Creating industrial competitive advantages post-TPP

10:24 | 08/04/2016 Industry

(VEN) - The elimination of almost all tariff barriers and the implementation of market opening commitments to welcome investors after the Trans-Pacific Partnership (TPP) takes effect will create new competitive advantages for Vietnamese industries to join global value chains. However, local businesses are facing the risk of losing their position in the domestic market.

Creating industrial competitive advantages post-TPP

Electric and electronic products will be offered a range of tax preferences when the TPP takes effect

Opening large markets

The TPP is expected to take effect in 2018 and bring opportunities for Vietnam to boost foreign trade and investment activities. The agreement is also anticipated to have a strong impact on the Vietnamese industrial sector.

Under the TPP, Vietnam was committed to cutting tariffs for industrial products according to specific roadmaps. For example, Vietnam will eliminate all tariff lines applied to unused autos 13 years after the agreement takes effect, and apply tariff quotas to used cars (the initial quota will be 66 autos and gradually increased to 150 by the 16th year). On their side, major markets will offer lots of preferences to Vietnamese industrial products. As soon as the TPP takes effect, the US will eliminate 50 percent of tariff lines applied to plastic products, 80 percent of tariff lines applied to electrical, electronic, wood products, and rubber (except auto tires).

At a recent forum held to discuss opportunities and challenges that the TPP may bring to the Vietnamese industrial sector, Tran Thanh Hai, Deputy Director of the Agency of Foreign Trade under the Ministry of Industry and Trade (MoIT), said Vietnam could integrate more deeply into global production and supply chains in the post-TPP period, and Vietnamese industrial products would increase in range and improve in quality.

Deputy Minister of Industry and Trade Tran Quoc Khanh said the TPP would create favorable conditions for member countries to promote industrial restructuring and enhance their sustainable competitiveness in the long term. “There will also be a motive for production and consumption chains to be formed and develop, creating opportunities for people and businesses of member countries, including Vietnam. However, the TPP will require Vietnamese manufacturers to cope with challenges. Businesses with backward manufacturing technologies will face numerous difficulties,” Deputy Minister Khanh said.

Creating new competitiveness

According to Luong Hoang Thai, Director of the MoIT’s Multilateral Trade Policy Department, in the context where labor productivity in Vietnam remains limited leading to high production costs, TPP membership will help Vietnam create new competitive advantages for industrial products. Giving an example, Thai said Chinese products currently accounted for about 50 percent of textile and garment imports by the US, while Vietnamese products accounted for about 10 percent and are subject to taxes ranging from 17-30 percent. When the TPP takes effect, these taxes will be reduced to zero percent, making Vietnamese goods more competitive against Chinese products.

The auto manufacturing sector is another example. The domestic auto market is still two small and therefore can hardly develop. “The TPP will stimulate investment in increasing the added value of products, thus promoting domestic industries,” Thai said.  

However, Tran Thanh Hai said the TPP and new free trade agreements would require Vietnamese goods to fiercely compete with products of other countries that have more competitive advantages as well as low-priced imported goods that could overwhelm the domestic market due to tariff reductions. Moreover, Vietnamese support industries are still underdeveloped, so Vietnam remains just a small link in global value chains.

Tran Hai Nam, Director of Sao Nam Company Limited: Engineered products hardly exported

Vietnamese engineering businesses are striving to protect their share of the domestic market against an overwhelming wave of imported goods. They have met difficulties already in the domestic market, and it’s even more difficult for them to export. But if they don’t secure exports, they will be excluded from the global playing field. The absence of Vietnamese traders acting as intermediaries is a major reason hindering the export of domestic mechanical products, because foreign traders buy at very low prices that are sometimes even below the production cost.

Nguyen Thi Duyen, President of Vietnam Engineering Consultant Association: Opportunities to reduce investment costs

We pay special attention to intellectual property criteria in the TPP. This agreement includes commitments that tighten regulations in this field, which are directly related to engineering design and technical consultancy. Therefore, we expect ministries and sectors will disseminate more information on this.

Businesses operating in the field of engineering design have to import a variety of high-value machinery and equipment as well as construction materials that are yet to be produced domestically. After the TPP takes effect, import taxes applied to many types of machinery will be eliminated or reduced. State agencies need to raise awareness so that businesses and associations can know about the tax cutting roadmaps for each kind of goods. This will help reduce investment costs, especially in public investment projects.

Truong Thi Chi Binh, Director of Supporting Industry Enterprise Development Center: Setting up barriers to protect domestic manufacturers

Domestic components and spare parts suppliers for multinational corporations are worried that they’ll have to compete with foreign rivals in Vietnam in the post-TPP period. They want the government to set up barriers to protect domestic manufacturers, and this must be done right now instead of waiting until the TPP or the EU-Vietnam FTA takes effect.

Nowadays, young people are becoming less interested in technical training courses. How can we have developed industries if we lack highly-qualified engineers? This is a big hindrance to Vietnam’s industrial sector. 

 

Nguyen Phuong

 

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