Businesses to feel the pinch as TPP conclusion nears

Businesses to feel the pinch as TPP conclusion nears

The Trans-Pacific Partnership (TPP) negotiation is entering its final rounds of negotiation. With such a game changing deal imminent, Vietnamese experts have been considering the impact to be felt by local businesses – with many warning that along with great opportunities, Vietnam will also face significant challenges.

Ho Chi Minh City, Vietnam’s business hub, has been active in preparing for its integration into the TPP region.

The TPP is expected to help Vietnam hold its traditional markets, gain better access to new markets among TPP country members, and promote exports to new markets.

When the agreement goes into effect, the country’s exports to the TPP region will increases dramatically, according to officials.

Vietnamese garments, footwear and wooden furniture will enter new export markets when the import tariff is slashed to zero percent, Director of Gia Dinh Information Technology College Nguyen Dang Liem has forecast.

The Asia-Pacific market currently attracts 70 percent of Vietnam’s total export value and 80 percent of Vietnam’s import value.

For investment inflows to Vietnam, the newly registered and added capital was estimated at over 21.6 billion USD in 2013, an increase of 5.28 billion USD against the previous year’s figure. Leading foreign investors in Vietnam included Japan, the Republic of Korea, Singapore, Malaysia, the US and Canada, according to the Ministry of Planning and Investment.

The ministry also said that in recent years the total foreign investment capital from TPP country members has made up 50 percent of the total foreign investment flow into Vietnam.

Deputy Director of the Central Institute for Economic Management Vo Tri Thanh argued that investment capital flow in support industries, value added services and the technology sector will be easier to attract due to the free investment rule regulated by the TPP agreement.

Reinvestment in the fields of communication, finance, banking and transportation will also be made easier, added Thanh.

Further, the TPP will provide opportunities for Vietnam to move towards a transparent legal environment where there is fair competition for investment. Vietnam has been building a revised programme on investment, land and bidding laws in preparation for this and in a move to attract more investors and effectively use available investment capital.

The foreign direct investment flow from Asia-Pacific countries will also help improve Vietnam’s management skills and technology. The increasing role of international investors will contribute to the development of highly added value services in Vietnam.

Experts said the impact of the TPP on Vietnam should be very positive, overall. However, it is also certain to create challenges for many industries and businesses. According to Vice Chairman of the Ho Chi Minh City Association of Economic Science and Management Truong Minh Sam, Vietnam will face obstacles, including proving the origin of its goods, utilising high-standard technology, and making the domestic market suitably competitive.

Vietnam will have to open its door wider when the TPP is signed, which means tougher competition at home. Poorly run domestic businesses, especially small and medium enterprises and completely protected industries, will face a high risk of losing out to foreign competition.

For sectors in which Vietnam holds comparative advantages, such as textiles, foodstuffs and agricultural products, there will also be some barriers, according to Chairman of the Ho Chi Minh City Food and Foodstuff Association Van Duc Muoi.

Vietnamese agricultural products would not be able to take advantage of tariff reductions, as Vietnam’s agriculture has yet to develop sustainably.

Additionally, negotiations on agricultural products rarely produce results because countries tend to be very protective of their agriculture, leading to a strict technique barrier. Chairman Muoi suggested that Vietnam needs to offer suitable commitments to TPP requirements in an effort to ensure farmers’ interests during their integration process.

The TPP will create an economic region of over 790 million people, contributing to 40 percent of the global GDP and accounting for one-third of global trade.

Experts said TPP requirements are compatible to Vietnam’s renovation and economic restructuring demands. This also requires Vietnam to change its economic growth model during its development process, a task that will require considerable effort from all Vietnamese agencies concerned.-VNA

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