Carin Zissis, Staff Writer

October 30, 2006


More than three decades after a communist offensive reunified Vietnam, the party’s hold on power and civil society remains unchallenged. But twenty years of liberal economic reforms have brought sweeping changes and foreign investment to a nation characterized by increasing industrialization and a reduction in poverty. The Socialist Republic of Vietnam is poised to become a member of the World Trade Organization (WTO) in November. Despite improved relations with the United States since the two countries normalized relations during theClinton administration, a holdup in the U.S. Congress could stall Hanoi’s full accession into the WTO.

What is the current status of Vietnam’s economy?

Vietnam’s economy has thrived in recent years. Indeed, China was the only Asian country to outpace the 8.4 percent growth of Vietnamese GDP in 2005—a small spike in Hanoi’s 7.5 percent average GDP growth over the past decade. The flourishing economy has drastically improved life expectancy, and the poverty rate dropped by almost two-thirds between 1993 and 2004. Hanoi’s economic boom dates to 1995, when Vietnam normalized relations with the United States and joined the Association of Southeast Asian Nations (ASEAN). Despite the Communist Party of Vietnam’s continued grip over the country’s politics, central planning has given way to a market-based economic system and a marked decrease in the number of state-owned enterprises. After eleven years of negotiations, the WTO plans to endorse Hanoi ’s accession bid in a November 7 meeting.

What does WTO accession mean for Vietnam?

With a population of 84 million, Vietnam is the second most populous country behind Russia not yet in the WTO. As a member, it will benefit from elimination of quotas limiting textile exports to the United States and Europe. In exchange for membership, Hanoi has agreed to certain concessions including removal of its subsidies and massive tariffs protecting certain industries, such as shoe manufacturers. The European Union imposed antidumping duties—assessed when a country exports a product at a lower price than what it charges domestically—on Vietnam’s shoe imports in October to protest Hanoi’s subsidies of that industry. Representatives of the U.S. textile industry have warned that Vietnamese WTO accession will threaten American jobs because of a flood of cheap clothes into the United States.

Are there obstacles to Vietnam’s WTO accession?

Yes. The main obstacle to full WTO membership is a U.S. Congressional delay in granting Vietnam Permanent Normal Trade Relations (PNTR) (PDF), also know as “Most-Favored Nation” (MFN) status. In May 2006, Washington and Hanoi signed a bilateral market access deal, the last of twenty-eight trade agreements Vietnam had to negotiate with the other WTO members to gain membership. Although these types of trade agreements do not normally necessitate approval from Congress, the president is currently barred from granting Vietnam PNTR status because it is a communist state prohibited from such status under a 1974 trade act.

Congress must enact legislation to remove this barrier, but U.S. lawmakers—in particular Senators Elizabeth Dole (R-NC) and Lindsay Graham (R-SC)—initially argued that granting PNTR to Vietnam could harm domestic textile manufacturers. Dole and Graham have now agreed to consent to Hanoi’s permanent status based on a promise from the U.S. Commerce department to monitor Vietnamese imports and launch antidumping measures if deemed necessary. U.S. apparel importers in turn charge that such an agreement would not only hurt American investment in Vietnam’s textile industry, but also change how antidumping cases are raised in the United States because the Commerce department does not typically initiate such actions.

Another obstacle is the detention of an American citizen,Thuong Nguyen “Cuc” Foshee, held without charge as a terrorist suspect in Vietnam. Security officials detained Foshee, a Florida resident and member of a U.S.-based activist group opposed to Hanoi’s communist government, while she was vacationing in Vietnam last year. Senator Mel Martinez (R-FL), a supporter of anti-communist campaigns, said he will block approval of Vietnam gaining PNTR because of her imprisonment.

If Congress fails to grant PNTR status, Vietnam will become a WTO member. However, WTO rules would not apply to its trade with the United States.

What is fueling the Vietnamese economic boom?

