Mon, Aug 03, 2015 - Page 13 News List

Deutsche Bank downbeat on TPP benefits for Eclat

By Ted Chen  /  Staff reporter

Deutsche Bank kept its “sell” rating on Taiwanese textile manufacturer Eclat Textile Co (儒鴻), saying that any tariff benefits that the company’s production facilities in Vietnam might gain from the potential passage of the Trans-Pacific Partnership (TPP) would not materialize until 2017, while stiffer competition is a more immediate threat.

Eclat, which produces high-end functional fabrics at its factories in Vietnam, would see benefits from the pact limited by the “Yarn Forward” Rules of Origin (ROO) demand that TPP signatory nations use yarn produced by TPP members to receive access to zero tariffs, and the 12-to-18-month waiting period required for the trade pact to clear the legislative processes in participating nations, Deutsche Bank analyst Anne Ling (林建純) said in a report released on Thursday last week.

“Consensus has been too optimistic about the benefits of the TPP this year and next year. We are more conservative as we expect wage increases to have negative impacts before any tariff benefit can be received,” Ling said in the report.

The quality and price competitiveness of Vietnam-made yarn still lags behind yarn made in Taiwan and China, and Eclat would still rely on imports to produce garments, disqualifying their products from tariff eliminations, Ling added.

Ling attributed Vietnam’s limited yarn supply to limited cotton production, a lack of chemical infrastructure and poor yarn-design capability.

Instead of suppliers, US sports apparel brands, such as Nike, Under Armour, Lululemon and VF Corp, stand to gain the most after the TPP is implemented, the report said.

In addition, only 14 percent of US textile imports come from nations it has free-trade agreements with, the report said, citing data from the US Department of Commerce’s Office of Textiles and Apparel.

The report described Eclat as a company stranded in “no-man’s-land,” as it must weather rising wages in Vietnam before reaping TPP benefits.

Direct labor costs for Eclat’s Vietnam division are expected to increase by 30 percent this year from last year and to climb by 23 percent and 16 percent next year and in 2017 respectively, according to the report.

The conclusion of the TPP negotiations might trigger significant order reallocation to Vietnam after 2017, leading to a compound annual growth rate of more than 30 percent in the country’s textile exports to the US from this year through 2017, Ling said.

Eclat is also facing rising competition amid a robust tide of fabric and garment investments in Vietnam in anticipation of tariff benefits. Yu Yuang Group (裕源紡織), considered to be one of the largest direct competitors of Eclat, has been ramping up its production capacity in Vietnam since the first quarter, and has since been able to match Eclat’s output in the country, the report said.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top