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Is Vietnam Prepared to Join TPP?

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With the Trans-Pacific Partnership (TPP) edging closer to conclusion, many are expecting economic ties between the U.S. and TPP partner country Vietnam to skyrocket—and Vietnam’s apparel exports are expected to follow suit.

The major trade deal the U.S. is negotiating with Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam is expected to be settled soon since President Obama now has Trade Promotion Authority (TPA), which allows him to propose trade agreements that Congress can either reject or ratify but not amend or filibuster—authority considered critical to advancing the trade pact.

Last week, on the twentieth anniversary of their diplomatic relations, President Obama met with Vietnam General Secretary Nguyen Phu Trong and discussed, among other things, TPP and its potential to raise labor and environmental standards in Vietnam and create jobs for both nations’ people.

In an article following the high-level meeting, Ngo Duc Manh, deputy chairman of The National Assembly’s External Affairs Committee in Vietnam, spoke about preparations necessary to optimize efficiency in advance of the pending trade pact and whether the country is ready to join TPP.

“The Vietnamese government and businesses must be proactive in this preparatory stage if we are to fully tap the opportunities arising from the TPP,” Manh told Vietnam Investment Review. “This will also help us minimize losses when joining this global trading ground which accounts for 40 percent of global trade value.”

The latest U.S. apparel import data show Vietnam already nabbed a larger slice of the country’s import growth, making it the second largest contributor of apparel goods to America after China—whose share of the market slid from 32.1% to 31.4% so far this year. In May, the U.S. imported $786 million worth of apparel from Vietnam, according to the Office of Textiles and Apparel (OTEXA), an 18.4% increase over the prior year period. For the year-to-date, apparel imports from Vietnam are up 14.1%.

Vietnam may draw on a larger share of China’s apparel exports as the TPP could include a “yarn forward” rule—which says that a good only qualifies for duty free privileges if production takes place in one or more of the agreement’s member countries from the yarn manufacturing stage forward to the end of the product—and the U.S. has already appealed to Vietnam to reduce its reliance on textile imports from China if the deal goes through.

Textile investments have already started pouring into Vietnam in advance of the agreement, and according to the country’s Foreign Investment Agency, the disbursement of foreign direct investment for the first half of 2015 was up 9.6% from year-ago levels to $6.3 billion, with most of the investments going to the processing and manufacturing sectors. South Korea was the top investor with registered capital worth $1.52 billion, according to Vietnam News.

The ministry expects Vietnam’s foreign direct investment to reach $23 billion this year, and with roughly 27 percent so far accounted for, the country will have to attract major investments over the next six months to reach the target.

Two of the largest incoming projects granted licenses to do business there include Hyosung Corp., which will produce yarn and Worldon Vietnam Company, which will produce high-end garment and textile products in Ho Chi Minh City. Hyosung, a South Korean spandex maker announced in March that it had expanded its operations in Vietnam in anticipation of the duty-free TPP agreement and to extend the reach of its Creora brand.

Japanese trading company Itochu Corporation entered into a business alliance with state-run textile company Vietnam National Textile and Garment Group (Vinatex) early this year, acquiring shares of the company to help strengthen its production base of textile goods in Asia. Itochu said it would leverage Vinatex’s expertise to boost its textile sales in Europe, the U.S., Japan and China too.

In a Pew Research Center report released last month about TPP nations’ support for the trade deal, analysts found that 89 percent of Vietnamese citizens feel TPP would be a good thing for the country, ranking the nation as the most supportive of the pact, followed by 70 percent of Peruvians who like the idea of the deal. Forty-nine percent of Americans said TPP would be a good thing and 29 percent don’t see it that way at all.

So far, according to Manh, Vietnam’s government and authorized agencies have taken part in negotiations, set out to deepen and broaden the country’s economic integration and are working to deploy national target programs to boost competitiveness.

“Around 97 percent of Vietnamese firms are small and medium in size with limited capital sources, so their preparations for future production and business plans after Vietnam joins the TPP would be limited,” Manh said. “The government therefore needs to adopt programs and policies to improve knowledge about the principles and commitments accompanying international free trade agreements, particularly the TPP, to help firms sharpen their edge when joining global trade.”

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