TPP expected to bring opportunities to garment industry

Trans-Pacific Strategic Economic Partnership Agreement or TPP agreement, with the participation of the US, is believed to pave the way for Vietnam’s garment products to penetrate the US market. However, it remains unclear if Vietnam can grab the opportunity.

At present, TPP is still being discussed by nine countries, while the seventh round of negotiation will take place in Vietnam in June 2011. Of the nine TPP’s partners, the US is the biggest trader partners of Vietnam. Especially, the market consumes 1/3 of Vietnam’s total export turnover to the US.

Garments are a “sensitive” issue for the US

According to an US lawyer, most of the US garment production bases have been relocated to Asian countries, including Vietnam. Currently, the garment industry in the US is small in scale, but it has always been put under the careful protection.

There are three ways the US always uses to protect its garment industry in free trade agreements (FTAs): 1) applying the slow process of cutting tax 2) applying strict rules of products’ origin and 3) requiring complicated certifications for products.

In the FTAs the US signs with different countries, the rapid tax cut to zero percent is applied to many kinds of products, but the slow tax cut process always been applied to the garment industry.

According to Dang Phuong Dung, Secretary General of the Vietnam Textile and Apparel Association (Vinatas), in FTAs, the US always demands a specific negotiation about garment, where it proposes to apply the “yarn forward” principle in defining the origins of products.

Under the principle, garment products can only enjoy tax preferences only when the yarns used to make garment products, and post-yarn links of the chain (fabric, cut out the garment and tailoring) are carried out in the countries which are the members of the agreements.

Dung said that if the “yarn forward” principle is applied in TPP, Vietnam’s garment exports to the US will not enjoy any benefits, while the US investors in Vietnam will also not enjoy benefits, because they only do the cutting and tailoring works.

The parties in the negotiations have not put forward any concrete suggestions on the required origins on garment products. However, an article posted on June 2, 2011 on just-style.com, which pointed out why Vietnam remains the biggest threat to the US garment industry in TPP, said that a group of 52 policy makers in the US have sent a letter to the US Trade Representative Ron Kirk, calling on to apply strict rules to Vietnam until the free market principles are applied.

US associations seeking common voice with Vietnam

While everything is still on the negotiation table, representatives of some US associations came to Vietnam last week to seek a common voice from Vietnam’s garment industry.

At the press conference held on June 17, Stephen Lamar, Vice Chair of the American Apparel and Footwear Association (AAFA) and Stephanie Lester Retail Leaders Industry Association (RILA), said that they advocate the application of a simple and flexible principle on products’ origin which is allows to create opportunities for the global garment trade development, instead of strict rules.

The two representatives stressed that Vietnam’s garment industry plays an important role in their member companies, which are doing business with Vietnamese enterprises.

There have been the parties who protest the opening of the market to Vietnam’s garment products, but AAFA and RILA are not the parties.

Mrs. Stephanie Lester said that she will report the opinions of US enterprises to the US officials, who join the TPP negotiations and to the US Congress. She keeps optimistic about the opportunities TPP can bring to Vietnam’s garment industry and she believes that it would be good if simple and flexible principles are applied to ensure that TPP will help boost trade and investment.

Currently, Vietnam’s garment exports to the US contribute 61 percent of the US’ total tax collection from the import products from 8 TPP’s countries (Singapore, Chile, Australia, Peru, New Zealand, Malaysia, Brunei and Vietnam). – TBKTSG

Tags: TPP Agreement, Trans-Pacific Strategic Economic Partnership Agreement