Pacific Rim markets open up for Vietnamese exports

The CPTPP is expected to open up numerous opportunities for Vietnamese textile and garment manufacturers

Export opportunities

The trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam entered into partial force on December 30, 2018, with its ratification by seven of the 11 signatories.

The Industry Agency expects it will help Vietnam diversify its economic and commercial relations and avoid risks arising from dependence on major markets. Market opening commitments by the other CPTPP members are at higher levels than Vietnam’s commitments toward its treaty partners, paving the way for export of Vietnamese textiles, garments, leather, footwear, wood products and seafood to new markets such as Canada, Mexico and Peru.

Vietnam will enjoy immediate elimination of 78-95 percent of tariff lines. For normal goods, tariffs will be reduced gradually within 5-10 years, resulting in the elimination of 98-100 percent of tariff lines.

For its part, Vietnam will remove 65 percent of tariff lines immediately, and 97.8 percent in the eleventh year of the deal. Import taxes applied to plywood, timber slabs, painting frames, doorframes and furniture, which range from 6-9.5 percent, will be eliminated immediately, providing Vietnamese wood processing companies with wider export opportunities.

Wooden handicrafts will also benefit from the CPTPP as Canada has agreed to reduce the import tax rate from seven percent to zero percent immediately. In the past, exports to Mexico were modest due to high taxes applied to wood products, from 10-15 percent, but Mexico has pledged to remove all import taxes on wood products, planks, indoor and outdoor furniture under a 10-year roadmap.

Domestic textile and garment companies are currently subject to an average tax rate of more than 10 percent on exports to markets that are not members of free trade pacts with Vietnam. When the CPTPP takes effect in all its member states, Vietnamese products meeting common technical standards will be tax exempt, making them more competitive in price. The CPTPP will encourage domestic textile and garment companies to promote exports to new markets in the South American region.

The imported material trap

The CPTPP is expected to facilitate access of Vietnamese leather and footwear to potential markets such as Mexico and Canada and encourage domestic companies to create new products of higher added value. However, the Industry Agency noted that to be eligible for tariff preferences, Vietnamese goods must meet a variety of strict requirements and overcome technical barriers as well as rules of origin.

Specifically, goods traded within the CPTPP region must be made of materials originating from member countries. “This condition is not favorable to Vietnam that mostly imports materials from non-CPTPP countries, such as China and the Republic of Korea, to make products for export,” the Industry Agency noted. In fact, Vietnam imports more than 60 percent of materials for textile and garment production from non-CPTPP countries and domestic companies will need to seek new material supply sources from CPTPP member countries.

The good news is that the Industry Agency does not consider technical standards a major problem for Vietnamese textile and garment manufacturers.

The CPTPP is expected to also help Vietnam attract foreign investment in material production. However, state management authorities have to consider the environmental impacts of investment projects carefully before granting licenses to ensure they do not use outdated, polluting technology.