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FDI may be double-edged sword

 VietNamNet Bridge – Vietnam has emerged as an attractive destination for foreign investors in recent years, and the country’s investment outlook will be even brighter once the landmark Trans-Pacific Partnership deal comes into force.

VietNamNet Bridge – Vietnam has emerged as an attractive destination for foreign investors in recent years, and the country’s investment outlook will be even brighter once the landmark Trans-Pacific Partnership deal comes into force.


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Higher FDI as a result of the TPP may crowd out local firms -- Photo: VIR

 

To date, the opportunities ushered in by the Trans-Pacific Partnership (TPP) for Vietnam, particularly in investment attraction and trade development areas, are undeniable. Amid trade expansion, the commitment to eliminating tariff barriers between the TPP’s 12 member countries could substantially promote intra-regional trade and investment, as well as draw investment from other regions.

Not long ago, HanesBrands, US-based manufacturer and marketer of everyday apparel essentials, unveiled its plans to raise its total investment in Vietnam to nearly $55 million by the end of 2015, up $11 million compared to last year. HanesBrands Vietnam is the largest consumer of US yarn in Southeast Asia, with over $1 billion of US yarn consumed by its sewing plants.

With two manufacturing plants in the northern province of Hung Yen and one plant in the central province of Thua Thien-Hue, the company’s annual capacity reaches 475 million units, accounting for 20 per cent of the group’s total production. Last year, with the inauguration of its third plant in Hung Yen, the company’s total exports surged to $334 million, and the figure is expected to reach $355 million this year.

“We are going to introduce more complex garments and innovative technologies in Vietnam in the upcoming years, especially as Vietnam is standing on the verge of the Trans-Pacific Partnership deal,” said Ajay Godbole, HanesBrands’ director for Asia Operations.

HanesBrands is not the only case. A slew of major players in the global textile and clothing industry have decided to expand investment in Vietnam to tap into the TPP’s opportunities. Aside from the textiles and garments sector, numerous other players in diverse economic fields are looking at Vietnam as their major base. Global tech giants like Samsung, LG, Microsoft, and Jabil, have increased their presence here with investment capital running into billions of US dollars. Korean tech colossus Samsung contributes more than $14 billion alone. Robust engagement by the world’s leading retailers, such as Aeon, Auchan, BigC, and Lotte, also serve as typical examples.

One of Vietnam’s negotiators on the Investment Chapter in the TPP, Hoang Manh Phuong, deputy head of Ministry of Planning and Investment’s Legislation Department, said that many of the deal’s commitments will benefit foreign investors doing business in Vietnam. One example is the commitment to green-lighting foreign investors’ unlimited transfer of capital and assets to and from Vietnam for their investment projects.

“The commitment is very important for investors and much more open and transparent than previously,” Phuong said, adding that only transfer cases that affect the country’s balance of payment or relate to tax evasion or crimes shall be suspended for investigation. The most important clause in the Investment Chapter, according to Phuong, relates to the rules requiring non-discriminatory investment policies and protection for foreign investors.

To realise TPP commitments, the member countries are prohibited from setting “performance requirements”, such as local content or technology localisation requirements, Phuong noted.

However, from another angle, Ho Quoc Tuan, lecturer at the Bristol University in the UK, warned that the increasing flow of foreign direct investment to Vietnam, aside from advantages, might also exaggerate current internal risks in the economy. Tuan mentioned that after 10-20 years of the TPP, Vietnam might only have a few powerful local companies operating side-by-side foreign players, whereas local small and medium-sized enterprises would become “micro”.

VIR

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