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TPP a major boost to growth

Released at: 21:52, 06/10/2015 Trans-Pacific Partnership

TPP a major boost to growth

CEO of HSBC Vietnam, Pham Hong Hai, spoke with VET about what lies in store now the TPP has been signed.

by Minh Tuyet

How would you comment on the signing of the TPP?

This really is a huge step forward towards global economic integration in a world that is becoming not only more interconnected but also more interdependent. As a pro-trade policy bank, HSBC welcomes the TPP agreement, which will boost trade and investment flows across the Asia-Pacific region.

The TPP has the potential to create rising incomes and living standards in developing economies across Asia - multiplying the potential market for every commodity, every manufacturer, every service, and every technology. Vietnam is expected to emerge as a big winner from the TPP, seeing higher demand for its textiles, apparel, and footwear products.

The deal could raise Vietnam’s gross national income by 10 per cent by 2020, according to HSBC Global Research. The rest is up to us to reap the benefits. I firmly believe that the TPP will exert positive pressure on Vietnam to reform faster and transform into a more competitive and efficient economy

What are the immediate results from the conclusion of negotiations on October 5?

We should not expect an immediate result from a free trade agreement. The obvious thing we can see is the position of Vietnam being bolstered in the global market. Moreover, Vietnam becomes an attractive destination for foreign investors.

With in-principle agreement over the EU-Vietnam FTA in August, a deal in the TPP, and the Regional Comprehensive Economic Partnership (RCEP) in its final round of negotiations, Vietnam is connected with 55 economies in Asia-Pacific, the EU, and the Americas.

Vietnam’s policies that support an open economy will attract capital and trade flows, accelerating economic growth and improving people’s living standards.  

The TPP’s benefits have been discussed a great deal, but what do you think about the unexpected negative impacts on Vietnamese enterprises? Which sectors will gain the most and which will face the most difficulties?

During the five years of negotiations the benefits and difficulties for Vietnam have been discussed a lot and no more need to be said.

The TPP will bolster Vietnam’s export value to $307 billion by 2025 against $239 billion if it were not part of the agreement.

When the TPP comes in effect, tariffs in the US, one of largest export markets for Vietnam, will come down, from 4.5-14 per cent on textiles and about 10.4 per cent on footwear. These are the sectors in Vietnam that will gain the most from the TPP, because its members are export markets of Vietnam. As at December 2013, exports to TPP members accounted for 54 per cent of the value in of total textile, apparel & footwear export.

The market share of Vietnam’s export of garment, textile and leather footwear to the US could increase from 10 to 35 per cent thanks to the TPP.

On the other hand, textiles and apparel will also face challenges due to the Rule of Origin provisions in the TPP. The US, Mexico, and Peru all want to strictly apply the “yarn forward” rule on input materials for the sourcing of apparel inputs. This rule stipulates that input materials in textiles must come from TPP members. A large amount of input materials in Vietnamese textiles, however, now come from China and other non-TPP members.

In recent years we have seen preparations for the challenges not only from Vietnamese enterprises but also foreign enterprises. I see that many foreign enterprises have built yarn manufacturing factories in Vietnam to ensure the origin principles are met. This shows a long-term vision. Support policies from the government are, of course, crucial. Nevertheless, enterprises must be active in finding partners and markets.  

One point often cited as a negative but in my view is a positive challenge. The TPP will encourage structural reform, to increase productivity and see the right type of growth, not only debt-based growth.

The TPP demands equality between State-owned enterprises (SOEs) and private enterprises. SOEs that were previously protected by the government must therefore be reformed and be more active in a fair game.

What are the benefits and challenges the TPP brings to the banking and finance sector in Vietnam? What will HSBC do to utilize the opportunities?

Financial services have been paid special attention by TPP members because they expect further commitments in the banking, finance, securities, and insurance markets. There are two groups of TPP countries in banking and finance, including developed countries (the US, Japan, Canada, Australia, Singapore, and New Zealand) and developing countries (Mexico, Peru, Chile, Brunei, Malaysia, and Vietnam).

Vietnam has bilateral and multilateral agreements with TPP members and has adopted regulations on financial services. Therefore, the commitments in the TPP for Vietnam in banking and finance depend majorly on the negotiated terms with the US.

Having 150 years of history with a unique international network in 72 countries and territories, including TPP members, and a global business model that affirmed in June to support economies integrating globally, HSBC is strongly positioned to support the participating TPP economies, including Vietnam.  

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