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Vietnam Textile Industry biggest winner from TPP deal

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Vietnam, whose low-wage economy relies on exports, is likely to be the biggest winner of the Trans-Pacific Partnership that slashes an estimated 18,000 tariffs among the dozen participating countries.

Reduced import duties in the U.S. and Japan will benefit the country’s apparel manufacturers, whose low labor costs have enabled them to grab business from China. Vietnam may have a 50 percent increase in apparel and footwear exports in 10 years, according to the Eurasia Group. Vietnam will still face strict rules-of-origin on materials, which could limit some of the treaty’s benefits to the garment and textile industry.

In a decade, the country’s gross domestic product will be boosted 11 percent, or $36 billion, as a result of the world’s largest trade pact. Exports may soar 28 percent in the period as companies move factories to the Southeast Asian country. Here’s what analysts and economists say about Vietnam’s economic prospects and challenges under the deal.

Vietnam is a significant player in President Barack Obama’s pivot to Asia. The economic and political relationship between the former enemies is now at its warmest, 40 years since the end of the war. Vietnam’s relationship with China, it’s largest trading partner, has been strained since its neighbour moved an oil rig off Vietnam’s coast last year. Both the U.S. and Vietnam would like to see the Southeast Asian nation less reliant on China, which is not a party to the trade accord.

The ending of tariffs for Vietnamese products is likely to trigger more investment from foreign companies. Companies such as Texhong Textile Group Ltd., Shenzhou International Group Holdings Ltd. and Pacific Textiles Holdings Ltd. are relocating operations to Vietnam to take advantage of the trade agreement.

The signing of the agreement is expected to give a short-term boost to the broader market. Vietnam’s benchmark stock index has risen 4.9 percent this week, with foreign investors snapping up logistics, industrial parks, fisheries and garments. Foreign investors have bought $41.8 million of Vietnamese stocks, poised to be net buyers after selling Vietnamese stocks earlier in the month.

It must be point it out that the agreement still needs to be passed by the governments of the 12 nations. The failure of TPP would undercut those in Vietnam advocating closer ties to the U.S. and dent America’s influence in the region. Vietnam, which successfully negotiated trade deals with the European Union and South Korea earlier this year, is aggressively seeking economic partners to balance its relationship with China.

Source: Bloomberg Business

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