  • A shift from agriculture to manufacturing. Agriculture’s role in the economic output of an increasingly industrialized Vietnam decreased from 25 percent in 2000 to 21 percent in 2005. But exports of coffee, tea, and pepper have soared in recent years. And Vietnamese fish exports grew by 12 percent in the past year, despite antidumping actions taken by the U.S. and Japanese fishing industries. Aside from making shoes and apparel, Vietnamese manufacturing of electronic goods is on the rise because of large investments from companies such as Intel and Canon, the latter of which built the world’s largest laser printer factory in northernVietnam. The result is a growing number of high-end goods. “Vietnam’s not producing things you’re going to find in dollar stores,” says Robert K. Brigham, a Vietnam expert at Vassar College.
  • Foreign direct investment (FDI). The government has eased limits on foreign ownership of businesses, and Vietnam’s cheap land and low wages, even in comparison to China’s, attract foreign investors. As FDI rises—it increased by 41 percent to $5.8 billion in 2005—the number of state-owned enterprises shrinks, down from 5,600 in 2001 to 3,200 in 2005. The United States accounted for about $3.9 billion in FDI in 2005, up from $2.1 the previous year.
  • Remittances. Some 3 million Vietnamese live outside the country, and they sent a record number or remittances—over $4 billion—home in 2005. As much as 70 percent of these resources flow from the United States.

What is the history of economic reform in Vietnam?

Vietnam’s economic transformation results in large part from a policy initiated twenty years ago called Doi Moi, which roughly translates as “renovation” and involved agricultural decollectivization and liberalization of the economy, even as the country remained under one-party, communist rule. Adam J. Fforde, director of Asian studies at the University of Melbourne, says “the central planning project never really worked” and economic shocks in the late 1970s drove the country toward commercialization. Nguyen Van Linh initiated reform in 1986 when he took power as party leader, marking a departure from the Soviet-style economic policies under the previous leader, Le Duan. Doi Moi had little effect initially because “until Vietnam was out of Cambodia there was no way they were going to get access to the international economic community,” says Frederick Z. Brown, a Southeast Asia expert at Johns Hopkins University’s School of Advanced International Studies. Hanoi withdrew from Cambodia in 1989, ten years after it invaded and toppled the Khmer Rouge, and in 1992 adopted a new constitutionreaffirming the market-oriented goals of Doi Moi. Washington lifted its trade embargo against the communist country in 1994, more than two decades after U.S. troops pulled out of Vietnam at the end of their Cold War-era conflict there. It established normal diplomatic relations a year later, which Brown describes as “key” to opening up Vietnam’s economy.

How are U.S.-Vietnam trade relations?

Strong, despite the U.S. delay in approving Vietnam’s PNTR status. In the past five years, trade has grown between Washington and Hanoi by 400 percent, and the United States is Vietnam ’s biggest importer, accounting for over 20 percent of Hanoi’s exports. U.S. imports of Vietnamese goods increased by 25 percent between 2004 and 2005. Economic relations have grown concurrently with improved political relations. President Bill Clinton paid a historic visit to Vietnam in 2000, and the two countries signed a trade agreement in 2001 to normalize their bilateral trade status.

How are Vietnam’s relations with China?

Beijing and Hanoi had a diplomatic falling out in the 1970s, when they fought a brief warwith one other. Their relations, normalized since 1991, continue to recover, despite a continuing territorial dispute over the Spratly Islands. While the United States is Vietnam’s largest importer, China is its largest exporter, accounting for over 12 percent of its imports in 2003 and holding a $2.8 billion trade surplus with Hanoi in 2005.

The current state of Vietnam’s trade with China and the United States places it in a somewhat delicate triangular relationship. “The Vietnamese government needs to have the capacity to run around that triangle,” says Fforde, explaining that Hanoi getting too cozy to either country makes the other one uncomfortable.

What barriers exist for Vietnam’s economic growth?

“The elephant in the room is corruption,” says Brown. Vietnam was rocked by corruption scandals in early 2006, when senior officials were investigated for involvement in the alleged embezzlement of millions of dollars of state funds from the transport ministry. Nong Duc Manh, the communist party’s secretary general and most powerful Vietnamese official, retained control despite his son-in-law’s position as a boss at the agency. By June, a power shake-up brought in Nguyen Tan Dung as prime minister and Nguyen Minh Triet as president. Dung was brought in partially because of his tough stance on corruption.

