergarments and synthetic baby clothes. However, this is only a temporary solution for Vietnamese garment and textile industry to gradually solve input sources and auxiliary materials which depend mainly on countries like China, Taiwan and South Korea. Particularly, fabric imports from China account for over 50%. Differentials of input prices from these markets with other countries in CPTPP are also an issue for enterprises.
But, in my opinion, meeting the rule of origin is only one of the major challenges when joining CPTPP. Competitive pressures are also a concern for them.
Could you analyze more clearly about competitive pressures on garment and textile companies when they join CPTPP?
I think that the difficulty against Vietnamese garment and textile companies in CPTPP is weighty. In CPTPP bloc, many countries are strong in garment and textile exporting, including Mexico, Peru and Malaysia. They all already ahead of us and control input supplies while inputs are weak to our garment and textile industry.
Bearing in mind that Vietnam is both a partner and a competitor to CPTPP countries, tariff reductions will be double-sided. Products from powerful garment and textile manufacturers like Mexico, Peru and Malaysia can flood into Vietnam at competitive prices.
Vietnamese garment and textile companies manufacture to foreign orders which give designs and materials but labor productivity is still low. Therefore, the competitiveness of Vietnamese companies on the world market remains weak against rivals from CPTPP.
On the other hand, with door-opening terms of CPTPP like reducing tariffs on commodities, opening service markets, intellectual property, even non-traditional issues like labor and the environment, public procurement or State-owned enterprises (SOEs), they need to be well prepared to take advantage of CPTPP opportunities.
What solutions should businesses adopt to actively grasp CPTPP advantages?
In my opinion, the first things they need to learn are understanding this industry-related CPTPP contents on rules of origin, customs procedures, logistics and trade remedies in other countries, actively equipping necessary knowledge to increase competitiveness. They must grow on their own, improve productivity, product quality and connectivity to take advantage of CPTPP benefits.
In the long run, they need to strengthen investment cooperation and establish supply chains. FDI firms with strong financial capacity and modern production levels that hold more than 60% of export share need to join hands for the value chain.
In the long run, they need to strengthen investment cooperation and establish supply chains. FDI firms with strong financial capacity and modern production levels that hold more than 60% of export share need to join hands to take part in the value chain.
The Government should support businesses, create a level playing field, minimize administrative procedures and import, export and labor procedures for them to avoid standing on the bad side on the home market.
Thank you very much!
Vietnam’s garment and textile export value reached US$8.68 billion in the first quarter of 2019, up 11.9% year on year. VITAS forecasts apparel exports to climb to US$40 billion in 2019, up more than 10% over 2018, thanks to CPTPP. Vietnam is closely following India on garment and textile exports and is currently standing among the Top 3 exporters in the world.
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