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Business Insight

Businesses Prepare for TPP

Takuma Yoshioka

A major theme at the APEC meeting in Manila was the Trans-Pacific Partnership. The TPP will remove tariffs between member countries, and is being touted as an engine of new opportunities for business.

Companies and governments across Asia already are witnessing some effects of the pact, even though it has yet to come into force.

Dongguan in southern China helped build the country's reputation as "the factory of the world."

The city was once home to a large number of electronics manufacturers, and garment factories.

But many firms are now pulling out. A major Hong Kong-based clothing manufacturer called the TAL Group operates a factory there. It produces shirts and other items for upscale US and European brands. It employs about 1,600 people, but the factory will shut down next year.

The garment maker has decided to close one of its two production bases in the city. Some assembly lines have already been dismantled.

That's because the firm is increasing its investment in Vietnam -- a member of the TPP. A new factory will be completed there next month.

TAL plans to employ 5,000 workers there, and more than double its production in Vietnam.

Roger Lee is the firm's CEO. He says the TPP was an added bonus for his investment plan in Vietnam. Eighty percent of his firm's products are exported to the United States.

He says the US currently imposes a nearly 20-percent duty on those items. But tariffs on goods made in Vietnam will be scrapped, once the TPP goes into effect.

"When we decided to invest further in Vietnam, we knew the negotiations were going on for TPP," says Lee. "I think our customers will be happy if we move production to Vietnam."

The company currently uses Chinese textiles in garments it exports to the US. But under the TPP, tariffs will remain in place on clothing made from textiles manufactured in non-member countries such as China.

So, Lee has decided to source more textiles from Malaysia, a country which has signed on to the TPP.

He also plans to build a textile factory in Vietnam so he can concentrate the full range of operations -- from procurement through production and shipment -- within the TPP zone.

Since labor costs in Vietnam are less than half those in China, Lee thinks more companies will follow his example. "I definitely think the whole supply chain will change because more and more people will see business opportunities to set up textile mills, or thread factories in TPP countries," he says.

Officials in Hong Kong say the impact of the TPP is spreading to other industries. "The TPP definitely has a positive effect," says Nicholas Kwan of the Hong Kong Trade Development Council. He says the influence can also be seen in such industries as footwear and electronics.

As the wall of tariffs falls under the TPP, it will create fresh opportunities for member countries and the companies that operate within them, as well as new challenges for the places left behind.

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