After five years of negotiations with countless disagreements and obstacles, trade ministers of 12 TPP member states reached the final consensus on the world’s largest free trade agreement on October 5 evening. Before the agreement is officially signed, TPP must be approved by the heads and parliaments of the 12 member states countries.

VN economy to prosper

According to many experts, the TPP will create momentum for Vietnam’s economic development. Vietnam's economy is expected to benefit most from the TPP as it will help the country reach markets that are still closed to the country.

Economist Le Dang Doanh said that this is an important milestone for Vietnam's economy. Vietnam is the country with the lowest level of development among TPP member countries.

"We import aircraft and software from the US and export agricultural products, textiles and footwear to this country. Vietnam’s exports can rise greatly. Also, many foreign investors will invest in Vietnam to benefit from the incentives that Vietnam enjoys," said Doanh.

However, Doanh pointed out major challenges for Vietnam such as technical barriers like standards on design, packaging, antibiotic residues, chemicals, labor conditions. 

Therefore, Vietnam needs to improve economic conditions of local enterprises to take advantage of the opportunities brought about by TPP.

The TPP agreement would boost Vietnam’s GDP growth when it takes effect, said Sandeep Mahajan, World Bank lead economist in Vietnam.

Mahajan said Vietnam has a fairly low income base among a dozen countries joining the TPP. As the participating countries, including large economies such as the United States, Japan, Australia and Japan, account for 40% of global GDP, Vietnam will be able to tap into the potential of a huge market to be formed by the trade accord’s member states.

Vietnam’s GDP growth is expected to increase by at least 8-10% until 2030 owing to the TPP, Mahajan said. However, he warned growth would depend on reforms in the country.

Many more foreign investors will come to explore opportunities when the country can penetrate further into Japan and U.S. markets, the expert said.

Tran Quoc Khanh, Vietnam’s Deputy Minister of Industry and Trade, told the Vietnam Television station on October 5 that the pact would create a free trade area making up 40% of the global economy and 30% of global trade. Besides, it would form a new supply chain and facilitate international investment and trade, benefiting all the participating countries.

In the coming time, negotiation teams will review the content of the pact and let the public and corporate sector in their respective countries know it, Khanh said.

Mr. Sudhir Shetty, Chief Economist of the World Bank in East Asia and the Pacific, said that TPP would bring many benefits to Vietnam in the long term. This is a tremendous boost to Vietnam but it will also bring about a lot of pressure on domestic manufacturers, who will have to compete more fiercely but this will also help boost performance. 

Shetty said that with the best scenario, the TPP will help member countries have access to markets which are previously inaccessible. Besides, with participation in TPP, Vietnam's GDP can increase by 8-10% by 2030 and the country can attract more foreign investment. 

A research work indicates that the TPP can bring about $3.7 billion each year for Vietnam’s GDP.

Dr. Nguyen Duc Thanh, Director of the Vietnam Economic Policy Research Institute, said: "The increase in Vietnam’s GDP when we join the TPP is an increase in consumption, exports and investment, including FDI and domestic investment. The biggest advantage of Vietnam after joining the TPP would be promotion of exports."

Vietnam Ambassador to the US Pham Quang Vinh said that the TPP is the “trade agreement of the century” because it sets a very high set of standards in terms of trade, technology, intellectual property, environment, and labor while allowing deep tariff reductions (nearly 0%).

According to the American Chamber of Commerce in Vietnam (AmCham), the TPP has important implications for all member countries, especially Vietnam in terms of exports, GDP growth, and job creation. 

A report published by the Eurasia Group suggests that GDP in Vietnam will be boosted by 11 percent and exports by 28 percent by 2025 as companies move their manufacturing bases to the country to take advantage of low wages.

For textiles and garments, the key export items of Vietnam, TPP parties have agreed to phase out tariffs on these products. Most tariffs will be eliminated immediately, although tariffs on some sensitive goods will be eliminated over a longer period.

Minister of Industry and Trade Vu Huy Hoang said that with the TPP, Vietnam's textile industry will grow faster. This will benefit the poor because the industry needs millions of workers. 

The countries participating in the TPP are important export partners of Vietnam, particularly the US and Japan. Up to 40% of Vietnam's export goods are to 11 countries in the TPP. Vietnam mainly exports garments and footwear to the TPP countries, accounting for 31% of total value. In particular, Vietnam is the second-largest garment exporting country to the US (after China). and the third-largest in the Japanese market.

A recently released report of BIDV Securities Company says that after joining the TPP, the import structure of input materials of Vietnamese textile enterprises will see a big change, with the sources of supply to shift to the TPP member countries, reducing dependence on imported materials from China and Taiwan.

According to Mr. Le Tien Truong, General Director of the Vietnam Textile and Garment Corporation, the principles contained within the TPP are not new to the textile industry because it has been gaining knowledge and preparing for its advent during the negotiating period. The garment industry knows full well the advantages and disadvantages of being a part of the TPP.

Textile enterprises have adjusted the pace of their investment over the last five years, he went on. “The TPP negotiations ending now help textile enterprises accelerate their investment speed, continue to strengthen their management, and apply productivity and quality standards to increase competitiveness,” he said.

Mr. Jonathan Tizzard, National Head of Valuation & Research at Cushman & Wakefield Vietnam, said that there are many expected benefits and Vietnam stands to be one of the nations to benefit the most from the TPP.

"It is hard to gauge exactly how much the anticipation of the TPP has already helped Vietnam, but with the TPP having been finalized the benefits will continue to be felt as the economy continues its upward trajectory. More and more industrial occupiers will come to Vietnam to take advantage of the TPP alongside the other free trade agreements that Vietnam has secured," he told VN Economic Times.

