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Current Issue

Issue No. 21
June 1999

A Periodic Report to Our Clients
(higher numbers indicate more recent dispatches)

See VVG's  monthly feature on Current Economic Indicators

Current Dispatches

US - VIETNAM TRADE TALKS - Early June Update: More than three years later, more reminiscent of the Paris Peace Talks for their duration -- but with much greater progress being made -- the next round of talks between the two nations to resolve trade and investment issues is set to take place in Washington from June 8 to 14.

Speculation abounds that USTR Barshevsky may ink a deal with her counterpart in late June when they meet with others for the next round of the APEC talks.

The subject is clear: if an agreement is not entered into soon, it cannot go to Congress for approval by the end of the current session, now being held open until early August.  If it does not pass Congress this session....

Due to the waiver of the Jackson Vanik Amendment needed, Congress has in effect 90 days from the submission of the inked agreement within which to vote it up or down.  If the agreement is voted down, Congress will then need to vote down the continued waiver of the Jackson Vanik amendment or it automatically is extended.

All agree that the Vietnamese must certainly by now be aware that if the agreement does not pass Congress this year, there is little hope for any agreement passing until the next president is in office: January 2001. 

And then, if Al Gore is not the elected President (and who cares to predict that one at this point), further delays are probable as the new guy/gal will want to take a look at matters over here.

The American Business Community in Vietnam has not stopped trying to help the Vietnamese side to fully appreciate the 11th hour situation. This is the typical "down-to-the-wire" brinkmanship form of negotiation the Vietnamese are famous for.

Open issues reportedly are trade barriers where Vietnam is reluctant to lower them due to the revenues they generate, trading rights restrictions on imports & exports, the regulation of start-up of businesses, and operating regulations in the banking and insurance sectors.

The last round of talks was in Hanoi in March.  There is no word which positions, if any, Hanoi will yield on.

 In Vietnam, a deal is not a deal until it is concluded, no matter how large or small the deal. Americans, now is the time, if the Vietnamese or you elect to walk away from the table, to be aware that the Vietnamese will be looking. Give them the chance to blink, maneuver, and return, or we will be continuing this unnecessary struggle for years to come.

If an agreement is reached this month, speculation continues that with some difficult debate, it has a good chance to clear Congress and be signed into law by the end of the year.  Most Americans and Vietnamese can only sit by and hope for this event.  Americans in Vietnam are working feverishly for this opportunity that will be great overall for job creation both in America and in Vietnam.

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NO MORE FEES FOR AN INVESTMENT LICENSE. Starting July 1, 1999, the Vietnamese government will stop imposing a fee on foreign investors seeking to have a license issued. 

In the past, an application fee to have their projects "studied" was imposed on all applicants.  The new ruling (No 59/QD-BTC) was issued May 26. 

Foreign investors in Vietnam frequently complain of excessive government charges.  This will certainly eliminate one of them. 

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OXBOW BOWS OUT. The Vietnamese government rejected a proposed price support offered by Florida-based Oxbow Power Services, effectively shelving (ending?) an ambitious $316 million coal-fired thermal electric power project in the Central province of Quang Ninh.  Three years ago, Oxbow was awarded the Build Operate Transfer (BOT) license for the 300 mw plant.  Granted an early concession on land use fees (a token rent of $1/ha/yr on 88 ha), the US company sought price guarantees for its purchase of coal, and guarantees for its sale of electricity.  Oxbow's authority to proceed with the plant expires in the third quarter of 1999. 

The government's inability to grant the price supports requested bodes ill for all BOT projects in Vietnam.  The concept of a BOT project is that the foreign investor is granted a 20 year (+ - ) term in which to construct, operate and generate profits (often limited to a maximum of 20% of the total investment value). Following the term, the investor agrees to turn the fully operating facility over to the State without further compensation.

Just as it seems clear to the foreign investor that such a scheme is fraught with traps to be avoided by stringent contract terms and guarantees, so to it seems clear to the Vietnamese that the terms requested cannot be met under the conditions that now exist in Vietnam, both economic and political.

Further complicating such deals from the foreign investors point of view is the continuing weak legal structure and market orientation of leading offices of the government.  For example, following a recent request to substantially increase the limit of deductibility of marketing expenses beyond 5% of total profit, the Tax Department of the Ministry of Finance recently advised that a healthy business does not need to make a profit in excess of that limit.

As the government in a BOT project has the ability (lacking in other projects, particularly in fully foreign invested projects) to regulate the sales price of commodities needed to support the plants, and the ultimate price the investor receives for its product, BOT projects remained doomed to failure in Vietnam. 

