TPP will likely bring more challenges than benefits to Vietnam's footwear industry

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TPP will likely bring more challenges than benefits to Vietnam's footwear industry

By Le Phuong (Xinhua) 17:54, October 08, 2013

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Vietnam's leather and footwear sector will likely suffer rather than benefit from the Trans- Pacific Strategic Economic Partnership (TPP) agreement which is scheduled to be signed by the end of this year, according to economic experts here.

Nguyen Van Khanh, General Secretary of the Leather and Footwear Association's southern Ho Chi Minh City branch, told local Dau Tu (Investment) Review on Monday that Vietnam's footwear sector has to import raw materials, up to 90 percent of the needed amount, mostly from China, South Korea and India. Under the TPP, signatories are required to import raw materials only from TPP's members if they want to enjoy preferential tariff rate for their exports at zero percent, or their domestically-produced materials must account for at least 40 percent of the total raw materials needed to produce the export items.

The TPP has been billed as a "21st Century" trade agreement: an attempt not just to slash tariffs but tackle non-tariff barriers to trade, while protecting labor rights. Participants, which account for 40 percent of world trade, include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

The 19th round of negotiations was held in Brunei in August, and the next round is scheduled to take place in Indonesia this October. While participants all expected negotiations to be completed in 2013, it may be extended up to 2014 because of the additional participation of Japan which joined in the process only in July this year.

According to the Vietnamese Ministry of Industry and Trade (MIT) , once the agreement takes effect, it will open up a huge market for Vietnam's exports, including to those countries where Vietnam has not yet signed a bilateral free trade agreement such as the United States, Canada and Mexico.

But Vietnamese footwear makers will find hard to compete with their foreign rivals right in their home market, said the ministry, adding that if Japan, the United States, Mexico, Brazil and New Zealand bring their products to Vietnam, Vietnamese footwear producers would find their products in a big disadvantage.

Currently, there are around 500 footwear making companies in Vietnam, 30 percent of these companies produce items for export. Among footwear export companies, 70 percent are operating under the sub-contract mode, and less than 10 percent apply the "free- on-board"(FOB) mode (meaning, the buyer pays for transportation of the goods). As a result, only footwear producers having foreign direct investments (FDIs) will enjoy benefits brought in by the TPP, according to the ministry.

Statistics from the Vietnam Leather and Footwear Association ( LEFASO) show that the TPP would generate 1 million new jobs for the Vietnamese footwear industry, and increase export volumes to the United States, which currently accounts for 47 percent of the sector's total export turnover.

To handle the post-TPP challenges, the Vietnamese footwear sector should change the current sub-contract production mode which accounts for over 70 percent, produce new products of high competitiveness, update regulations of the WTO and FTA, and increase the ratio of domestically-made products, the association recommended.

In 2012, Vietnam earned 8.7 billion U.S. dollars from footwear exports of which 3.3 billion dollars came from TPP nations, accounting for 46 percent of the total export value. In the first nine months of this year, the country earned 6.1 billion U.S. dollars from footwear exports, a year-on-year increase of 16.3 percent.

（Editor：WangXin、Hongyu）