The fact that senior officials were exposed in a corruption scandal is an arguably positive result of a new law passed in 2005, which holds state agency directors responsible for corruption control and which allows for monitoring of civil servants’ assets. WTO accession could also help fight corruption and loosen state control in Vietnam because state firms will have greater difficulty getting loans from local banks to support state enterprises as a result of WTO bans on subsidies and monopolies.


A Sa Pa resort developed by American Technologies Inc is managed by Dinh Duc Huu, an overseas Vietnamese man from the US. — VNS Photo Truong Vi

HA NOI — The first industrial zone for Viet kieu (overseas Vietnamese) is to be set up in a bid to help overseas Vietnamese develop business opportunities in Viet Nam from the country’s WTO entry, asserted Chairman of HCM City’s Overseas Vietnamese Business Association Phan Thanh.

Covering an area of 337ha in Cu Chi District in HCM City, the Overseas Vietnamese Industrial Zone with an investment of US$50 million, is expected to mainly attract overseas Vietnamese businesses in fields such as information technology, electronics and electricity when fully operational by the end of 2007.

The industrial zone’s operation will play an important role as an effective bridge to bring overseas Vietnamese investors back to their homeland, Thanh said.

The proposal of the construction zone has been received with much support and investment from overseas Vietnamese worldwide, he added, saying that they were eager to have a permanent opportunity for investment and business in their native land.

Now is the right time to build an industrial zone like this as it will initiate a new wave of investment from overseas Vietnamese giants with a great source of reserved capital, Thanh confirmed.

Many overseas Vietnamese enterprises have been paying a lot of attention to Viet Nam’s admission to the WTO. They were surprised at the country’s strong growth rate and look to come back to Viet Nam with the hopes of contributing to their native country and tapping money making opportunities, Thanh added.

To date, there are 15 overseas Vietnamese registered to operate in the zone, even though it is still pending construction.

Additionally, the association is preparing to establish an overseas commercial Vietnamese investment bank of which capital will be mobilised mostly by overseas Vietnamese. Together, the bank and the industrial zone will co-operate to develop and assist overseas Vietnamese businesses’ performance more efffectively.

However, overseas Vietnamese investment will likely be limited due to information obstacles. They still have little understanding of information in the economic environment as well as lacking luring investment policies, Thanh expressed.

At present, while the number of information channels of the government, bodies, sectors and associations have been expanded, they are still far behind that of other countries in the region, as well as all over the world.

Therefore, the expansion of information in developing countries calls for further investment, and is the most necessary work at the time being, he assured. — VNS

The zone is expected to be a bridge to link to not only overseas Vietnamese businesses, but also foreign investors worldwide to the flourishing country, stated Thanh. — VNS

International Herald Tribune


HO CHI MINH CITY Nearly four decades ago, South Vietnamese leaders mapped out plans in the presidential palace here in what used to be known as Saigon. When they lost, the palace became the base for the Ho Chi Minh City People’s Committee to impose tight Communist control.

Last month, it was the scene for a very different gathering: a board meeting of the Hongkong & Shanghai Banking Corp. The directors, drawn from HSBC’s sprawling Asia operations into the palace’s cabinet meeting room, discussed the opening of Vietnam’s economy and its even greater potential.

In three decades, Vietnam has gone from war to communism to capitalism to become the second-fastest growing economy in Asia.

It is the latest Asian economic tiger to merit a comparison with China, the only economy it trails. Vietnam’s economic speed has it passing Thailand, Malaysia, Taiwan, South Korea and even India, its closest rival over the past five years, although India moved slightly ahead in the first half of this year.

“I think they are the next China – it’s not the scale of China, but it’s a significant economy,” said Michael Smith, president and chief executive of Hongkong & Shanghai Banking.

After more than a decade of talks, trade negotiators from around the world are preparing to conclude on Wednesday and Thursday a comprehensive agreement for Vietnam to join the World Trade Organization. President George W. Bush, President Hu Jintao of China, President Vladimir Putin of Russia and other heads of state are all scheduled to come to Hanoi in mid-November for a summit meeting of the Asia-Pacific Economic Cooperation forum.

