• Under CPTPP, Vietnam's imports and exports are predicted to grow by 5.3% and 4.2% respectively.
  • Gains are expected to be highest in apparel, according to a new report.
  • But the country must take further steps to enhance competitiveness and trade facilitation if it is to fully reap the benefits.
Vietnams apparel sector is set to be one of the main beneficiaries of the CPTPP trade deal

Vietnam's apparel sector is set to be one of the main beneficiaries of the CPTPP trade deal

Vietnam is expected to yield comprehensive gains from the Comprehensive and Progressive Pacific Partnership (CPTPP), a new report predicts, with the country's apparel sector one of the main beneficiaries.

The 11 remaining countries of the Trans-Pacific Partnership (TPP) signed the revised version of the multilateral trade pact earlier this month, without the US. The landmark deal will slash tariffs and foster trade in a marketplace worth close to US$13.5trn.

More specifically, the deal will reduce tariffs in countries that together amount to more than 13% of the global economy. With the US it would have represented 40%, but even without, the Asia Pacific trade pact will become one of the world's three largest trade deals.

A new report by the World Bank – 'Economic and Distributional Impacts of Comprehensive and Progressive Agreement for Trans-Pacific Partnership: The case of Vietnam' – says multilateral trade agreements such as the CPTPP are expected to further boost Vietnam's investment and export-driven growth model.

"Even under conservative assumptions, the report estimates that CPTPP would increase Vietnam's GDP by 1.1% by 2030," according to Ousmane Dione, World Bank country director for Vietnam. "Assuming a modest boost to productivity, the estimated increase of GDP would amount to 3.5% from CPTPP."

Under CPTPP, imports and exports are predicted to grow by 5.3% and 4.2% respectively. If productivity increases, the gain could be much higher at 7.6% and 6.9% for imports and exports respectively.

More specifically, under CPTPP exports to signatory countries would increase from US$54bn to $80bn by 2030, reaching 25% of total exports. Exports directed to CPTPP members would increase in apparel and leather, and textiles by $6.9bn and $0.5bn, respectively, the report predicts.

While all income groups are expected to benefit from the new agreement, gains are expected to be highest in apparel. Textiles would have gained relatively more under the original TPP-12, the report found.

The CPTPP is also likely to bring about an increase in FDI, lead to further expansion of services sectors and boost productivity gains. In particular, CPTPP rules-of origin may encourage investments in upstream industries and make exports less dependent on imported materials but more on domestic supply chains, the report explains. This response in turn is expected to boost domestic value added in exports, stimulate domestic private firms to integrate more proactively into global value chains and therefore promote the SME sector development.

"The new agreement will bring direct benefits to Vietnam, from trade liberalisation and improved market access," says Sebastian Eckardt, the World Bank lead economist for Vietnam. "Most importantly, it will help stimulate and accelerate domestic reforms in many areas. Delivering commitments under the CPTPP will contribute in promoting transparency and supporting the creation of modern institutions in Vietnam."

Reforms in areas such as competition, services, customs, e-commerce, environment, government procurement, intellectual property, investment, labour standards, legal issues, market access for goods, rules of origin, non-tariff measures, and trade remedies are also expected from the CPTPP.

Yet the report warns that in order for Vietnam to reap the full benefits of further trade integration, implementation of CPTPP commitments should accompanied by further steps to enhance competitiveness and trade facilitation.

These include behind-the-border issues such as continued improvement in connectivity to enable integration into global value chains and keeping trade costs low.

It adds: "Domestic private and foreign invested firms that participate in GVCs need to be able to move goods across borders cost-effectively and reliably. This requires both good physical and institutional infrastructure. Recent research outcomes show that most of the high compliance costs relate to non-tariff barriers.

"Despite the recent progress in customs reform and the implementation of the National and ASEAN Single Window, the compliance costs in terms of time and money for goods clearance before and on border remain high in Vietnam. Addressing this critical bottleneck will help deliver the commitments not only under the CPTPP but also the WTO's Trade Facilitation Agreement."