Will garment companies reap huge benefits from TPP when tariffs fall?

16.02.2016

The tax sum Vietnamese textile & garment companies now have to pay when exporting products to the US is higher than the tax sums enterprises from other TPP-member countries pay in total.

This means that when TPP takes effect and the import tariff is cut to zero percent, Vietnamese companies will be able to save $1 billion as they won’t have to pay tax when exporting products to the US.

Vietnamese officials made the statements at recent workshops and conferences about the benefits of the TPP to the textile & garment industry.

The $1 billion figure represents Vietnam’s export turnover and the average tax rate.

Vietnamese textile & garment products now have an import tariff of 17 percent on average when entering the US market.

Thus, if Vietnam exported $10 billion worth of textile & garment products in 2014, Vietnamese enterprises had to pay $1.7 billion in tax.

With TPP, they won’t have to pay the $1.7 billion tax any longer. However, businesses have denied this.

A garment producer said that it is not Vietnamese enterprises but US importers which will get benefits, because US importers have to pay the tax.

A question has been raised whether the US importers would pay more for the products of Vietnamese exporters. If so, they would share benefits to be brought by TPP with Vietnamese enterprises.

Le Quang Hung, chair of Garmex Saigon, said the possible answer was ‘no’. Hung thinks the US importers will take full advantage of TPP to optimize their profits.

However, Hung admitted that TPP, in an indirect way, will bring benefits to Vietnamese enterprises, because the US importers would get higher profits thanks to TPP, and therefore, would place bigger orders with Vietnamese enterprises.

Once demand increases, and Vietnamese supply is limited, the US importers will have to offer higher prices to scramble for contracts with Vietnamese enterprises. In general, prices would depend on the production season.

Meanwhile, an analyst cited a report of the Vietnam Textile and Apparel Association (Vitas) as saying that 70 percent of Vietnam’s textile & garment export turnover is from foreign invested enterprises (FIEs).

It is estimated that Vietnam exported $23 billion worth of textile and garment products in 2015, while only $7 billion went to Vietnamese enterprises’ pockets.

Source: vietnam.net