TPP: U.S. firms lay groundwork for future opportunities

Herb Cochran, Executive DirectorHerb Cochran, Executive Director of AmCham Vietnam in HCMC, shares viewpoints of the U.S. business community in Vietnam about State President Truong Tan Sang’s official visit to the United States. Excerpts:

The Saigon Times Daily: How do American businesses, especially those in Vietnam respond to State President Truong Tan Sang’s visit to the U.S.?

– Herb Cochran: They are looking forward to the visit with anticipation. Vietnam has not generated much interest lately, when compared with Indonesia, the Philippines and Myanmar. So this is an opportunity. As you know, the World Bank and other leading macroeconomic experts have pointed out that Vietnam is in a “structural growth slowdown,” with gross domestic product (GDP) growth rates that are two percentage points below neighboring countries. Slower growth may intensify demand for further loosening of monetary and fiscal policies, with the risk of stoking inflationary pressures and reversing the recent gains in macroeconomics stability, while delayed implementation of structural reforms for state-owned enterprises and the banking sector could undermine investors’ confidence and worsen growth prospects further.

What do American businesses talk much about the visit?

– The Trans-Pacific Partnership (TPP) will certainly be one of the main topics of the visit. Many expect that President Sang’s visit will speed up the TPP. We in AmCham have actively discussed TPP with key business associations in Vietnam that make up about two-thirds of Vietnam’s exports to the U.S. market, and in addition with the key foreign direct investment (FDI) business associations, including South Korea, Hong Kong and Japan, as well as associations from Australia, Singapore, Malaysia, Canada (that are engaged in TPP talks). We have had several dialogue meetings and forums to discuss TPP opportunities and challenges.

As for some difficult areas such as textiles and agriculture, I think that there is already good progress and possible early agreement on these sectors, at least as far as Vietnam’s businesses are concerned. In the textile sector, there have been announcements in recent months of more than US$1 billion FDI in Vietnam by companies from South Korea, Japan and China in anticipation of TPP and duty free export of apparel to the U.S. and other TPP markets.

We believe that the advanced countries in TPP would provide technical assistance to Vietnam in the agriculture and processed food area, just as they have provided technical assistance to Vietnam in World Trade Organization (WTO) accession and implementation. After all, cooperation and “regulatory coherence” is one of the key concepts of the TPP.

So, will many more U.S. companies come to Vietnam when Vietnam joins TPP?

– The TPP, like WTO accession, offers opportunities for Vietnam to attract more FDI from the U.S. and other countries. Much of the actual FDI will depend on Vietnam’s robust implementation of the TPP commitments. For example, some complain that WTO accession was not so beneficial for Vietnam. However, in a recent article, AmCham Governor Fred Burke identified four missing elements that constrain Vietnam’s domestic economic growth, while the external trade and investment sector showed remarkable growth. These are (1) a lack of robust implementation of the WTO commitments in the areas of investment and services; (2) a lack of government-business coordination in terms of making structural reforms for both state-owned enterprises and small and medium enterprises to increase competitiveness and adapt to the WTO environment; (3) a lack of adequate infrastructure in terms of power and transport that discouraged FDI; and (4) a lack of skilled labor, making it hard to move up the value chain even as labor costs have continued to rise. Addressing these issues of implementation would strengthen U.S.-Vietnam trade and investment:

After Burger King and Starbucks, one more giant, McDonald’s, will be entering Vietnam. Do they begin a new wave of U.S. companies coming to Vietnam?

– The arrival of U.S. franchises is more like the “Fourth Wave” of U.S. investment in Vietnam.

The “First Wave” was between March 1994 and December 2001, the pre-BTA (Bilateral Trade Agreement) period, when U.S.-based global MNCs came to Vietnam to lay the foundation for a long-term opportunity. Companies like PepsiCo, Coca-Cola, Cargill, 3M, P&G, Kimberly-Clark, etc. came for manufacturing and selling products in Vietnam. Exports were negligible.

The “Second Wave” was between 2001 and 2007, the BTA period, when Vietnam achieved normal trade relations with the U.S., duties were reduced from an average of 45% to 3%. FDI grew strongly in sectors where Vietnamese exports to the U.S. grew the fastest after the BTA, especially in labor-intensive sectors such as apparel, footwear, and wood processing and furniture products. This Second Wave started the growth in Vietnam-U.S. trade, which increased from US$1.5 billion in 2001 to US$24.9 billion in 2012.

The “Third Wave” was from January 2007, when Vietnam became a member of the WTO, led by Intel’s US$1 billion investment in an assembly and test facility in Saigon Hi-Tech Park, the growth of U.S. FDI in modern manufacturing for export to global markets and investment in engineering centers.

Now the “Fourth Wave” of U.S. franchise companies investing as Vietnam’s WTO commitments in retail open up opportunities for doing business in Vietnam. In addition, U.S. investment firms have made major indirect (financial) investments, for example, KKR has invested US$359 million in Masan, while Texas Pacific Group will invest US$50 million in Masan Agriculture, to seize opportunities in Vietnam’s consumer and retail market.

And there will be additional “waves” of investment after the TPP and the ASEAN Economic Blueprint 2015 as there are additional opportunities.

It is said that U.S. investors still “wait and see” while many more companies from Thailand and Japan are active in Vietnam via their FDI and M&A deals to cash in on Vietnam’s further global integration. What’s your comment?

– I believe the record shows that U.S. companies are laying careful groundwork for future opportunities in Vietnam, under the TPP and the ASEAN Blueprint 2015. Where there are real opportunities, there will be U.S. FDI.

How can trade and investment ties between Vietnam and the U.S. expand after State President Truong Tan Sang’s visit to the U.S.?

– Joining the TPP, and positive, robust implementation of the commitments could increase bilateral trade between Vietnam and the U.S. to about US$61.3 billion by 2020. And Vietnam’s apparel exports to the U.S. could increase to US$22 billion by 2020. Already, South Korean, Chinese, Japanese and other companies have announced over US$1 billion FDI in Vietnam to provide the supporting textiles industries, yarn-spinning and fabric-weaving, so that Vietnam’s apparel exports will be able to benefit from zero import duties in TPP markets.


Tiếng Việt

About the author  ⁄ AmCham Vietnam

AmCham is an independent association of companies with the objective of promoting trade and investment between Vietnam and the U.S. With two chapters, one in Ho Chi Minh City and one in Hanoi, our membership of 700 companies and 1,500 representatives is unified by a commitment to promote trade and investment between Vietnam and the United States.

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