Possible impacts of TPP on VN
Possible impacts of TPP on VN
Experts and HCMC Securities Corporation (HSC) have projected possible impacts of the Trans-Pacific Partnership agreement on certain sectors in Vietnam’s economy after trade ministers of a dozen Pacific Rim countries concluded negotiations earlier last week.
Apparel
According to HSC, tariffs for many textile products will fall to 0% after the TPP takes effect and duties on certain sensitive items will be eliminated over a long period as agreed by the parties concerned.
HSC cited the Vietnam Textile and Apparel Association (VITAS) and the American Chamber of Commerce (AmCham) as saying that currently the U.S. imposes tariffs of 5-25% on apparel imports from Vietnam and the average duty is 17%. Japan’s tariff on Vietnamese textiles have already dipped to zero as a result of the Vietnam-Japan Economic Partnership Agreement (VJEPA) signed in 2010.
Textiles and garments will be categorized into three groups for tariff reductions and exemptions with rates applicable to Group A of the least sensitive products going down immediately to zero and Group B of more sensitive products gradually cut and removed over five years after the TPP comes into force. Meanwhile, tariffs on Group C of the most sensitive items will be slightly slashed and then remain unchanged over 10 subsequent years for knit-related items and 15 years for woven products.
As the TPP’s rule of origin requires apparel exporters to use yarn and fabric materials from the TPP member countries if they want to benefit from tariff incentives. The rule is aimed at promoting integrated supply chains and investments within the TPP countries.
The agreement also has a single set of rules of origin that define the origin of a particular item. These rules are product-specific. An exception of the “yarn forward rule” will be a short supply list.
Agriculture
Speaking at a media conference in Hanoi last Tuesday, Deputy Minister of Agriculture and Rural Development Ha Cong Tuan said the TPP would enable Vietnam to diversify farm export markets, reduce dependence on certain markets and enjoy tariff reductions and exemptions. On the home market, the trade accord will help the agricultural sector attract more investments and advanced technologies, and boost agricultural sector restructuring.
But Tuan said the sector will have to cope with a host of challenges.
Tran Duy Khanh, vice chairman and general secretary of the Vietnam Poultry Association, said enterprises in the sector have expressed mounting concerns after TPP negotiations were wrapped up though they have seen Vietnam’s international integration as a driving force for them to improve competitiveness. However, it is difficult for households to survive if they do not join the supply chain in the sector.
Seafood
There might be fewer benefits from Vietnam’s major export markets including the United States and Japan than expected. However, there will be tariff reductions in smaller markets such as Australia, Singapore and Mexico, meaning there will be more room for Vietnamese exporters to boost shipments of tra fish fillets.
The industry will see eliminations of duties on shrimp, squid and tuna, which now average 1-10%.
Deputy agriculture minister Tuan said Vietnamese seafood will have a better competitive edge in major export markets thanks to tariff exemptions. The U.S. accounts for 19% of Vietnam’s total seafood exports and Japan for 16%.
Wooden products
Nguyen Ton Quyen, general secretary of the Vietnam Timber and Forest Products Association (Vifores), said enterprises in the sector are excited about the conclusion of talks over the TPP as most importers of their finished products and suppliers of materials are from the TPP member states. But he noted that to enjoy preferential tax rates, Vietnamese exporters will have to use 70% of materials from other TPP members to turn out finished goods.
According to HSC, wooden products are subject to import taxes of 2.5-5% in the U.S. The import tax in Japan is also below 5%. These tariffs are projected to be eliminated quickly.
Infrastructure and logistics
HSC said foreign direct investment from regional manufacturers will increase the burden on infrastructure such as electricity and water supply, and roads.
Demand for ports and industrial parks will also go up as a result of the relocation of value chains and larger trade flows between Vietnam and other TPP members. This trend may take several years to gain momentum.
Customs
Au Anh Tuan, deputy head of the customs supervision and management division under the General Department of Customs, said negotiations in the customs field came to an end a long time ago and it is good that the TPP member states agreed on making life much easier for importers and exporters. Notably, the customs clearance time for products handled via the express service channel will be shortened to six hours from two to three days as at present and import duty will be exempted for products valued at US$200 (over VND4 million) instead of less than VND1 million.
Steel
Vietnam does not export steel to major markets outside the ASEAN bloc at the moment. The TPP will open up these markets for the future. Exports to peripheral markets such as Chile and Mexico may also surge as a result. Recent moves to place anti-dumping charges against some types of Vietnamese steel by some ASEAN nations show steel products from Vietnam are price-competitive.
The rule of origin for hot-rolled coil (HRC) based products will be supported by the new Formosa Steel factory which will produce HRC locally for the first time.
Drugs
Drugs will enjoy a tariff reduction from the current average of around 2.5% to 0%. This is a low tariff wall so eliminating it is not a big deal. Even so, it will reinforce the existing trend towards more foreign competition although it may skew this away from generics and more towards original manufacturers because of the second big impact on this sector.
TPP rules will also increase patent protections although by less than expected (about five years in most cases with longer data exclusivity in certain cases especially for so called biologics).
Government procurement
Firms from the TPP nations will have easier access to bidding for government procurement contracts in each other’s countries. The specific rules of engagement are still unclear but it will for example open up markets such as government procurement contracts related to information technology and construction to foreign competition.
Timelines and details are unclear, however in theory it may lead to closed bid auctions with monitors to ensure fair play.