For Vietnam, the meeting is its coming-out party, as critical to the country’s pride as the 2008 Beijing Olympics are for China.

Vietnam now produces and consumes more cement than France, its former colonial ruler. Its exports to the United States are rising even faster than China’s, although from a much lower base. The Ho Chi Minh stock index, along with its counterpart in Hanoi, together have nearly doubled this year, and Vietnam has suddenly become the talk of investment bankers and investors across Asia.

But with such growth have come controversy and problems, both here and in the United States. Republicans in the U.S. Congress are divided over a coming vote right after the midterm elections: It would grant permanent, full trade relations to Vietnam, particularly when it sells to America almost nine times as much as it buys.

Corporate America is divided over a Bush administration initiative in September to win votes for permanent trade relations with Vietnam from U.S. senators representing states traditionally reliant on textiles. Vietnamese officials are furious with the United States for what they see as a last-minute, protectionist attempt to limit the exports of Vietnam’s booming garment industry.

In Vietnam itself, nearly double-digit growth is starting to produce the same shortages of skilled labor felt in India and China. Executives at multinationals like Lafarge of France and Prudential of Britain say that salaries for locally hired accountants, human relations managers and other professionals are soaring by 30 percent to 50 percent a year – and that is only if such employees can be found at all.

Many educated Vietnamese now are like Ha Nguyen, a 34-year-old chemical engineer who is on his third job in three years, having received big raises each time he changed companies.

“Right now, it’s easy in Vietnam to find a job,” he said, pausing while doing a chemical analysis of cement quality at a corporate laboratory here.

Roads and ports in Vietnam are increasingly choked with cars and ships, with congestion that is worse than China’s but not yet as bad as India’s. Chronic corruption has slowed the construction of new infrastructure; the government has put the brakes on highway construction across northern Vietnam this year after uncovering a graft scandal that has led to resignations and detentions all the way to the top of the Transport Ministry.

Balanced against these problems is a government that, like China’s, has resolutely embraced capitalism after becoming disillusioned with the widespread poverty and even hunger that accompanied tight state control of the economy.

Economic liberalization policies, known in Vietnam as Doi Moi, have been pursued in earnest since the early 1990s, after poor harvests and economic mismanagement left millions facing malnutrition in 1990.

The architects of Doi Moi have been a handful of economists like Le Dang Doanh, a top adviser to the government and the Communist Party of Vietnam who studied in the former East Germany and the Soviet Union but became deeply disillusioned with the corruption and inefficiency of state-owned industries.

Like their counterparts pushing for change in China, officials like Doanh insist that there is no turning back.

“The reform is definitely irreversible – any attempt to come back to a centrally planned economy, to overplay the state sector, is economically irrational, inefficient and psychologically is counterproductive,” Doanh said.

The Finance Ministry has just produced a draft personal taxation law, expected to be approved by January, that offers more tax breaks for the wealthy than the United States does.

In some ways, Vietnam is even more pro-business than China. Reluctant to anger city dwellers, state-owned power companies in China minimize blackouts in residential areas but cut off power to factories up to three days a week, forcing them to run on costly diesel generators.

Vietnam takes the opposite course. Takashima Masayuki, general director of a Japanese-owned factory that makes shirts and jackets in Bien Hoa City, said that the factory did not even have a generator because it is located in an industrial zone and the authorities never allow the power to go off. By contrast, residents in nearby Ho Chi Minh City said that they have brief power outages as often as twice a day.

Like China and India, Vietnam has benefited enormously from the return home of a diaspora of people who fled the country when economic conditions here were much more difficult. Overseas Vietnamese, known as the Viet Kieu, have learned English, gained entrepreneurial experience and acquired technical skills in the West and are now returning home to build businesses.

