Thu, Jan 26, 2017 page11

• Vietnamese firms thrive as TPP dies

  CHINA ALTERNATIVE: A threat by Trump to impose 45 percent tariffs on goods made in China has provided firms with a strong reason to move production elsewhere

  • Bloomberg
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  Vietnamese clothing maker NhaBe Garment Corp had a lot riding on the Trans-Pacific Partnership (TPP).

  The supplier to brands such as Calvin Klein, Michael Kors and Kenneth Cole has seen its exports more than double since 2011 to US$729 million last year — and it increased its factories two-fold to 35, betting on a big drop in tariffs from Vietnam’s membership in the 12-nation trade pact.

  With a pen stroke, US President Donald Trump killed the ambitious trade agreement, a deal that promised to deliver an estimated 8 percent boost to Vietnam’s GDP by 2030, according to the World Bank.

  

  People walk past street market stalls selling household decorations ahead of the Lunar New Year holiday in Hanoi, Vietnam, yesterday.

  Photo: Bloomberg

  Yet, that has not dented enthusiasm among multinationals for the communist country, which was on track to be the top exporter of goods from ASEAN to the US last year.

  “We have filled all the factories,” said Michael Laskau, NhaBe managing director in charge of order, design and manufacturing. “I don’t expect our customers to leave us.”

  Trump’s incendiary trade rhetoric directed at China and his threat to impose 45 percent tariffs on Chinese-made products remains a powerful incentive for companies to shift manufacturing to other countries, with Vietnam emerging as a strong contender.

  While the TPP’s demise takes some of the shine off Vietnam, the country’s young and low-cost workforce are magnets for international investors.

  “Vietnam will continue to attract foreign direct investment in labor intensive firms, as well as those that want to capture the burgeoning domestic market,” Natixis SA Hong Kong-based senior economist Trinh Nguyen said.

  Vietnam plans to continue its reform process and will fulfill trade agreement commitments, Vietnamese Ministry of Foreign Affairs spokesman Le Hai Binh said in a statement late on Tuesday.

  The country has been enjoying a foreign investor-led economic boom for years as it transformed from mainly an exporter of agricultural commodities, such as rice and coffee, to a Southeast Asian manufacturing hub.

  Tainan Spinning Co (台南紡織), a textile company based in Taiwan that employs 4,500 workers in Vietnam, said in an e-mailed statement that the demise of the TPP would not affect its plans there.

  “Given the company’s strength and commitment, Tainan Spinning is considering further expansion in Vietnam in the second half this year,” it said.

  Few China alternatives can match Vietnam’s low wages, which are about one-third of its northern neighbor, as well as good access to ports, HSBC Holdings Plc Hong Kong-based Asia economist Joseph Incalcaterra said. “Vietnam still looks quite good.”

  Companies that might need to look for China alternatives include Yue Yuen Industrial (Holdings) Ltd (裕元工業), a major supplier of shoes to companies including Adidas AG and Nike Inc, Bloomberg Intelligence analyst Catherine Lim said.

  Yue Yuen and textile maker Shenzhou International Group Holdings (申洲國際集團控股有限公司) “may shift production to factories in countries such as Vietnam and Indonesia to mitigate the impact on customers” of US penalties against Chinese imports, Lim wrote in a report on Dec. 14 last year.

  Yue Yuen relies on Vietnam for more than 40 percent of its production, thanks to its low salary costs, local government support and a skilled workforce, a company spokeswoman said.

  “We don’t expect any material impact from TPP on our decision of a Vietnam production line,” she said.

  There is no question that TPP would have been a big win for Vietnam. Vietnam’s exports to the US climbed 15 percent to US$38.5 billion last year, Vietnam Customs said. Textiles and garments account for almost 19 percent of Vietnam’s exports.

  The TPP would have eliminated the 17 percent tariff on US imports of garments from Vietnam, CIMB Securities Vietnam analyst Nguyen Xuan Huy wrote in a report published on Monday.

  The TPP would have given Vietnam-based garment makers “a major advantage in exporting their products to the US,” he wrote, adding that without the trade deal, “that advantage has evaporated.”

  “Vietnam still does not have a free-trade agreement with the US — a very important trade partner and the largest economy in the world,” Trinh Nguyen said.

  The TPP would have reduced tariffs in Vietnam’s key footwear and garment industries.

  US companies in Vietnam were disappointed by Trump’s move.

  “The president’s action to withdraw from the TPP is bad news for American and Vietnamese companies, investors, workers, farmers and consumers,” American Chamber of Commerce in Hanoi executive director Adam Sitkoff said in an e-mailed statement.

  Still, there are signs that Vietnam has already made the transition to the post-TPP era.

  Last year, despite the announcements by Trump and US Democratic rivals Hillary Rodham Clinton and US Senator Bernie Sanders against the trade deal, Vietnam continued to attract foreign direct investment in record numbers.

  The country’s foreign direct investment hit a record last year, growing 9 percent to an estimated US$15.8 billion.

  Manufacturing and processing accounted for the bulk of pledged foreign investment, led by two South Korean projects: a US$1.5 billion investment by LG Display Co and a US$550 million investment by LG Innotek Co.

  As part of the TPP negotiations, Vietnam’s government agreed to accelerate reforms of state-owned enterprises.

  While the TPP is unlikely to proceed without the US, the government is not going to retreat from those investor-friendly reforms, said Vu Tu Thanh, chief Vietnam representative of the US-ASEAN Business Council.

  That should help Vietnam and other Southeast Asian countries avoid suffering from a post-TPP investment letdown, he said.

  “I don’t think investment in the US will come at the expense of ASEAN,” he said. “There is enough money out there sloshing around.”
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