Vietnam Set To Be Big TPP Winner

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Among the 12 signatory countries in the Trans Pacific Partnership, Vietnam stands out as the biggest beneficiary - but it won’t be a free lunch for the country, says our local expert. Here TMF Group’s Vietnam MD looks at the sectors that will win with the TPP, and the changes Vietnam is undergoing to make the most of the potential.

Wherever you look for information about the recently-signed Trans Pacific Partnership, the common theme has been that Vietnam will be the biggest beneficiary. It’s the most low-cost producer of all signatory countries – a list that includes Mexico, Malaysia and Peru – and so it’s been in Vietnam’s interest to push along ratification.

The TPP will account for 40% of world GDP, and a market size of 800m people over the 12 member nations (USA, Canada, Australia, Mexico, Peru, Vietnam, Malaysia, Singapore,Japan,Chile, New Zealand and Brunei).

The biggest winners will be found in Vietnam’s footwear, apparel, garment, seafood and pharmaceutical businesses. But to make the most of the benefits, investors will need to manufacture in Vietnam and export to other TPP countries. For example, the tariff to export garments is currently between 7 to 15%, and this will come down to zero with the TPP tax break, so it’s a very big deal for manufacturers on many accounts because they operate on very tight margins. In fact, we have seen an influx of Chinese and Hong Kong garment companies increasing their investment to take advantage of that, especially as China is not a member of the TPP community.

A lot of people don’t know this, but among the ASEAN countries Vietnam is the largest exporter to the United States – bigger than Malaysia, Thailand, and so on – and they contribute about 20% of the market share of ASEAN countries into the US. When we talk about the TPP and Vietnam’s benefits, we really talk about maximising exports to North America, especially as tariffs of all goods created within the TPP will be phased out within 10 years.

Other sectors to keep an eye out for include outsourcing and tech, though it’s not just because of TPP that they will benefit. With the ASEAN Economic Community and the TPP area, a lot of APAC will become just one big region, so there will be some movement between industries going to the most efficient place to make something. For example Thailand would be where you assemble cars, but it’s Vietnam that you’d consider for hi-tech, and agriculture and processing will do well in the Mekong Delta.

There are indirect benefits too. There’s no “free lunch”, as they say, and to be part of the agreement Vietnam needs to do some cleaning up on various aspects of its legislation, namely:

• Social matters relating to labour, such as the freedom to set up independent trade unions
• Equal treatment for public and private enterprises
• Intellectual property rights and protections
• Environmental protections
• State sector reforms

And it’s not just the TPP and the ASEAN Economic Community; Vietnam’s government has been working on many similar free trade agreements with countries around the world, including between the European Union, South Korea, and the customs union of Russia, Kazakhstan and Belarus. While it’s still a centrally planned economy, all of this is making Vietnam lean further towards capitalist thinking, albeit slowly. It’s set to transform society as well as industry, and that is a very exciting thing both for locals and for investors.

To find out how you can make the most of the opportunities in Vietnam,get in touch with our experts.