It remains a wonder that some elements of the government destroy incentives granted by others in the government for BOT investments. It seems that those opposed to the modernization of Vietnam, those who would seek to reverse a trend toward a full market economy, would be the only proponents of BOT schemes that deny the foreign investor an opportunity to meet the limit profit agreed to at the start in the Oxbow and other similar projects. 

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NEW INCENTIVES BLOOM. The dance step is now familiar: two steps forward, one step back. And progress is apparent, but it is oh, so slow.  Given the new, economic life that may flow into Vietnam with the projected passage of NTR (formerly MFN), hope is growing for the first time in nearly two years that reforms will come more quickly.

Dual prices are OUT as of July 1, 1999.  However, it is an open question how quickly that policy will work its way down to Government Agencies.  It will for certain take longer to reach State Owned Companies, and longer yet to reach the streets.  There on the street, the local folks still refer to a US $ as worth only VND10,000 when making change to unwary foreigners.  That was true in late 1993, while the current value is VND 14,000 to one US greenback!

Price reductions to take effect on July 1, 1999 include a reduction in electricity power rates for those supplied with power from 6KV to 20KV lines.  Not many currently know what size lines they have and suspect they will be told the lines are not in the reduced range!  The reduction is reported to be from $0.16 to $0.85, but wait!   Under decrees now years old, that price be in VND and not US dollars! Of course, "TIS." This is Vietnam.

Telephone surcharge rates in hotels are to be reduced from 25% to 15% on July 1, 1999.  However, the current rates are often more than 100% and the hotel bills too are still charged in US Dollars. "TIS."

License fees eliminated or reduced.  Fees for Representative Offices are currently $5,000 with another $5,000 for modifications, including extensions, of the initial license. That fee is to be reduced to VND 1 million  (US$ 72) on July 1, 1999.  Investment license fees for non-banking sector industries are to be totally eliminated.  Now theoretically only an "administrative fee," it runs from $50 to $10,000.

Airport Bribes are already a thing of the past, but for the visitors who feel more comfortable giving money away then risk having their bags searched.  The concept of "tea" money suffered a blow with the death sentence handed down to four of the former lead Customs officials for their practice of taking money to aide the smuggling of goods into Vietnam.  For visitors not intending to break the law, you can break the back of the guards who still threaten searches absent a bribe.

Our rule is simple: do nothing illegal and pay nothing.   It has taken you from 12 to 36 hours to fly here; often it has taken you 5 to 25 years to make that first journey. Your family will wait a bit longer outside. Prepare to take the extra 30 minutes and force the guard to search your bags.  Refuse to give any money to those thieves in uniform. 

In time they too will learn.  They will be criticized as their lines will be so much longer than others.  They will then eventually leave the Customs Police and get jobs as economic and traffic police who can still intimidate local citizens into paying bribes, that they call "tea" money.

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More Trade Talks - mid June:  Misunderstandings aside, the last official round of talks in 1999 may have been concluded. 

Most now  hope that the senior trade negotiators for both sides, USTR Charlene Barshefsky and Vietnam Trade Minister Truong Dinh Tuyen, will ink an agreement when they meet in late June at the APAC conference in New Zealand.   However, some on the US side say it may require yet another round of talks elsewhere.

Both sides are sounding hopeful, stating that the meetings are proceeding to the point of only a few areas needing more work: opening markets and non-tariff trade barriers are two that have been mentioned. 

A US trade official told reporters following the meetings that negotiators had made progress "across the board" and that the talks had moved away from conceptual differences to talks about dates and transition periods.

Given Vietnam's earlier position that the markets will remain closed and the barriers will remain in place, both without timetable for changing, those few areas may seem as deal breakers.

Both the WTO standards and the standards needed by the US side require that the markets be open and non-tariff barriers be removed, with the minimum being an agreeable time-table to achieve those tasks. Vietnam has consistently said it intends to fully comply with WTO standards in order to join. Therefore....

We must be careful when listening to and reading official translations from the Vietnamese, who like many, do not always write or say what they mean.  Even in direct Vietnamese, posturing, posing, seeking the last possible vestige of advantage, is their way of life. 

It is not uncommon to hear Vietnamese repeating the same phrase 4 to 5 times just to order a meal. That is because the written and spoken language is so imprecise.  It leave too much room for discussion, improvisation, and negotiation. It becomes a wonder that any business is conducted with themselves, or with foreigners.

Consider for example the lead sentence in a headline story from the 17 June 1999 edition of Viet Nam News, the official English language paper of the State:  " A Vietnamese delegation now in Washington has asked that the US had better understand their country's economy and laws as a prerequisite to the signing of a trade agreement as soon as possible."

