How CPTPP will affect Vietnam

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The recent buzz in the Vietnamese textile and garment industry is CPTPP which the country recently signed with 10 other countries. In the presentation, we throw light on the future perspectives of this trade agreement for Vietnam.

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How CPTPP will affect Vietnam?

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What is CPTPP? How CPTPP originated? USA and CPTPP Difference between TPP and CPTPP CPTPP: Benefits and Forecast about Vietnam's textile and garment industry Challenges faced by Vietnam’s garment sector under CPTPP CPTPP benefits for Vietnam’s economy Content Reduced economic benefits in CPTPP than in TPP 1 2 3 4 5 6 7 8

What is CPTPP?:

What is CPTPP? CPTPP stands for Comprehensive and Progressive Agreement for Trans-Pacific Partnership also known as TPP11. It is a multilateral free trade agreement signed on March 8, 2018 in Santiago, Chile but not yet ratified by its member nations The member countries are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

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How CPTPP originated? CPTPP originated from the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) (also called as P4) signed in 2005 by Singapore, Chile, New Zealand and Brunei. Since September 2008, the United States, Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan have jointly negotiated with the aim of setting up the Trans-Pacific Partnership Agreement (TPP).  The negotiations of TPP were finalised in 2015 under the agreement from 12 member states. It was then signed on 4 February 2016.

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How CPTPP originated? The TPP never entered into force as with the coming of Donald Trump in power, he announced US withdrawal from the agreement in January 2017 citing fear that jobs shall move out of USA to low wage countries if this deal goes through. Following this, remaining 11 countries postponed the implementation of 20 TPP provisions, unanimously promoting this process with the establishment of CPTPP.

USA and CPTPP:

USA and CPTPP USA had pulled out of TPP citing its terms to be discriminatory. The remaining 11 countries reframed the terms and signed the renewed pact in form of CPTPP. At present, the USA is exhibiting inclination to join this pact again in the backdrop of its other such similar deals with Canada & Mexico (NAFTA) and South Korea.   Joining of USA in CPTPP has received mixed response from existing members of CPTPP, with almost everyone desiring a complete relook at the existing terms and conditions, in case US steps in. Vietnam is welcoming USA’s entry in CPTPP, as it believes that US will have a transformative effect on the Vietnamese business, environment, and the country’s strategic goal to industrialise , modernise , and globalise .

Difference between TPP and CPTPP:

Difference between TPP and CPTPP Point of difference TPP CPTPP Name Trans-Pacific Partnership Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Member nations 12 11 (excludes US) Total GDP covered* 38.2% (US $ 28.5 trillion) 13.5% (US $ 10.1 trillion) Total world trade turnover** 26.5% 15.2% Apparel Import Size US $ 133 billion (in 2017) US $ 53 billion (in 2017) Population ~800 million ~500 million Reference taken from https:// www.csis.org/analysis/tpp-cptpp ** Reference taken from http://www.vir.com.vn/key-differences-between-cptpp-and-tpp-56904.html

CPTPP benefits for Vietnam’s economy :

CPTPP benefits for Vietnam’s economy It is expected that CPTPP can increase GDP by 1.1% by 2030. With CPTPP, Vietnam is expected to gain export benefits by 4.2%. The tariff reduction in large markets like Japan, Canada and Australia will help Vietnam to increase its export of goods and it will attract foreign investments in the fields where Vietnam needs development. CPTPP will help Vietnam reform domestic institutions, create a transparent and open investment and business environment.

Reduced economic benefits in CPTPP than in TPP :

Reduced economic benefits in CPTPP than in TPP According to Vietnam’s National Centre for Socio-Economic Information and Forecasting, CPTPP will lead to an increase of 1.32% in Vietnam’s GDP, much less than 6.7% as predicted under the TPP. The gains from tariff elimination will reduce from 6.79% to 1.1% as a share of its GDP. Exports are forecasted to grow by 4.2% under CPTPP, while under TPP, Vietnamese exports were predicted to grow by 15%. Imports will also reduce from 10.5% to 3.8% in comparison to TPP.

CPTPP: Benefits and Forecast for Vietnamese textile and clothing industry :

CPTPP: Benefits and Forecast for Vietnamese textile and clothing industry Despite US being one of the large export market for Vietnamese textile and garment sector, CPTPP opens new opportunities for the country to tap in huge potential markets such as Australia, Canada and Japan. These three markets have large textile use of around US $ 42 billion a year. The export market share of Vietnam's textile industry in these markets is still US $ 4.2 billion. Thus, CPTPP brings in a platform for Vietnam to expand its export turnover in these 3 markets. Apparel market size in Japan, Australia and Canada is approximately US $ 133 billion which gives huge opportunity to Vietnam. Japan is the second largest export market for Vietnamese textile and garment industry with US $ 3 billion worth of export. However, Japan's imports from Vietnam are just 11% as compared to that of 65% from China.

Benefits and Forecast for Vietnamese textile and clothing industry :

Benefits and Forecast for Vietnamese textile and clothing industry Similarly, Vietnam is expecting double digit export growth from Australia after CPTPP. Currently, its’ growth of textiles and garment exports to Australia is below 10%. However, with CPTPP, Australia will cut duties to 5 per cent in first 3 years of CPTPP and subsequently, it will be zero. According to FPT Securities Company, Vietnam's textiles and garments exports to CPTPP countries account for 15% of Vietnam's total export turnover which can go up to 35% in next 2 years. This will be the second largest market for Vietnam's garment and textiles after US, at 47%.

Challenges faced by the Vietnam’s garment sector under CPTPP :

Challenges faced by the Vietnam’s garment sector under CPTPP Once the CPTPP comes into effect, the labor-intensive textile industry will need to bring changes in the quality of labour . This will become an important factor in establishing the brand and quality of Vietnam’s textile and garment industry in demanding markets like Japan and Australia. Further, a stable policy regime towards labour issues, insurance, and wages is required for garment businesses to remain competitive. In CPTPP, garment businesses get preferential tariffs on raw materials originated from member states or imported from CPTPP countries. However, most of the materials for Vietnam’s garment and textile sector are imported from China. Therefore, Vietnam’s Government will have to devise ways to prevent the import of raw materials from non-CPTPP countries if it wants local firms to benefit from the agreement.

Benefits and Forecast for Vietnamese textile and clothing industry :

Benefits and Forecast for Vietnamese textile and clothing industry Non-financial barriers in terms of improved technology and environmental protection are at the core of CPTPP. Vietnamese businesses will have to overcome such challenges in order to remain sustainable and reap benefits of CPTPP in long run. Vietnam is facing serious competition from China for entering the Australian market as the latter’s textiles and garment market share in Australia amounts to 60 per cent.  Australia orders products in small quantities and large Vietnamese enterprises are not interested in small orders. Further, small firms do not have a social responsibility certificate to qualify for exports to Australia. 

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