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Vietnam Remains Center of TPP Controversy

From the beginning of the Trans-Pacific Partnership (TPP) negotiations, Vietnam has been a seat of controversy. While many have worried it would benefit disproportionately from the treaty’s provisions, others now contend it might suffer considerable disadvantages.

Vietnam still relies on imports of cotton, fabric and technology. For example, it imported more than 415,000 of the 420,000 tons its textile industry consumed last year, approximately 99 percent. Also, nearly 90 percent of the fabric it used was imported as well.

VITAS general secretary Nguyen Van Tuan said that Vietnam’s heavy dependence upon imports could make it difficult for it to remain competitive in the new business environment created by the TPP.  He cautioned that the government should strengthen local production by investing in domestic cotton, spinning and weaving industries, become a more hospitable destination for foreign investment and move production from CMT to fee-on-board (FOB).

The nineteenth round of TPP negotiations just concluded in Brunei and included the U.S., Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile, Malaysia, Mexico, Canada and Japan. The eleven countries involved in the negotiations sent $15.1 billion worth of apparel and textile imports to the US last year. Of these, Vietnam was the biggest supplier by a wide margin, accounting for $7.5 billion of that volume.

Up until now, much of the controversy that has dominated deliberations has singled out the participation of Vietnam and the so-called “yarn forward rule of origin.” The US proposed rule stipulates that any garment must be made of either fabric or yarn supplied by the US or any signatory TPP nations  to be eligible for duty-free benefits when shipped back to the US. For obvious reasons, many importers have strenuously objected to the rule. Conversely, many American textile producers declaim that it is absolutely necessary for them to remain competitive in the future.

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Some worry that the rule disproportionately favors Vietnam. A letter calling for robust protections of the US textile industry from the potential results of theTPP was sent to US Trade Representative Michael Froman, signed by nearly 170 members of the House of Representatives. This letter specifically cited Vietnam’s potentially unfair advantages. “After sixteen rounds of negotiations, Viet Nam is seeking to replace longstanding textile rules that have been included in previous free trade agreements with a new rule that would allow Viet Nam to source textiles from China and export garments and finished goods to the United States duty free,” the letter warned.

The textile and garment industries are central to Vietnam’s economy. Last year, its more than 4,000 companies earned in excess of $20 billion, accounting for about 15 percent of its GDP.