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CPTPP beneficial to exporters

Released at: 08:11, 30/12/2018

CPTPP beneficial to exporters

Photo: KPMG Vietnam

Mr. Warrick Cleine, Chairman & CEO of KPMG in Vietnam and Cambodia, tells VET how the CPTPP will affect Vietnam's economy in terms of trade and investment.

by Hong Nhung

As Vietnam officially ratified the CPTPP in November, how will Vietnam benefit from the agreement in the context of China-US trade tensions?

The Trump Administration is actively challenging the global consensus on rules-based trade policy, questioning the effectiveness of the WTO and imposing actual or threatened tariffs on certain trading partners, especially China.

Vietnam has been very active in international trade for the past 20 years and more, negotiating trade agreements with important trading partners, entering into multilateral arrangements such as the WTO and the AEC, and, more recently, entering into the EU-Vietnam FTA and the CPTPP.

These agreements bind Vietnam to a multilateral, rules-based trading system, and have been incredibly successful at powering its export story, creating career opportunities and prosperity for Vietnamese people, and contributing to macroeconomic stability. Vietnam is now one of the world’s most important exporting nations, both in relation to commodities such as rice, coffee, pepper and seafood, and, more recently, manufactured goods such as footwear, garments, and electronics.

The China-US Trade War creates significant long-term risks for Vietnam as the “America First” premise is based on a desire to move Chinese manufacturing jobs to the US, not to other countries, and because it undercuts the basis and importance of multilateral trading agreements, which have been very beneficial to Vietnam.

In the short term, though, manufacturers are seeking to move capacity out of China, avoiding punitive US tariffs that will attach to a “Made in China” label, and Vietnam is a significant beneficiary of this trend. This ought to be viewed in the context of a larger trend, now relevant for 25 years, of export manufacturers investing in Vietnam to utilize Vietnam’s famously productive labor, increasingly suitable physical infrastructure, and quality trade agreements. KPMG has launched a “Make in Vietnam” initiative, to assist our clients to locate and expand manufacturing capacity in Vietnam.

Vietnam has committed to continuing to open up and facilitate trade and also provide transparency in the State management of market development. How do you think these factors will affect Vietnamese exporters?

The CPTPP itself concerns trade and investment, and does not address corporate or indirect tax concerns. Customs duties are a principal focus of trade agreements, and particularly the reduction or elimination of duties provided conditions are met.

The CPTPP is therefore incredibly important for Vietnamese exporters, as it will enable them to sell Vietnamese commodities and manufactured goods to other members’ firms, often free of duty. This should give Vietnamese exports an advantage when selling into markets such as Canada, Australia or Japan over exports from non-CPTPP countries such as China or the US or even other ASEAN countries such as Thailand or Indonesia.

The important thing for Vietnamese exporters to understand is that the CPTPP is a “new generation” trade agreement, which imposes greater requirements on exporting countries to qualify for concessional treatment. This can extend to environmental, labor and IP issues. It is not simply good enough to obtain a Vietnamese certificate of origin. Not enough Vietnamese exporters, especially SMEs, are aware of the requirements. The government has done a remarkable job of negotiating Vietnam’s entry into the CPTPP. Now businesses need to understand and seize the opportunities.

How will CPTPP members boost trade and investment in Vietnam?

The CPTPP also requires Vietnam provide easier market access for companies from other CPTPP countries, and we should expect more imports and investment from countries such as Japan, Canada, Australia and New Zealand. This will be great for Vietnamese consumers, and will provide more competition for Vietnamese producers.

This is not likely to create a significant risk for Vietnamese companies, who have proven overall to be adaptable and competitive against foreign producers since the trading sector was opened up over 20 years ago. While foreign companies flooded into the market with new products that gained significant market share in the mid-1990s, Vietnamese entrepreneurs responded with their own products and brands, creating “national champions” such as Vinamilk, Masan Consumer, Vietjet Air, VinFast and others along the way.

Vietnam’s experience with foreign competition is that it encourages local companies to improve themselves in order to both thrive and survive. KPMG’s Strategy Consulting and Digital Consulting teams in Vietnam, for example, work with many leading companies in Vietnam to help them understand and respond to foreign competition. The CPTPP will further encourage this trend.

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