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TPP effects on Vietnam: 'Yarn Forward'

‘Yarn forward’ forms a key part of the proposed format of the Trans-Pacific Partnership (TPP), a United States led trade agreement involving twelve countries, which is under negotiation. In essence, ‘yarn forward’ would require that only fabric produced from yarn made by a TPP country would qualify for the trade agreement’s duty-free status. Vietnam, one of the signatory countries, will have significant effect of this rule which is intended to ensure that the trade benefits of the TPP only apply to signatory countries rather than outside players such as China.

Vietnam has much to gain from the implementation of trade agreement, including drastically reduced tariffs in some of the world’s largest markets because the TPP trade area would comprise a region with $28 trillion in economic output upon completion. If the TPP is successfully implemented, tariffs will be removed on almost $2 trillion in goods and services exchanged between the signatory countries.

Vietnam is currently a key global garment manufacturing location, however, its factories often use Chinese-made fabrics in their products, and China is not a part of the TPP. If the country wants to be eligible for TPP benefits such as lower tariffs in the US, it will have to develop its own local fabric industry or constrain itself to only importing fabric from another TPP country. Hence, Vietnam is currently working to have the ‘yarn forward’ rule removed, or its implementation delayed, from TPP. A number of other countries have also pledged their support to Vietnam. However, it seems that Vietnam may be ready to acquiesce to yarn forward, and the country has so far expressed fairly consistent support for the trade agreement, since it will allow many of its other products market access to some of the world’s biggest economies. The US Trade Representative (USTR) has also stated that the US will not pull back from its demand for ‘yarn forward’.

A number of Vietnamese companies are already starting up, or expanding, their own fiber manufacturing operations in order to not be left behind when the TPP is finally implemented. Key companies include the Century Synthetic Fiber Corporation (CSFC), Thanh Cong Joint Stock Co (TCM), and the Vietnam Textile and Garment Corporation (Vinatex). These companies are also getting the support from government to enhance the competitiveness of the country’s fiber manufacturing industry. Vietnam’s Ministry of Industry and Trade has proposed levying a two percent import tax on polyester staple fiber (PSF). Currently PSF imports are not subject to tax.

 
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