Phu Than, Intel’s country manager for Vietnam and Indochina, was 14 years old when he was evacuated from the U.S. Embassy in the last days before the fall of Saigon, leaving by helicopter with his mother, an employee of the former American consulate in Danang. He earned an electrical engineering degree from the University of California at Davis, joined Intel and now oversees the largest foreign investment in Vietnam, the construction of a semiconductor assembly and test factory that will cost $300 million for the first phase and another $300 million for a likely expansion later.

Intel already has two similar factories in China. But the company decided to put the next factory in Vietnam to spread out its investment across more markets. It joins Taiwan manufacturers of personal computer components that are also starting to move to Vietnam; Taiwan companies are the biggest foreign investors in Vietnam, followed by businesses in Singapore.

Three-fifths of the country’s 84 million people are under the age of 27. And with a policy of limiting families to two children instead of China’s one, Vietnam will continue for many years to have a large proportion of low-skilled workers, like Nguyen Thi Hong, 30, who look for work by riding to factories each morning on their rusty bicycles.

Hong said she and her husband, a mechanic who has already found work here, had left their 1-year-old son with her husband’s parents in their home town in central Vietnam.

Vietnam has reduced the percentage of its people living in abject poverty – less than $1 a day – to 8 percent from 51 percent in 1990, a greater improvement than either China or India. But few of them can yet afford to eat American beef or fly in Boeing jets.

Vietnam’s trade surplus with the United States has soared; it exported $5.56 billion in goods to the U.S. market during the first eight months of this year and imported only $625.9 million.

Antidumping duties are an emotional issue in Vietnam, after the United States imposed them on Vietnamese catfish exports three years ago and the European Union recently imposed them on Vietnamese and Chinese shoe exports. Vietnamese officials warn that antidumping cases could hurt the regulatory environment for American businesses and cause layoffs at garment factories, where most of the workers are low-income women.

“These people suffered from the war a lot already, and we would not want them to suffer again,” said Nguyen Anh Tuan, deputy director of Vietnam’s Foreign Investment Agency.

But talk to garment factory workers in Vietnam these days and they are optimistic that their children will have better lives than they. Nguyen Thi Thu Hoai, a 28-year-old worker, paused while folding green Nike jackets in a state-owned factory in central Ho Chi Minh City.

Recalling her poverty-stricken upbringing, she smiled as she spoke of her 2-year-old son; she has already bought a tiny Prudential life insurance policy for him that includes a savings fund for educational expenses.

“My parents were very poor, they couldn’t give me a good education,” she said. “But I will be able to give my son a good education so he will have more opportunities.”

Interest fueled by US trade pact and rising costs in India, China

HO CHI MINH CITY — In the 20 years since Vietnam began its policy of Doi Noi, or reform and opening up, the country has mostly missed its opportunity of becoming Southeast Asia’s newest miracle economy.

But Vietnam’s signing of a free-trade pact with the US in 2001 and its current negotiations to join the WTO, coupled with rising costs in China and India, have joined to reignite global investors’ interest in the country.

“Vietnam is where the action is now — it’s like a gold rush,” said Than Trong Phue, Intel Corp.’s country manager in Ho Chi Minh City. “You’ll be foolish if you miss out.”

Until recently, this was the mantra that described China, and to a lesser extent, India. But as capital has poured into Asia’s fastest-growing economies, their labor costs rose 25 to 40 percent last year, dulling their attraction.

Today it costs about $125 a month to hire a factory worker in southern China and about $750 to hire a moderately skilled software engineer in India. That may sound low, but in Ho Chi Minh City, the minimum monthly wage for factory workers is $65 and for young managers it is about $350 — and that’s after a 40 percent increase in the government-mandated minimum wage in February.

Phue said that’s partly why Intel passed up the opportunity to expand the two factories it has in Chengdu and Pudong in China, and set up a $600 million chipset factory at the Saigon High-Tech Park, about 30 miles east of Ho Chi Minh City.

“Our management made the strategic and economic decision to hedge against China,” Phue said. “Betting big on Vietnam is a calculated risk, but Intel likes to be the pioneer. And wherever Intel goes the Dells and HPs usually follow. So you see Vietnam is on the point of great growth.”

