Managing partner at Baker McKenzie
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How does the inking of CPTPP this March mean and what’s next for the deal?
The signing of the CPTPP is a very reassuring step for the global rules based trading system. It means that notwithstanding doubts arising as a result of President Trump's abrupt pull-out from the landmark pact, the strong international consensus is that reducing trade barriers and providing opportunities for growth across entire regions will maximize the benefits of global trade. It signals an international order that is increasingly multi-lateral, not dominated by a single economy or group. Notwithstanding all of the many issues of globalization, the consensus that arose at the APEC meeting in Danang last November was that globalization provides the best means for achieving sustainable development for all those who chose to participate.
6 of the 11 members of the CPTPP, or at least 50%, must ratify the agreement in their national legislatures for the agreement to take effect, then it enters into effect 60 days after that milestone is achieved. It enters into effect for each remaining party as it ratifies the agreement. This is in contrast to the TPP, under which the US and Japan had to ratify it before it would have entered into effect.
The CPTPP inherits from the original TPP, though went through some adjustments to balance the benefits of its 11 members without US. Will the current CPTPP really benefit the 11 markets, especially Vietnam?
Yes, obviously the benefits would have been greater with the US in the agreement, but it will still boost growth for the members who've stayed in materially. One World Bank estimate is that for Vietnam, the agreement will add at least 1% to its growth by 2030 (as compared to 10% with the US in). The actual impact is likely to be greater, however, because the architecture of the agreement makes it expandable so that others, such as Indonesia, Taiwan, Thailand and South Korea may also join, boosting the impact considerably.
As for the US, the provisions of the TPP that it bargained most heavily for are merely "suspended", so that if the US choses to come back within say 5 years it may do so, without asking for any new concessions. In the meantime, the US will lose ground in terms of its agricultural exports in particular, where its competitors from Canada, Australia (and the EU under the EU-Vietnam FTA) will enjoy better duty rates.
What can Vietnamese enterprises do to optimize the benefits from the deal?
The CPTPP offers lower duty rates for exports that can meet the rules of origin requirements to show that the goods are produced in the CPTPP region. The "accumulation" concept means that if raw materials and components are sourced within the CPTPP area, then the finished product qualifies. However, Vietnam gets a large portion of its imported raw materials and components from China, which will not be a member of the CPTPP. Therefore, Vietnamese exporters who wish to capture CPTPP duty rates may need to reconsider their supply chain to see if they need to move some of the value added to another source.
State Owned Enterprises as well as small to medium sized enterprises must each, in their own way, reform to take full advantage of the TPP and compete in the global market place. For the SOEs, that means weaning away from subsidies and other supports that they may be addicted to. For SME's, it means improving governance and compliance standards to meet the requirements of the major global buyers.
As forecasted, textile industry is among most benefited sectors of Vietnam when CPTPP comes into force? Do you have any comment on this as well as advice for the Vietnam's textile firms?
Garment exports would have been given a new lease on life if the US had remained in the CPTPP because garments comprise the biggest part of Vietnam's exports to the US, and there is certainly room for growth if the duties went down. Local textile production was encouraged by the strict Rules of Origin in the TPP, so investors started to build new textile capacity for spinning, weaving and dying to meet those standards. These investors in textile production in Vietnam have had a rough time due to this set back, even though the phase-ins for US duty reductions were to take effect over several years. Textile and garment firms must steel themselves for delays although we do still see the overall number increasing even without the TPP.
