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Vietnam textile factories await TPP

A factory on the outskirts of Hanoi owned by leading Vietnamese clothing maker Garment 10 Corp.

Publication Date : 29-04-2014

 

Numerous investments are being made in Vietnam, one of the countries participating in negotiations on the Trans-Pacific Partnership free trade agreement, to build factories and other facilities primarily in its major textile industry.

With an eye on a possible agreement in the TPP talks, foreign and domestic companies in Vietnam are working to expand their production bases for export to the United States.

Leading Vietnamese clothing maker Garment 10 Corp. built a new factory in northern Vietnam this April. It plans to build two more by the end of 2015, bringing its total to about 20.

“We’ll strengthen our capabilities with an eye on the TPP taking effect,” company executive Than Duc Viet said.

Almost all of Garment 10’s dress shirts, its main product, are exported, and the company ships to large US retailers like Wal-Mart Stores, Inc. and Macy’s, Inc.

“If tariffs drop with the enactment of the TPP, our exports will increase greatly,” Viet said.

Itochu Corp.’s local arm in Vietnam will start operations at a fabric factory on the outskirts of Hanoi in May. Firms from China and South Korea, which are not participating in the TPP negotiations, are also aggressively expanding in the country.

A Chinese company has invested about 6.8 billion yen (US$66 million) to build a dye factory and other facilities on the outskirts of Hanoi. Member companies of China’s Shenzhou International Group Holdings Ltd., which manufactures sportswear for Nike, Inc. of the United States, will invest about 14 billion yen ($137 million) to build such facilities as factories and research facilities in Ho Chi Minh City.

A leading South Korean manufacturer of synthetic fibers also plans to expand its production capabilities in Vietnam.

The Vietnamese government has built the nation’s textile industry on the strength of its low personnel costs. In 2013, textile exports amounted to $20 billion, or 15 per cent of the value of all the country’s exports.

However, recently the country is suffering from a labour shortage due to increased industrialisation, and wages are rising. A growing number of textile-related companies are moving their production bases to countries such as Cambodia and Myanmar.

“If an agreement is reached in the TPP negotiations, the competitiveness of Vietnam’s exports will increase [overall], not just in the textile industry,” said well-known Vietnamese economist Pham Chi Lan.

Local content requirements, which set conditions for products to be eligible for the elimination of tariffs, are another focus of the TPP negotiations. Vietnam has reached a broad agreement with the United States to relax the standards for deciding products’ country of origin.

The two countries have basically decided, for example, that even if Vietnam procures such items as thread and fabric from China, products made with those items will still be recognised as “made in Vietnam” and therefore be eligible for the elimination of tariffs.

This too may contribute to the buildup of production bases with an eye on an agreement in the TPP negotiations.

Local content requirements are one of the standards used to decide whether products are eligible for the elimination or reduction of tariffs. Set during negotiations over economic partnership agreements, local content requirements determine whether products were made within a participating country. They include requirements that more than a certain percentage of such elements as the products’ raw materials or parts be procured within the territory of the country in question.

Local content requirements are meant to prevent countries that have not concluded agreements from receiving preferential treatment such as the elimination of tariffs.

 

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