At least four equally valid interpretations of that sentence are possible:

(1) An ultimatum: The US had better understand its own economy before telling Vietnam how to reach an agreement.

(2) A declaration: The US had better understand Vietnam's economy before telling Vietnam how to reach an agreement.

(3) A suggestion: The US needs a better understanding of its own economy before trying to reach an agreement with Vietnam.

(4) A plea: The US needs a better understanding of Vietnam's economy in order to reach an agreement with Vietnam.

Clarification is offered later in the article: "A better understanding of Vietnam's economy and law would help bring about a trade agreement acceptable to both countries."

We accept that statement but yet doubt its validity. The customs, laws, and practices of Vietnam are in need of change if Vietnam is to accede to the WTO standards that are the same as are being demanded by the US in these discussion: both for trade and investment.

And that is the rub: the US insists that both areas of Trade and Investment, the subject of two agreements with other nations, be met in one agreement in order for the US to avoid the problems the US  encountered once NTR (MFN) issued for other lands where there was no Investment Agreement in place. 

The incentive for the new US trade partner to meet WTO and US standards for investment is lost once NTR (MFN) issues as it will if just a Trade Agreement is reached.  Both sides know this. 

This simple brinkmanship by the Vietnamese is not wise. The world, if not some important Vietnam policy makers, knows that it is Vietnam that will derive the most benefit and only begin to thrive when Vietnam exchanges NTR status with the US.  Stay tuned.

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REFORMS, BUT NOT FAST ENOUGH. The window of opportunity we have reported about for over one year closes in a few weeks.  If a bilateral trade agreement is not inked and presented to Congress for approval before end of the current session (early August 1999), it is doubtful that any attempt will be made to seek Congressional approval before the next president takes office on January 20, 2001.

Reports in Vietnam's press are not encouraging. In fact, tea-leaf readers see signs pointing to the inability of Vietnam's policy makers to see their way clear to agreeing to a time-table for reform, much less making major reforms needed to satisfy the WTO and US standards required.

Deputy PM Cam is quoted as saying, "The question is how to proceed, but slow and stable has to be more preferable than a fast step than a collapse."   Five years ago that sounded like good advice. Today, foreign investors are not optimistic.

Cam's rational is sound, "A transformation from a centralized subsidized economy to a market economy cannot be achieved in a short term - changing perceptions is difficult but adjusting old habits is more difficult."

But that sounds tired to the ears of investors who hear the siren songs of other nations more rapid to make reforms than are the Vietnamese. 

The Japanese Business Association in Vietnam spoke at a recent forum of high level investors.  "If the investment environment is not as attractive as in other countries, foreign investors will probably move their projects there and stop investing in Vietnam.  The country is too slow in improving its business environment compared to other areas."

Equally hard hitting was the American Chamber of Commerce in Vietnam that pointed to outdated and detrimental policies in banking and tax.   Vietnam's much heralded "low cost labor" is faced with a near confiscatory tax rate for high income earners.

A foreign employer needs to pay VND 33 million ($2,357) to pay a foreign employee net income of $2,000 per month, but VND 93 million ($6,642) to pay the same net income to a domestic Vietnamese manager, according to that report.

International donor dissatisfaction reached new levels over government reform efforts, with complaints centering on financial and banking reforms.

In the face of these meetings, the foreign investment plunge continues in Vietnam without abatement.  The number of foreign direct investment projects licensed this year dropped 45% against the same period last year, with just 95 projects with a total capital of $719 million being registered.

Vietnam needs $4 billion in foreign direct investment to supplement donor aide.  Of the $13 billion committed by donors, $9.02 has been apportioned and only $5.017 of that has been apportioned.

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Vietnam Vignettes is a periodic report distributed since early 1994. It is NOT a newsletter although for the ease of linkage we have called it that.  It is a summary of domestically published  media reports from more than 17 industrial sectors that we at VVG follow and report upon for our clients. * Due to the importance of certain topics of key importance to trade with Vietnam, we will occasionally include some wire and other media reports.

Prior Issues On Line:  No. 1 - November 1997  |  No. 2 - December 1997  |  No. 3 - January 1998 | No.4 - March 1998 | No.5 - April 1998 | No.6 - May 1998 | No.7 - June 1998 | No.8 - Mid-June 1998 | No.9 - July 1998 | No.10 - Mid-July 1998 | No.11 - August 1998  | No. 12 - September 1998 | No. 13 - October 1998 | No. 14 - November 1998 | No. 15 - December 1998 | No. 16 - January 1999  | No. 17 - February 1999 | No. 18 - March 1999 | No. 19 - April 1999 | No. 20 - May 1999 |