Wed, Oct 21, 2015 page13

• DBS promotes trade pacts

  • By Ted Chen / Staff reporter
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  DBS Bank Taiwan (星展銀行) yesterday said that the nation’s textile sector might overcome political constraints and reap the tariff benefits of major regional trade bloc agreements by establishing a greater manufacturing presence in Vietnam.

  In the face of sweeping global changes, such as rising competition from Chinese rivals, the nation’s textile sector is at risk of losing its dominant position in the world market if Taiwan is excluded from the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP), DBS said yesterday.

  The TPP, whose 12 prospective member states represent 40 percent of global GDP and about one-third of international trade, is poised to expand access to the US and Japan markets for local companies, while the RCEP is to benefit from trade with China, which accounts for 21.6 percent of textile exports, the bank said.

  Most notably, free-trade agreements have begun shaping sourcing decisions by major international brands as tariff cuts or elimination vastly outweigh savings on labor costs gained through setting up production bases in countries where labor is cheaper, DBS said.

  “A major reshuffling of market share control is expected in the future, as we have observed that major clients have been asking whether their suppliers have established manufacturing capacity in Vietnam,” DBS Vickers Hong Kong Ltd research director Dennis Lam (林子津) said.

  “Compared with other countries, where the cost of labor remains relatively low, Vietnam has the most established infrastructure,” Lam said at a forum in Taipei.

  He said that investing in Vietnam is the best option for local players to stay competitive by leveraging their technical expertise in the upper segments of the textiles supply chain.

  However, for companies with production bases in Vietnam, TPP tariff benefits are to be limited by the “yarn forward” rules of origin demand, whereby signatory nations use yarn produced by TPP members to receive access to zero tariffs.

  The quality and price competitiveness of Vietnam-made yarns still lags behind that of Taiwan and China, and companies would still rely on imports to produce garments, disqualifying their products from tariff exemptions.

  “We expect yarn supply constraints in Vietnam to diminish rapidly in the near future after the TPP is implemented, and shortages would spur further investments in the segment,” Lam said.

  Given their smaller scale, Lam advised Taiwanese companies to partner with Chinese companies in Vietnam to establish a virtually integrated supply chain by drawing on each others’ strengths.

  “Although wages in Vietnam have been rising, there is still a considerable gap compared with China, where wages have been rising 12 percent annually,” he added.

  In addition, as Vietnam does not have a well-established cotton and yarn industry, foreign investment plans are not expected to face a backlash from protectionism policies. Foreign direct investments in Vietnam last year reached US$20 billion, of which US$12 billion was allocated to the local textile industry.

  Overall, growth in the global textile sector is to be driven by rising demand for fast fashion garments and casual sportswear, high-performance sportswear made of functional fabrics, and the increasing purchasing power of Asia’s middle class, DBS said.
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