Visions of a transformed Vietnam have teased investors before. Hanoi made its first tentative steps toward economic reform in 1986, but hemmed and hawed over dismantling its Communist-era controls for almost a decade.

In 1995 Vietnam made headlines again when it normalized relations with the United States. But the Asian currency crisis of 1997 quickly dried investors’ appetite for emerging Asian markets.

“Yes, Vietnam has been slower than China [in opening up], but it’s been a bit more prudent,” said Kham “Tom” Doan, a 34-year-old Vietkieu, or Vietnamese-American from New York, who quit his job with Bank of America Corp. to return here and start a financial management firm called Horizon Capital Advisors. The local currency, the dong, “isn’t fluctuating much, infrastructure is improving all the time . . . and there’s stability in the system.”

Proof of growing confidence in the economic situation is evident in how warmly global investors embraced the Vietnamese government’s first bond offering in October.

Hanoi, which has plans to spend an estimated $115 billion on infrastructure over the next five years, asked investors for $500 million. It was offered $4.5 billion and finally decided to raise $750 million.

The government also has a stated plan to attract $25 billion in direct foreign investment over the next five years, and investors poured $5.8 billion into Vietnam last year alone, helping the economy grow 8.5 percent and making it one of Asia’s hottest, according to the Asian Development Bank.

The bilateral trade agreement between Vietnam and the United States was responsible for much of the $6.5 billion in goods Vietnam exported here last year. But Hanoi also is taking significant steps to boost investment in domestic enterprises.

Earlier, the two main laws governing business in Vietnam — the United Enterprise Law and the Common Investment Law — gave powerful state-owned companies substantial preferences over foreign-invested firms. But over the past year the laws have been amended, and the playing field has been somewhat leveled.

Though foreign investors are still restricted from owning more than 49 percent of a publicly listed company, many of the restrictions that prevented investors from owning 100 percent of local subsidiaries and forced them into uncomfortable joint ventures with Vietnamese partners also have been lifted.

Doan said there’s also little doubt the government “wants to privatize and equitize” its massive and mostly inefficient public sector. As proof he pointed to the government’s decision in January to list Vinamilk, one of Vietnam’s largest state-owned enterprises, on the country’s stock exchange.

Foreign investors, eager capture some of this growth, have been emboldened by a recent Merrill Lynch report that said Vietnam “will be the fastest-growing Asian country in the next 10 years,” and that Vietnamese shares were a 10-year buy on the strength of recent policy changes.

Starting last year, several Vietnam-focused investment funds have been launched, including a $100 million fund from the Framingham, Mass.-based International Data Group that will invest in Vietnam’s fledging but promising IT industry.

Vietnam’s economic attractiveness also has been boosted by Microsoft Corp. founder Bill Gates, who visited the country for the first time in April and said it has the potential to develop into an outsourcing center similar to India.

With Vietnam’s per-capita annual income now about $650, poverty rates have decreased from about 58 percent in 1993 to about 19 percent today, and domestic consumption rose 20 percent last year, according to official figures.

Of course, such euphoria could backfire.

Vietnam remains an even more opaque authoritarian state than China, though one wouldn’t know it from the street because the country’s easy Southeast Asian culture.

Corruption is high — most of the Mercedeses that whiz around Hanoi’s or Ho Chi Minh City’s gently frayed colonial-era streets are bought with tainted money, many locals say.

World-class managers are difficult to find, and the country’s legal system remains frail, said Christopher Muessel, an attorney in the Ho Chi Minh City offices of Baker &McKenzie, a leading global law firm, and vice chairman of the American Chamber of Commerce in city.

Doan also said that while Vietnam offers lots of opportunity, “it can’t really compete with China and India because it doesn’t have the scale.”

But not being China could actually be a good thing at a time when legislators and unions have become more critical of growing US economic ties with China.

“It means Vietnam’s a smaller target, off anyone’s radar,” he said. 

Hopes for a Vietnam Trade Shift

A proposal to normalize relations would benefit U.S. importers. Critics fear another China.

By Evelyn Iritani, Times Staff Writer
July 24, 2006

When Nghia Van Phi first returned home to Vietnam in 2003, he still carried animosities toward the Communist government he had fled nearly three decades earlier.