According to him, demand for industrial property will continue to rise. There will be more and more professionals in the country who are able to afford more expensive housing, not to mention shopping and the other associated items that foreign and local professionals with greater disposable income will require.

"The demand for international quality office space will also rise as these industrial groups look for city center office space. The continued urbanization of big and small cities will continue as agricultural laborers look to industrialized areas for work. In addition, the demand for more roads, railways, seaports, and airports as the logistics market continues to grow will be a feature of the next decade and after in Vietnam," he added.

The challenge for the government will be creating an equal society that benefits people across the spectrum. In addition, the protection of the environment will become a much more important subject as more and more infrastructure, utilities, and industry develop in the country, he said.

The access to a $20 trillion market

TPP is a free trade agreement with the participation of 12 countries including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US. This will be the biggest trade deal ever since 1994, after the launch of the World Trade Organization (WTO).

Although facing greater competition, Vietnam will have the opportunity to reach a broad market that accounts for up 40% of the world economy and 30% of global trade, and is expected to contribute to the world GDP with nearly $300 billion annually. Notably, all 12 member countries are also members of the Asia Pacific Economic Cooperation Organization (APEC) with a population of 650 million and a total GDP of $20 trillion.

"The agreement reached today by the countries negotiating the Trans-Pacific Partnership is a very positive development,” said the IMF Managing Director Christine Lagarde in a statement released on October 5.

“The agreement is not only important because of the size, as the signatory countries account for about 40 percent of global GDP; it also pushes the frontier of trade and investment in goods and services to new areas where gains can be significant,” she said.

“We would need to review all the details before offering a comprehensive assessment, including the transitional effects and spillovers, but I expect that the TPP can pave the way to a new generation of deep trade integration efforts. I encourage other countries to renew their efforts to complete ongoing negotiations and the broader international community to reignite multilateral trade initiatives to ensure a cohesive global trading system.” 

Businesses excited about TPP

Immediately after the end of negotiations for the TPP, many Vietnamese entrepreneurs shared their excitement on Facebook and with media.

The head of Khai Silk Corporation wrote on his personal Facebook page: "Fortunately, the TPP has been completed". It included a symbol meaning "Feel wonderful".

Entrepreneur Do Ngoc Minh, the boss of LUALA hi-fashion system, noted on his Facebook: "Good news for the first day of week! Hope the Vietnam economy will  thrive!"

In a message to the media shortly after the completion of TPP, Pham Hong Hai, CEO of HSBC Vietnam, said: "This is a meaningful step forward for global economic integration in the world that is not only becoming increasingly connected but also more interdependent."

He added that the TPP would help increase incomes and living standards of the developing economies in Asia. Vietnam is expected to greatly benefit from the TPP from the growing demand for textiles and footwear.

Meanwhile, Tran Vu Hai, Director of Hanoi Law, commented: "For law firms, it will be a period for professional development."

Nguyen Ba Ngoc, Chairman of NBN Media, said: "The TPP also shows that we need to innovate strongly and thoroughly to take full advantage of the the power of integration. Vietnam’s benefit from the TPP depends on its internal capacity and the policies of the State.”

However, few enterprises in Vietnam’s footwear are ready for the TPP. Mr. Ha Duy Hung, Chairman of the Ho Chi Minh City Leather and Footwear Association and CEO of the Dong Hung Co., said that most enterprises in the association are of small and medium size and may struggle in the competitive environment the TPP creates.

“We are concerned that, despite having large orders, domestic enterprises lack the ability and the potential to benefit,” Mr. Hung said. “Businesses will have to work together to survive and develop. If not, small footwear businesses will not benefit at all from Vietnam joining the TPP.”

Agriculture is considered the sector that will face the greatest difficulties from the TPP. Mr. Vu Kien Chinh, General Director of the Tung Lam Group, said that Vietnam opening up to foreign goods will present a number of obstacles for domestic products.

While countries around the world have adopted many technical advances and mechanization in agriculture to increase productivity and reduce production costs, production in Vietnam remains weak. “In the immediate future the State should focus on investment in technical infrastructure and social infrastructure in rural areas,” Mr. Chinh believes.

Herb Cochran, executive director of the HCMC chapter of the American Chamber of Commerce (AmCham) in Vietnam, said: “We are very pleased, and excited, by the successful conclusion of the TPP negotiations.”

Cochran said AmCham recognized that it would take a lot of work and close cooperation for Vietnam to benefit from the opportunities and challenges that the TPP offers.

AmCham began working to develop understanding and support for the TPP in Vietnam’s business community in early 2013. With cooperation from the Government and business associations, AmCham organized many seminars and media events to explain the trade accord.

A key point is that Vietnam will be the greatest beneficiary of the TPP. According to economic models, Vietnam’s exports would be 28.4% higher by 2025 than without the TPP, and Vietnam’s GDP would be 10.5% higher.

AmCham is working with Vietnam’s business associations to provide technical assistance and training to help Vietnam companies benefit from TPP, and qualify to join global supply chains.

Cochran said the economic models are based on the expectation that Vietnam’s firms would be able to join global supply chains. He added that Vietnam’s government would have to reform its administrative procedures, based on TPP commitments, to make businesses more efficient, and Vietnam more competitive than neighboring countries.

Dang Trieu Hoa, chairman and CEO of Century Synthetic Fiber Corporation, said the signing of the TPP is good for companies like his. More firms have shifted orders to Vietnam and production from China to other countries, including Vietnam, to enjoy TPP benefits.

Vietnam, the U.S. and Malaysia are the three fiber producing countries among the dozen nations joining the TPP. As Malaysia’s fiber production technology is not high while imports from the U.S. cost higher due to a long distance, Vietnam will be more competitive thanks to low fiber prices, Hoa said.

Source: VietNamNet/Zing/SGT/VET