ECONOMY: Trade Deal with United States Has Hanoi Hopeful

By IPS Correspondents Reprint | | Print |

Tran Dinh Thanh Lam

HO CHI MINH CITY, Dec 19 2001 (IPS) - The United States is experiencing its first recession in a decade, but Vietnamese officials say that trade between the Western superpower and this South-east Asian country would nevertheless only improve.

Although officials in Hanoi say they do not expect to see an immediate flood of U.S. investment into Vietnam given the current global economic slump and the United States’ own woes, they are counting on a newly minted bilateral trade pact to lead to at least a rise in Vietnamese exports to the United States.

The agreement, which was signed on Dec. 10, grants Vietnam normal trade relations status with the United States and essentially removes this country from a small list of nations – which still include North Korea, Afghanistan, Serbia and Cuba — denied such a standing.

Under the trade deal, Vietnamese goods and services will gain access to the world’s largest market with the same low tariffs enjoyed by most nations.

Last year, even though it was still under “non-normal trade status” and had to bear tariffs ranging from 40 to 60 percent on most products it exported to the United States, Vietnam shipped more than 800 million U.S. dollars worth of goods to that country.

It also imported around 400 million dollars in U.S. products.

Vietnam’s trade ministry says exports can grow by at least 10 percent in the first year of the historic trade agreement by selling more textiles, garments, fishery and agricultural products and handicrafts to the United States.

In return, though, communist Vietnam must open its state- controlled markets to foreign competition and international standards.

But observers insist the benefits far outweigh the drawbacks. They say the trade agreement will promote, encourage, and ultimately shove Vietnam’s business sector to move towards a modern rule-based approach to trade and investment.

“Monopoly sectors” like telecommunications, energy, and insurance will be opened to new investment from U.S and other foreign companies.

The private sector will finally be given a fair shake while the state-owned sector must prove its mettle or perish, add the observers.

But just to make sure Washington does not underestimate how much the trade agreement means to Vietnam, Deputy Premier Nguyen Tan Dung recently made a six-day trip to the United States.

The visit was the first by a top-ranking official from Hanoi right after the landmark trade deal between the two countries came into force. The trade mission’s main task was to drum up interest for doing business in Vietnam, “one of the safest destinations to put money in”.

Dung also told students at the Johns Hopkins University in Washington: “We are of the view that the best and most effective way to strengthen bilateral relations is to work on areas of agreement and enhance cooperation while minimising differences existing in the two countries’ relations.”

Planning and Investment Minister Tran Xuan Gia, however, emphasised as well that the trip was aimed “to gain an understanding of America’s legal systems”.

“America has many different legal systems and if we want to have a successful venture in America, we should understand them all,” said Gia, who had gone with Dung to the United States. Gia also said that U.S. officials wanted “us to know more about them and their business and trade practices”.

To be sure, though, Vietnamese officials and business people had already got a bitter taste of such practices before the deputy premier and the rest of the Vietnamese trade mission made the trip to the United States.

Last year, a dispute broke out between Vietnamese and U.S. fish traders over the smooth-skinned catfish, one of Vietnam’s exports to the United States. U.S. lawmakers argued that U.S. catfish farmers were losing sales to the cheaper “mislabeled” fish from Vietnam.

U.S catfish producers said that the monthly import of one million pounds (454,000 kg) of these fish – which were cheaper due to lower labour costs — threatened their industry. They asked Washington’s support by restricting the import of catfish into the U.S. market.

On Nov. 29, U.S. President George W. Bush signed into law a bill on agriculture expenditure that included Supplementary Article 2000, which says only properly labelled fish could be sold in the United States.

This prompted a strong reaction in Vietnam. Said Gia before the trade mission’s departure for the United States: “This act goes against the good will of the trade deal. ”

Gia added that he wished he “could bring some live Vietnamese catfish (also known as ‘tra’ and ‘basa’) as gifts to American officials in the same way that President Bush gave apples to the Japanese Prime Minister as a gentle protest against Japan’s protection of its agriculture products”.

It is unknown whether Gia did manage to offer such presents to his U.S. hosts. What is certain that he brought with him a list of 119 projects that call for U.S. investment in oil and gas, power, textiles and garments, steel, mechanics and electronics.

Despite the catfish incident and the gloomy economic mood in the United States, Vietnamese companies that took part in Dung’s trade mission remained optimistic that there are still business opportunities for them there.

Indeed, while concrete figures are still unknown, Vietnamese officials said “several agreements and documents between Vietnamese and American businesses have been signed”.

Firms such as the Vietnam National Textile and Garment Corporation (Vinatex) and the shoemaker Bitis have already opened representative offices in the United States, to help them get more insight of the huge market.

Before returning home, Deputy Premier Dung, together with San Francisco Mayor Willie Brown, opened a Vietnam Airlines office in San Francisco, California.

Officials in Hanoi are also counting on U.S. businesses already in Vietnam to increase production in this country once the tariffs are lowered.

As it is, Nike Inc., which produces 12 percent to 14 percent of its footwear in Vietnam at present, may expand its production once tariff rates drop, says Chris Helzer, Nike’s director of government affairs for South-east Asia.

The giant athletic footwear company indirectly employs more than 45,000 people in Vietnam in its five sub-contractor factories. It has said it will move more of its orders to Vietnam now that the U.S. market is open for business.

Last year, Nike sub-contractors exported about 500 million dollars worth of shoes. Nike, however, is not the only company poised to capitalise on the changes that many say enhance Vietnam’s ability to build and maintain a stable, cost-efficient production base.

Earlier this month, Peter Woicke, International Finance Corp executive vice president and managing director of the World Bank’s private sector development, signed three investment agreements.

The agreements involve a venture capital fund, a French- Vietnamese international hospital, a university, and a training programme for private banks.

During a business groups’ luncheon here, Woicke commented that government leaders he spoke to have been very bullish on the country’s private sector. He said he believes only the private sector can provide jobs for the 1.4 million new job seekers that enter the market every year.