But Phi, president of a Santa Ana discount home improvement outlet, has since become an enthusiastic supporter of the economic rebuilding of that country. His company, US HiFi Inc., a scaled-down version of Home Depot that caters to the Vietnamese American community, imports 70% of its ceramic tiles, solid oak entry doors and other home products from Vietnam.


Click here to find out more! <a href=”;ptype=s;rg=ur;ref=f603mailyahoocom;tile=4;sz=300×250;ord=25579961&#8243; target=”_blank”><img src=”;ptype=s;rg=ur;ref=f603mailyahoocom;sz=300×250;tile=4;ord=25579961&#8243; width=”300″ height=”250″ border=”0″ alt=””></a>

That’s why Phi hopes Congress will act soon on a bill that would establish “permanent normal trade relations” with Vietnam, the final step in freeing up trade and investment between the former adversaries. During the Cold War, most Communist countries were denied that trade status, which meant they paid higher tariffs on goods exported to the U.S.

Supporters hope to pass the legislation before Vietnam joins the World Trade Organization, the Geneva-based global trade group. Leaders in Hanoi want to finalize their WTO bid by November, when they host President Bush and Asian leaders for this year’s meeting of the Asia-Pacific Economic Cooperation forum.

Vietnam hopes to replicate the success of China, which saw its global prestige and trade volume soar after it joined the WTO in 2001. To secure the country’s membership, Hanoi officials have agreed to lower tariffs, remove barriers to foreign retailers and banks, strengthen the judicial system and crack down on corruption.

The U.S. Chamber of Commerce and other business leaders expect the Vietnam bill to be approved, given the bipartisan support from congressional leaders who served in the war, including Sens. John McCain (R-Ariz.), Chuck Hagel (R-Neb.) and John F. Kerry (D-Mass.). But it is unclear when the legislation can be squeezed into Congress’ crowded summer agenda.

Vietnam could still enter the WTO without the U.S. approval, but trade between the country and the U.S. would not be governed by global rules, putting U.S. firms at a disadvantage, the bill’s supporters say.

Passage of permanent normal trade relations with Vietnam wouldn’t have much of an immediate effect on Phi, because the goods he imports already have low tariffs and he hasn’t directly invested money there. But he says normalized relations would have the psychological benefit of clearing away the final barrier between the U.S. and Vietnam, plus it would encourage the Communist government to continue moving toward greater economic and political openness.

Phi also believes that full normalization between the two countries would lessen hostility among Vietnamese Americans toward the government of Vietnam, making it easier for them to do business with their homeland.

“The people in my country are very smart, very hardworking,” said Phi, 53, whose company imports as many as seven container loads a month from Vietnam. “If Americans give Vietnam the chance to open up and step into the WTO, the life of my people will change.”

Human rights groups, however, have raised concerns about Vietnam’s harsh treatment of political dissidents, ethnic minorities and Christians. Vietnam’s bid is also opposed by some U.S. textile and apparel makers, who contend that its entry into the WTO would reward another Asian exporting juggernaut that has used unfair trade practices to bolster its textile and apparel exports at the expense of U.S. competitors.

After the U.S. and Vietnam signed a bilateral treaty in 2001, two-way trade jumped from $1.5 billion to $7.8 billion. The biggest beneficiaries were Vietnamese textile and apparel makers, whose exports to the U.S. increased 6,000% over that period, according to the American Manufacturing Trade Action Coalition, a domestic lobbying group. Over the last year, Vietnam shipped $3.1 billion worth of textiles and apparel to the U.S.

“We’re talking about making the same mistake with Vietnam that we did with China,” said group spokesman Lloyd Wood in Washington.

But Virginia Foote, president of the U.S.-Vietnam Trade Council, a business lobbying group, said Vietnam wasn’t even close to having China’s clout in the U.S. marketplace. Even with its recent export spurt, Vietnam represents less than 4% of the U.S. textile and apparel market, she said.

