The Seventh round of the Trans-Pacific Partnership Negotiations (TPP7) in HCM City has been just wrapped up after a week.
Le Van Dao, Vice President of Viet Nam Textile and Apparel Association
Several events at the sidelines of this TPP7 were crucial for stakeholders to have their voice and opinions heard directly by negotiators from nine Negotiating Delegations of TPP7. Among issues at the sideline events, textiles and apparel attracted the most attention and debate. The Viet Nam News interviewed Le Van Dao, Vice President of Viet Nam Textile and Apparel Association (VITAS) concerning the TPP debate.
As you may know, the TPP is one of the most important free trade negotiations that Viet Nam is actually participating in. For Viet Nam, an export-driven economy, the biggest and most direct benefit it could have expected from this TPP round was the elimination of tariffs on Vietnamese exports to the other eight partners in the TPP. However, there was a risk that negotiations could nullify any unique benefit to Viet Nam, especially to the Vietnamese textile and apparel industry. That's why we were there, trying to persuade the negotiators to reduce the risks to our industry that makes up 16 per cent of Viet Nam's total export revenues and offers permanent jobs to 2.5 million Vietnamese labourers.
In order to claim priority tariffs following a free trade agreement, exported products have to satisfy rules of origin prescribed in an agreement. We have learnt from the last seven Free Trade Agreements between Viet Nam and diverse partners that the rules of origin are most important, resulting in improvements or declines in trade relations in the process of FTAs.
For our industry, whether the rules of origin are "fabric forward", "yarn forward" or "cut and sew" is decisive to the benefits that Viet Nam textiles and apparel can realise from an FTA.
For instance, the agreement Japan-ASEAN FTA and Japan-Viet Nam Economic Partnership (JVEPA), where the rule "fabric forward" was applied, it didn't boost the Vietnamese apparel exports to Japan. A growth of 20 per cent in 2010, less than the general growth rate of 23 per cent, made our expectation of benefits from these two FTAs illusory. In reality, the textile industries of Viet Nam and other ASEAN countries are too underdeveloped to make fabrics that are used in products exported to Japan and thus could not satisfy the "fabric forward" rule to be able to claim priority tariffs according to those FTAs.
In contrast, the Agreement Korea/ASEAN, with the "cut and sew" rule, facilitated our exports. The export growth rate to the Korean market reached over 70 per cent in 2010 and we have thus gained some benefits from this FTA.
So, in order to benefit from a TPP Agreement and to improve the competitiveness of Viet Nam in exporting textile and apparel products, the rules of origin should be applied as they are in the "cut and sew" process. Otherwise, Viet Nam will hardly have the opportunity to develop this sector after joining the TPP.
That's why we were very concerned to hear that some negotiators require the "yarn forward" rules in the TPP.
Yes, we must. According to our estimations, in a finished apparel unit, the cost of fabrics only accounts for up to 50 per cent maximum (if compared with the retail price of apparel the rate of fabric cost will be much less). In other words, the industry remains heavily dependent on imports of materials. Most contracts are for processing, which makes the value added very low in export textile and apparel products from Viet Nam.
Thus, if the "cut and sew" rule is accepted, the TPP would acknowledge the value added by Viet Nam and help improve its competitiveness, thus leading to a greater increase in TPP internal trade and a decrease in non-TPP countries.
Moreover, if duty-free is given with a simple Rule of Origin, not only Viet Nam but also importers, retailers and consumers of TPP countries will benefit.
In other words, a simple, easily applicable, more liberal rule of origin in the TPP Agreement would be for the benefit of not only Viet Nam but all partners. And such benefits are worth fighting for.
Some believe that if the rule of origin "cut and sew" is applied, third countries, especially China, will benefit from it as this country is now our main provider. We are not against this argument, but this is a modern supply chain and sourcing, each stakeholder could share the benefits. Rules of origin of FTA, like the TPP, should accommodate rather than disrupt such global production chains. Moreover, if TPP rules go this way, tariffs applied for apparel exports from Viet Nam (a TPP partner) will be the same as those for non-TPP partners, including China. What would Viet Nam gain from this agreement?
Some fear a "cut and sew" rule would cause Vietnamese apparel to flood the markets of TPP partner markets. Such fears are groundless. In fact, the "cut and sew" rule was accepted by Korea and other countries, including TPP countries such as Australia and New Zealand, in our previous FTAs but the trade volume didn't gain a great boost. That's proof that imported countries should not worry about any sudden surge of apparel products from Viet Nam after a TPP.
Besides, some thought unreasonably that the Viet Nam textile and apparel industry might have a "secret engine" to roar up with the support of the Viet Nam Government through State-owned enterprises. They wouldn't think that if they knew that the textile and apparel industry is one of industries to equitise quickly in Viet Nam. At present, 75 per cent of companies in the industry are private and joint stock companies; 24.5 per cent are FDI companies (including Singaporean and Malaysian enterprises, two TPP partners) with large investments. They had more than 60 per cent of the textile and apparel export turnover last year. Only 0.5 per cent are State-owned companies and they are in the process of carrying out their equitisation.
Some optimists think that "yarn forward" rule will help to attract more investment in the textile industry of Viet Nam. In reality that won't be the case because building a textile factory requires a lot of capital, high technology and skilled and qualified technicians whereas Viet Nam lacks all three.
It's been two years since the JVEPA, Japan/ASEAN FTA was signed and came into force but there have been no textiles projects start up Viet Nam or other ASEAN countries.
Some things appear okay in theory but the reality is different, at least in the short term. And benefits of "yarn-forward" rules are among them. Accepting the "yarn-forward" rule means losing benefits and opportunities for millions of Vietnamese workers.
Yes, the Vietnamese textile and apparel industry plays an important role in poverty alleviation and society stabilisation thanks to its intensive use of labourers, especially female workers from the countryside. It now employs more than 2.5 millions workers, in which over 1 million in industrial production companies account for 10 per cent of the country's industrial workforce.
The average wage is around VND3.3 million ($160) per month or $2,000 a year. It is higher than Viet Nam's GDP per capita, which was $1,168 last year, but still far lower than that of the TPP partners for the same year (Singapore was $56,522, following by Brunei $48,892, the US $47,284, Australia $39,699, New Zealand $26,900, Chile $15,000, Malaysia $14,670 and Peru $9,330.
In the context of globalisation and the free trade tendency, we hope all partners understand the position and situation of each country and make reasonable concessions for a TPP beneficial to all partners.
For textile and apparel issues, we urge the TPP negotiators to adopt the "cut and sew" rules for the benefits of Vietnamese people and all TPP consumers. — VNS