Vietnam After The Trade Agreement With The US
The trade agreement between Vietnam and the United
States, ratified late last year, is changing the economic
face of Vietnam.
Vietnam’s prime
objective--a larger market for its exports is already being
realized. Although overall exports were down by nearly 7 per
cent in the first five months of 2002, the level of garment
exports to the US has exploded. It already exceeds the total
value of such exports during all of 2001. Reflecting the
increased activity in this sector, importation of foreign
fabrics have risen nearly 200 per cent compared with the
same period last year. FedEx has seen a 30 per cent increase
in its US bound priority cargo since December. Nike reports
vastly increased production of footwear bound for the US.
None of this is
surprising. Vietnam is the perfect export platform; it has
large numbers of workers, and jobs must be created for 1.2
million new employees each year. Foreign investors easily
acknowledge that Vietnamese workers are among the best in
Asia. Vietnam will have to manoeuvre around China, which is
well ahead of Vietnam even in those areas where Vietnam’s
immediate strengths seem to lie--garments, footwear, and
light manufacturing. Even so, investors in Vietnam should
easily find pockets of opportunity.
Vietnam has also
agreed to a broad relaxation of investment conditions, the
results of which will be profound, if less immediate. The
adjustments are to be phased in gradually. Beyond the
commercial effects of the agreement, however, the impact on
Vietnam will be even more dramatic. First is the enormity of
what Vietnam must do to comply. Almost every area which the
agreement touches - transparency, IP protection, services
and streamlining procedures - will change the way Vietnam
regulates business. Achieving these results one by one would
have been impossible. Each could have been achieved only as
part of a comprehensive agreement. The cosy protection of
State-owned enterprises [SOEs] will be thoroughly
challenged. Few service sectors including banking,
insurance, engineering and distribution will be untouched.
In reality, few companies are prepared.
The winners are not
only the Americans. The elimination of many conditions to
qualify for an investment license can be expected to result
in a broader access for all foreign investors.
The greatest gainer
is likely to be the tiny but dynamic Vietnamese private
sector At US$ 2.5 billion in 2001, new foreign investment in
Vietnam was up 35% on the year before. So too is private
Vietnamese investment. During the same period, nearly 18,000
new Vietnamese companies were formed. Many are small, but at
$US 1.5 billion the capital they have invested is
significant. The pace has quickened in 2002. Competitive
pressures exerted by an agile private sector will be a more
effective vehicle for SOE reform than all of the
government’s blueprints, decrees and imprecations.
There is anxiety
among Vietnamese at large. To be sure there will be
displacements. But not everyone sees this as bad. It’s the
acknowledged price of an open economy, which most Vietnamese
want. As one Vietnamese lawyer put it: ‘Up to now we have
had to look only to the state to solve our problems. Now the
private sector will be able to help.’
The Vietnamese
leaders who took office over one year ago have accelerated
change. Although laws may still not be totally adequate,
they are less likely to be misdirected. There is a healthy
realization that changes are occurring so fast that the
government can no longer manage each step. There is also a
generational change occurring among bureaucrats who are seen
to be resisting less. One battle-scarred foreign investor
observed: ‘I was in a meeting at the Ministry of Finance,
and they were actually all looking for reasons to say
“yes”’. In many ways, the government has become more
realistic, more familiar with the international environment,
more confident, and so less timid. Equally important, there
is a general recognition that market principles also apply
to countries and that Vietnam is competing with its
neighbours.
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