The Vietnamese government has improved its business climate in anticipation of joining the WTO, said Walter Blocker, managing partner of Gannon Vietnam Ltd. and chairman of the American Chamber of Commerce in Ho Chi Minh City. That includes the passage of more than 50 laws since 2004.

Blocker predicted that U.S. investment in Vietnam would rise sharply once WTO membership was finalized, given the country’s attractive domestic market and low production costs. More than half of Vietnam’s 84 million people are younger than 30, and they are enthusiastic consumers of U.S. culture, including products as varied as movies and mascara.

Blocker, who distributes a number of top U.S. brands including Maybelline and L’Oreal cosmetics, said the Vietnamese spend $350 million to $400 million a year on “non-shampoo cosmetics,” a market that barely existed 12 years ago.

“Now we have 20% to 25% of the women coloring their hair,” said Blocker, who helped launch the country’s cosmetics revolution by setting up lipstick counters in Vietnamese markets more than a decade ago.

Vietnam’s 90% literacy rate and low labor costs (as low as half the cost of China) also make the country an appealing platform for regional production, Blocker said. And for U.S. firms worried about becoming entangled in political disputes between the U.S. and China, Vietnam offers a more stable location, he said.

After considering sites in China, India and Thailand, Intel Corp. announced this year that it would build a $300-million chip assembly and test facility in a government-owned industrial park on the outskirts of Ho Chi Minh City. Intel plans to begin construction on that plant by year-end and hopes to start commercial production in 2009.

Intel country manager Than Phuc said the Vietnamese government offered the Santa Clara, Calif.-based chip maker an attractive incentive package, including cheap land and power, tax incentives and training subsidies. But he said the clincher was the government’s willingness to address the company’s concerns, such as the delays caused by the country’s antiquated customs processing system.

“The thing that impressed our management the most was the open and frank way the government spoke with Intel,” he said.

Than said one of the Vietnamese government’s priorities was creating jobs for the 1 million-plus people entering its workforce every year, which is why it has focused on attracting large foreign companies. Intel has said its facility, which represents the largest investment in Vietnam by a U.S. company, will eventually create 1,200 jobs.

But Than, who is based in Ho Chi Minh City, hopes Vietnam’s entry into the WTO will encourage more Vietnamese Americans to bring their talents and money to the Asian nation. He pointed to the success of Highlands Coffee, a Starbucks-style chain of coffeehouses started by a Vietnamese American.

“The U.S. is my home, but I don’t have a return ticket,” said Than, whose family fled Vietnam in one of the last helicopters to lift off from the U.S. Embassy rooftop in 1975. “Someday I will have a home here and a home in the U.S. I think it is most Vietnamese Americans’ dream.”

Some Vietnamese American leaders remain strongly opposed to lifting the final trade barriers until their homeland is “free and democratic,” said Hieu T. Nguyen, president of First Vietnamese American Bank in Westminster, which was set up last year to serve the 300,000 Vietnamese Americans living in Southern California.

But Nguyen said he, like many other Vietnamese Americans, views Vietnam’s entry into the global economy as inevitable, and hopes that the government’s embrace of free markets will eventually result in greater political freedoms.

Of Vietnam’s WTO bid, Nguyen said: “No one can stop it.”

“During the next five years the living standard of Vietnamese people will improve remarkably.”
By Jakob Holm
“Where will Vietnam be in five years?” that was the question up for debate on a recent meeting between donor-countries discussing Vietnam’s development plan for 2006 – 2010.
During the meeting members of Vietnam’s donor community all agreed that one of the propulsive forces for the development of Vietnam, in their view, was the recent accession to the World Trade Organisation (WTO) and strong reforms being initiated by the Vietnamese government.
Among the participants was the Danish Ambassador to Vietnam, Peter Lysholt Hansen, who commented “that in the next five years, the living standard of Vietnamese people would be improved remarkably.”
“As a member of WTO, Vietnam will attract foreign and domestic investment to gain a higher annual growth rate, create jobs and reduce both hunger and poverty rates,” he added.
However, the ambassador noted that the quality of investment and the impact on the environment by fast economic growth require the government to set urgent solutions to limit risk.

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