The Hanoitimes - CPTPP provides a more flexible rule of origin compared to other free trade agreements, which is a major advantage for Vietnam’s small and medium enterprises.
Vietnamese enterprises must be aware of the rules of origin under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) to enjoy preferential tariff treatment, according to Bui Kim Thuy, country representative of the US – ASEAN Business Council.
The rules of origin would be used to determine when goods have undergone sufficient production to qualify for preferential treatment, in this case is 0% of import tariffs, Thuy said at a conference discussing benefits and challenges of CPTPP to Vietnamese enterprises held on January 17.
Overview of the conference. Source: Ngoc Thuy.
In Vietnam’s textile industry, there has been certain products that rely on up to 98% of input materials, causing difficulties for enterprises to utilize tax incentives.
While other free trade agreements (FTAs) require 100% of input materials originating from the exporting country, the CPTPP proves more flexible with the de minimis rule, Thuy said.
Under the rule, if the value of all non-originating materials remains below 10% of the value of the product, the product will be entitled for preferential tariffs treatment.
“This is considered a major advantage for Vietnam’s small and medium enterprises, especially in the textile and agricultural sectors,” Thuy continued.
Truong Van Cam, vice president of the Vietnam Textile and Apparel Association (VITAS), said the CPTPP would bring opportunities for the textile industry through new markets in Mexico, Peru and Canada - countries that have not signed trade agreements with Vietnam.
Moreover, institutional reform and a more transparent business environment, which are part of Vietnam’s commitments the in CPTPP, are expected to have a positive impact on the industry.
The textile sector currently employs the largest workforce in Vietnam with 2.7 million. In 2018, Vietnam’s textile and garment exports reached US$36.1 billion, accounting for 15% of Vietnam’s total exports.
Vietnam is also the world’s third largest exporter of apparel products after China and India. However, the sector still imported US$18 billion worth of input materials.
Cam expected Vietnamese companies to form a production chain in a bid to address shortcomings of the sector and grasp opportunities from the CPTPP.
Meanwhile, Vietnam’s livestock sector could face risks due to low competitiveness, especially from advanced countries in agriculture such as New Zealand or Mexico.
Nguyen Cao Tri, CEO of livestock supply chain company NS BlueScope Lysaght Vietnam, referred to the fact that Vietnam produced 5.2 million tons of livestock and poultry meat annually, far exceeding domestic demand. However, the products have not meet standard for exporting to developed countries, he added.
Tri requested more support from the government to help companies apply technologies in livestock production and quality control.
On January 14, 2019, CPTPP became effective for Vietnam, which was the seventh member country to enforce the deal.
Before Vietnam, the CPTPP had been ratified and come into force for other six countries, including Mexico, Japan, Singapore, New Zealand, Canada and Australia.
The National Center for Socio-Economic Information and Forecast (NCIF) under Vietnam's Ministry of Planning and Investment expected the CPTPP would boost Vietnam’s GDP by US$1.7 billion and over US$4billion in exports, equivalent to additional growth of 1.32% and 4.04% till 2035, respectively.
The 11-nation deal covers economies representing around 13% of global economic output, including the world's third largest economy -- Japan, and 500 million people. It includes cuts to tariff and non-tariff barriers among its members and is designed around high standards on human rights, labor practices, and environmental standards.
In addition to Vietnam, country members of the CPTPP include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Singapore, New Zealand, Peru.