Most tariffs will be eliminated immediately, although tariffs on some sensitive goods will be eliminated over a longer period.
Immediately after the end of negotiations for the TPP, many Vietnamese textile entrepreneurs shared their excitement with media. The reason is that the textiles and garments, the key export items of Vietnam, TPP parties have agreed to phase out tariffs on these products. Most tariffs will be eliminated immediately, although tariffs on some sensitive goods will be eliminated over a longer period.

However, TPP also brings challenges to the Vietnamese textile industry. One of the provisions in the TPP, called the ‘yarn forward’ rule, states that if a member country exports clothing to other TPP markets, it must use textile that is either made locally or imported from other TPP member countries. Up till now, Vietnam has sourced about 88% of its textiles from China and South Korea[1]. China and South Korea are not TPP members so Vietnam could potentially no longer be able to import textiles from these two countries if they wish to benefit from lower tariffs under TPP.

For example, in 2013, Vietnam’s clothing exports to the US and Japan amounted to approximately US$9.1 billion and US$2.6 billion respectively[2]. Both these countries are TPP members and also major export partners of Vietnam. Therefore, unless Vietnam finds another source for its textiles, Vietnam’s garment industry may suffer due to diminished clothing exports to the aforementioned countries and other TPP members.

However, the labour costs in Vietnam is low and is a competitive advantage that attracted many foreign investors. As of the end of 2014, Japanese firms alone had invested US$37.3 billion in Vietnam. Vietnam’s largest textile company, Vinatex, has signed an agreement with Japanese firm Itochu to invest in several projects in Vietnam. Also, Vinatex has announced intentions to invest more than $714 million to upgrade and expand its supply chain in order to meet TPP requirements[3].

Furthermore, other foreign investors, seeing the potential growth and economic prospects in Vietnam, have also decided to invest in Vietnam. For example, South Korea's Dong-IL Corp. has started constructing a $52 million yarn processing plant in southern Vietnam, while Taiwan's Forever Glorious has reported plans for a $50 million clothing production factory.

Overall, as Vietnam complies with the TPP ‘yarn forward’ rule, it will see a reduction in garment exports in the short term. The changes will be challenging to implement. However, in the long term, provided that an effort is made to develop its own fabric industry, there is no doubt that progress with be made with all these foreign companies investing to build factories in Vietnam. Modelling shows that the TPP would help Vietnam’s apparel and footwear exports reach $165 billion by 2025; this figure would have been $113 billion without the TPP. Overall in long term the potential benefits will outweigh the costs since it will allow many of its clothing as well as other products market access to some of the largest economies (Nguyen Lan). 

[1] Master Plan on Supporting Industry Development to 2020, vision to 2030

[2] Vietnam Textile and Garment Comprehensive Report 2015

[3] Vietnam Textile and Garment Comprehensive Report 2015

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