By Jake Maxwell Watts, Kathy Chu and Celine Fernandez
Even before the ink is dry on the Trans-Pacific Partnership
trade deal, companies are laying out plans to expand in Vietnam and
Malaysia, both rapidly developing Asian nations whose growth
depends heavily on external trade.
Manufacturers of apparel, rubber gloves and bikes are among
those considering increasing production in the Southeast Asian
countries to capitalize on export growth expected from the accord,
which sweeps away tariffs to markets including the U.S., the
world's biggest economy.
The mammoth trade agreement is seen as a game-changer for these
national economies, according to an analysis by Washington,
D.C.-based think tank Peterson Institute for International
Economics. By 2025, membership of the TPP could boost exports from
Vietnam by an additional 29% and from Malaysia by almost 12%, the
institute predicts.
The final agreement looks likely to be "the best trade
liberalization we've seen in 20 years," said Deborah Elms,
co-founder and executive director of the Asian Trade Centre. "I
expect there to be quite a stampede" of foreign investment in
Southeast Asia when the final text of the agreement is published,
she said.
Although the TPP currently has 12 members, encompassing 40% of
the world's economic output, the smaller members are likely to be
standout performers.
Malaysia and Vietnam, for example, currently have no free-trade
agreement with the U.S., a voracious consumer of both raw materials
and manufactured products. Currently, exporters from these
economies to the U.S. must pay taxes on every product that arrives
on U.S. soil.
The TPP would give member economies preferential treatment,
eliminating or reducing those tariffs across most industries,
giving them a leg up over rivals such as China, Thailand and
Indonesia that aren't part of the deal.
Tariffs on garment exports from Vietnam to the U.S. are expected
by economists to eventually drop to near zero from the current 17%,
although it may take years. In the year ending July 2015, the U.S.
bought $10.8 billion worth of apparel from Vietnam, according to
U.S. statistics. Malaysia, one of the world's largest exporters of
rubber and palm oil, which also manufactures auto and electronics
parts, exported more than $30 billion worth of goods and services
to the U.S. in 2014.
"We have been long waiting for this," said Tang Chong Chin,
managing director of Malaysian apparel firm United Sweethearts
Garment Bhd., which makes clothing including sportswear, children's
and outdoor clothing. "Over a number of years I believe the whole
landscape of sourcing will change."
United Sweethearts is already planning a second factory in
Vietnam, and TPP will accelerate its plans, according to Mr. Tang,
also president of the Malaysian Knitting Manufacturers Association.
The manufacturer, which exports more than two-thirds of the
clothing it makes to the U.S., said revenue could double within
five years if tariffs are removed.
Currently, countries without free trade agreements with the U.S.
face tariffs that can be up to 10% or higher depending on the type
of apparel.
Meanwhile, Supermax Corporation Bhd., Malaysia's second-largest
producer of rubber gloves by volume, is anticipating a surge in
sales of its products to major new markets. Group managing director
Dato Seri Stanley Thai said in an interview that he expects import
duties of around 16% for its medical glove exports to Canada,
another TPP member, to be eliminated.
Access to Canada and the U.S.--which doesn't impose large
tariffs on medical gloves, for example--is only part of the
picture. Japan, the world's third-largest economy, is also party to
the TPP, as is Australia, Brunei, Chile, Mexico, New Zealand, Peru
and Singapore.
For the deal to take effect, each member must formally ratify
the accord, a thorny path for some potential signatories including
the U.S.
The finer details of the trade pact also have to be hammered
out. On textiles and apparel, the full text is expected to include
several conditions relating to the sourcing of raw materials for
apparel products, which the U.S. has championed to protect its yarn
and textile producers.
David Hon, CEO of Duarte, Calif.-based folding bike maker Dahon,
said that he's waiting to see how much preferential treatment TPP
countries will get before he considers slashing production in China
and Europe in favor of Vietnam and Malaysia.
He must weigh the reduced tariffs that arise from TPP with other
trade conditions. The supply chain in Malaysia and Vietnam isn't as
developed for bicycles as in China, according to Mr. Hon.
Still, if the trade deal goes through, "we naturally will have
to increase our tendency to buy from [TPP] countries and move our
factories there," said Mr. Hon.
Write to Jake Maxwell Watts at jake.watts@wsj.com, Kathy Chu at
kathy.chu@wsj.com and Celine Fernandez at
Celine.Fernandez@wsj.com
(END) Dow Jones Newswires
October 07, 2015 11:23 ET (15:23 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.