BANGKOK-Apparel manufacturers in Southeast Asia are still digesting news of the U.S. withdrawal from the controversial Trans-Pacific Partnership (TPP) and contemplating the prospects of other trade deals such as the European Union-Vietnam free trade agreement and the China-led Regional Comprehensive Economic Partnership (RCEP).
“We need to consider another solution on how to prepare and how to utilize other [free trade agreements] to bring about growth to Vietnam’s industry,” said Hoang Ngoc Anh, deputy secretary general of Vietnam Textile and Apparel Association’s trade promotion committee.
President Donald Trump on Jan. 23 signed an executive action to withdraw the U.S. from the 12-nation agreement, sending reverberations through the fashion community about how this new administration would approach its trade agenda. In Southeast Asia, three countries – Vietnam, Malaysia, and Brunei – were a part of the TPP. Vietnam stood to be one of TPP’s biggest beneficiaries.
But even if the deal dies, Vietnam’s extensive preparations for TPP have helped the country’s fast-growing apparel industry evolve. For example, Hoang said the TPP’s “yarn forward” policy, which requires that pact members use a certain percentage of domestically sourced raw materials, forced Vietnam to create its own textile industry and rely less on imports from China, South Korea and Taiwan.
“[The]Vietnamese textile and apparel industry – needs to continue to [reduce its dependence] on imported accessories and textiles,” she said.
According to research from the Peterson Institute for International Economics, TPP would have increased Vietnam’s exports and foreign investments substantially. Even without TPP, Vietnam’s exports would have grown from $107 billion in 2015 to $357 billion by 2030. But the institute forecast that TPP would have generated another $107 billion in exports for the country by that same date.
For neighboring Cambodia – which was not included in the pact – Trump’s withdrawal brought great relief, said Kaing Monika, deputy secretary general of the Garment Manufacturers in Cambodia.
“It was a worry, and it might have had some psychological effect of attracting investors to Vietnam some years ago,” Kaing said. “With the TPP, it would have been a threat to Cambodia, but now the puling-out is just the elimination of the threat of Vietnam.”
He added that the eventual collapse of the TPP has sped up negotiations of the RCEP among regional players. This deal, initiated by China as a counter to US influence, would include 10 Southeast Asian countries, as well as six trading partners – Australia, China, India, Japan, New Zealand and South Korea.
However, Kaing said that with the European Union making up 45 percent of Cambodia’s total garment exports (an estimated $6.7 billion in 2016) and the US roughly 25 percent, the RCEP’s exclusion of the two markets means that Cambodia would not see substantial benefits.
“The RCEP excludes the European Union and the U.S., which are our biggest markets, so while there would be some positive impact for us, it won’t be as big as we would like to see,” he said.
Jayant Menon, Asian Development Bank’s lead economist for trade and regional cooperation, said that with the TPP “pretty much collapsed now,” foreign investments are likely to be distributed more evenly around the region rather than concentrating in TPP members Vietnam and Malaysia.
“There will be winners and losers. Countries like Vietnam that were very much looking forward to investment coming in because of their membership will not receive that same investment, which would have been diverted from other neighboring countries, like Cambodia, Thailand and Laos,” he said.
As for Malaysia, Menon said it was always an “unusual” participant, given that it managed to be exempt from some of the reforms required to be part of the trade pact.
“They wanted to be in the club, but they didn’t want to do almost any of the reforms the TPP required,” Menon said, pointing to the concessions Malaysia got in regards to state-owned enterprises and government procurement. “Instead, they worked hard to get all kinds of exemptions. And now losing it is unlikely to have a big impact on Malaysia.”
While Menon said he personally was not a fan of the TPP, given the exclusion of so many Southeast Asian countries, what comes next would depend on how Trump approaches bilateral agreements.
“The relationship [each country has] with the U.S. is dependent on the U.S. president and he has his own approach,” Menon said. “I think we have to see what it is replaced with. If Trump wants to do a bilateral agreement with every trading partner, it will be a very messy trading system which will be very difficult to navigate especially for small and medium enterprises.”