HANOI -- Vietnamese businesses are getting ready for the introduction of the Trans-Pacific Partnership, hoping the free trade agreement will usher in an era of unprecedented growth.
The Vietnam National Textile and Garment Group (Vinatex), the country's largest textile company, plans to invest $91 million to build a second plant on a 3.7-hectare site in the southern province of Kien Giang. The plant, scheduled to open by next spring, will have 32 production lines and the capacity to produce 12 million items of clothing or linen annually. It is expected to boost sales by $37 million.
The company's first plant was built in the same province early last year. Open to the sea and relatively close to the economic capital of Ho Chi Minh City, Kien Giang is becoming a new hub for the textile industry, which is expected to see a rise in demand thanks to the trade pact.
The TPP will eliminate tariffs in many areas but, in principle at least, will only benefit garment manufacturers sourcing materials from within the TPP community, a mechanism called the "rules of origin."
Currently, most imports of sewing materials to Vietnam come from China, which is not party to the agreement. Hopes are therefore growing that domestic demand for materials will increase, hence the upfront investments.
The World Bank estimates that, of the 12 member countries, Vietnam stands to gain the most from the agreement.
An Phuoc, another textile company, is set to spend 628 billion dong ($28.2 million) to build a silk plant in Thanh Hoa Province in central Vietnam. Construction will start as early as April for a scheduled opening in February next year.
Overseas players are also keen to invest early. U.S.-based Kraig Biocraft Laboratories, which produces artificial fibers, said in March that it will set up a subsidiary in Vietnam along with a research base and a plant to produce test products. It will also engage in joint studies with the help of the Vietnamese government on new materials and silkworm development.
In June last year, Taiwan's Far Eastern group started building a plant in Binh Duong Province in south Vietnam for $274 million. It will be the company's third production base along with ones in Taiwan and China. The new plant will have a range of facilities capable of producing synthetic fibers, spinning and dyeing.
Last year, South Korea's Rio Industries opened a plant in the central province of Quang Nam for $6 million to produce 4,400 tons of synthetic fibers annually.
While the situation looks very positive for foreign investment and the country's large textile companies, local small and midsized enterprises are less enthusiastic about the TPP. They make up 80% of Vietnam's 3,000 or so textile market and related industries. Lacking the finances to increase capacity or build facilities for materials production domestically, they stand to benefit little from the agreement, and could even suffer once it comes into force.