Many companies from Vietnam exporting to the US may not actually benefit being a part of the TPP since they import raw materials from non-TPP countries. For instance, according to the recent World Bank report on the TPP’s impacts on Vietnam, a large part of Vietnam’s current exports in the garment and textile industry would likely not comply with the TPP’s rule of origin (ROO) requirements.

Under the TPP’s ‘yard forward’ ROO, to benefit from a 0 per cent imported tariff rate, instead of the current 15-20 per cent, all manufacturing processes including yarn spinning, knitting and dyeing must be implemented in a TPP member country. The report states that, most imported yarn and fibre used by Vietnam’s garment producers are sourced from non-TPP territories, with Taiwan (32.6 per cent), China (27 per cent), South Korea (14.6 per cent), Thailand (10.5 per cent), and Indonesia (4.1 per cent). Materials imported from TPP member states occupy 5.3 per cent.

Meanwhile, under the EU-Vietnam Free Trade Agreement (EVFTA), the EU will eliminate duties within seven years for Vietnam’s textiles, apparel and footwear products, from the existing duty rate of 12.4 per cent. However, to benefit from the preferential access, this agreement’s strict ROO for garments require the use of fabrics produced in Vietnam. This would also mean that Vietnam will find it difficult to meet these EU strict ROO requirements.

On the other hand, according to the World Bank, ROO also creates opportunities for a slew of foreign firms to come to Vietnam to directly make textile, garment and footwear materials. For example, Hong Kong’s Texhong Textile and Garment Group has already committed a $300 million investment to set up a yarn plant in Quang Ninh province, where Hong Kong’s Black Peony is also developing a $100 million jean cloth producing factory.

www.worldbank.org