Recently I was invited to attend the Vietnam Leadership Summit 2016 on the subject of the Trans Pacific Partnership. There have been a number of TPP related events held across the country, in Hanoi, HCMC and Da Nang, but this is the latest conference after the TPP agreement was “officially” signed in New Zealand in February by the 12 participating nations.
Unlike many of the events that have been held by individual business groups and chambers of commerce – such as AmCham which focuses on US – Vietnam trade, this event was more diverse and multi-dimensional and included presentations from the Vietnamese government and business leaders who were representing the various chambers including AmCham, AusCham, CanCham, the Hong Kong Business Association and the Korean Chamber.
Highlights of the events included how Vietnam’s export growth has risen during the last year (+20% in some industries) and projections for increases in future years. And while overall projections for growth are good, in order to fully participate in TPP one of the key issues for Vietnamese companies will be in developing and using Electronic Data Interchange systems to facilitate trade with international buyers.
One of the key systems that Vietnamese companies need to be involved in is the Dunn & Bradstreet D-U-N-S® Number and “Trust Seal” systems. A D-U-N-S® Number is recommended or required by more than 200 government, trade & industry organizations worldwide and required by almost all Fortune 500 companies for their suppliers and service providers.
One of the key questions asked at the conference ... “What is the greatest challenge posed by TPP for a producer of goods in Vietnam?”
The answer ... “Making sense of and, accurately applying the technically complex “Rules of Origin” and the various “exceptions” to these rules.”
As one speaker pointed out ... “the TPP agreement in printed form is over 5,400 pages long and contains sets of international rules that are “mixed together” in new ways and that are supplemented by additional rules and exceptions that have been added into the TPP Agreement.”
Another speakers noted that even though the TPP agreement may come into effect in 2017, the reality is that it will take 3 ~ 5 years for all of the governments to implement the rules because they’re so complex and cover so many different industries.
The challenges posed by the new, and technically complex rules are further increased when the higher standards of compliance and verification that are core to the agreement are taken into account, including five-year record keeping requirements for many documents used to certify the origin of ingredients used in calculating TPP’s “Rules of Origin”.
For many of the Vietnamese companies that wish to take advantage of TPP, the costs of compliance will be complex and add additional accounting and legal costs to their businesses, before they are able to participate in TPP. And once these companies have come into compliance they will then need to find an effective way to publicize themselves.
The challenges for smaller companies look daunting. They will need to hire various business consultants, accountants and lawyers to determine under what rules their products qualify under TPP. They will have to obtain the D-U-N-S registration numbers and they’ll need to look at all of their products and the ingredients in those products to create “Country of Origin” certification. And all of these items, and many more, will all be needed before the first product can qualify or be exported.
While it’s clear that Vietnamese companies are interested in TPP, it was evident from questions that were asked of the speakers that there is a tremendous amount of confusion about TPP, its complex rules and what companies need to do to participate.
In order for Vietnamese companies to take advantage of TPP the Vietnamese government will need to set-up a variety of consulting, licensing and support services to Vietnamese companies, either on a stand-alone basis or through organizations such as VCCI – The Vietnam Chamber of Commerce and Industry.
I talked to several lawyers from domestic and international law firms that attended the event. They’re excited about the possibilities of increasing their billings with new clients, but they are not excited about having to digest and understand all of the rules related to TPP.
While Vietnam has focused during the last 5 ~ 10 years on FDI (Foreign Direct Investment), TPP focuses on “Partnerships” that include cross-border private investment into companies, so it will be interesting to see whether Vietnamese companies will raise their standards so that international companies will invest in them.
One thing almost all of the speakers agreed upon is that if Vietnamese companies do fully participate in TPP that Vietnam will be the greatest beneficiary of TPP and that the Vietnamese economy will grow exponentially in the future.