The Trans-Pacific Strategic Economic Partnership Agreement (TPP) is expected to be concluded in 2015 to open up opportunities for the garment and textile industry to increase revenue by three fold in the US market. Many foreign garment and textile companies are accelerating their investments in Vietnam to enjoy the TPP import tariff of 0 percent. How have domestic companies responded to massive arrivals of foreign firms? To answer this question, Vietnam Business Forum interviewed Mr Nguyen Van Thoi, President of Thai Nguyen province-based TNG Investment and Trading Joint Stock Company (TNG). Duy Anh reports.
The garment and textile industry will have a lot of export opportunities when the TPP Agreement is signed. But, the sector will also face certain challenges like the rules of origin, tax cuts and long-term competitiveness. How will TNG face and tackle those challenges?
When Vietnam joins the TPP Agreement, its garment and textile will have a lot of export opportunities, especially with the US market. But, apart from opportunities, the sector is also posed to certain challenges.
Firstly, the garment and textile industry of Vietnam still relies on offshore outsourcing contacts with a very low local content ratio in their products. It depends on foreign machinery and materials like cotton, fabrics and yarn imported from foreign countries, specially China. In principle, to have TPP tax incentives, garments and textiles exported from Vietnam must abide by the rules of origin called “yarn forward,” meaning that from yarn, fabrics, cutting and stitching must be done in TPP countries, including Vietnam. But, in fact, nearly 90 percent of materials for garment and textile industry are imported from China, which is not a TPP country. Therefore, although import taxes in TPP countries are slashed to zero, Vietnam will enjoy this treatment because its spending on imported raw materials, machinery and equipment from China may be higher than the value it takes from exports to the US market.
Secondly, many Chinese garment and textile companies are investing en masse in Vietnam. As a result, domestic companies will face intense competition and risks of losing human resources, especially in textile-dyeing sectors, because employment treatments in Vietnamese companies, typically small and medium-sized ones, are still limited. While Chinese businesses have invested or planned to expand their investment for several years to catch prospective TPP opportunities, Vietnamese companies are still confused to find out their directions.
Standing before TPP opportunities and challenges and ensure increased competitiveness in a global market, we have actively invested in modern machinery and production lines to reduce input costs to gradually lower product prices. We have invested over VND40 billion to build a new cotton sheet production line. Hence, to date, TNG has two cotton sheet plans, a cotton scratch line, a cotton seed line, 10 cotton separating lines and 15 embroidering machines. The new cotton sheet production line has a treble output capacity with the current facility. Thus far, TNG can supply inputs for garment industry, including cotton, thread, package, printing, embroidery and washing. In addition, the company equips its employees with TPP knowledge before the agreement is signed and brought into force. Perhaps, with what it has done, TNG can stand firm when the country engages deeper into the world. The company has fostered its capacity to grasp every opportunity that TPP brings in.
How do you anticipate export growth prospects of Vietnamese garments and textiles in the US market when the TPP Agreement is approved with 1,000 tax lines on these commodities to be brought to zero from the current 17 - 20 percent? Would you brief on TNG’s remarkable export results, especially with the US market?
When the TPP agreement is signed, the garment and textile industry will benefit most when export duties are slashed from 17 percent at present to zero. Therefore, this will leverage export growth of Vietnamese textile and garment industry to the US market. In 2014, Vietnam’s garment and textile exports valued US$24.5 billion, an increase of nearly 16 percent over 2013. The sector targets at US$28 - 28.5 billion worth of garment and textile exports in the US market, of which US$11 billion will come from the US market. Given favourable conditions when free trade agreements come into force, I believe the garment and textile sector will achieve its planned goals and even exceed the target.
| TNG is among the Top 500 largest enterprises in Vietnam and the Top 10 garment - textile companies of the country. TNG products are now present in seven major markets namely the US ( 47 percent), the EU, Canada, Mexico, South Korea and Japan. |
TNG is presently exporting its products to nearly 50 countries worldwide, with the US accounting for 47 percent of its export earnings. In 2014, TNG’s export value was up 32 percent against in 2013, with the US market contributing US$30 million, followed by the UK with US$7 million, Canada with US$$ 6.5 million and South Korea with US$5.9 million. At the threshold of TPP, we have actively reinforced our internal resources to enhance competitiveness to rise above barriers, seize TPP opportunities, and especially TPP opportunities in the US market.
In July 2015, VCCI will coordinate with ministries and branches concerned to organise the First Investment Promotion Conference in the US. This will be a great chance for businesses to propose opinions. On behalf of a big garment and textile company, do you have any suggestions for the US Government on its regulations on the Vietnamese garment and textile sector in TPP negotiations?
The Investment Promotion Conference in the US will be a major event for businesses of the two countries. Personally, via the conference, I recommended that the US need to pay more attention to tax cuts for garment-textile and leather-footwear industries and consider the recognition of market economic status to Vietnam after TPP negotiations wrap up. The US needs to be more flexible with intellectual property issues and actively coordinates with the Government of Vietnam to build technical assistance programmes to carry out TPP commitments. I also suggested that the US grant more time for Vietnam and approve the list of deficiencies which include yarn that Vietnam cannot find in the region and in Vietnam as well.
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