DISPATCHES

Mulling the future or still debating the past, Vietnam hesitates on the threshold, nine years after we first returned.

Our first arrival by Flying Tiger air transport in the middle of an April night in 1970 did not bode well for our future or that of Vietnam. The hot, humid atmosphere hitting the escaping air conditioning of the stretch DC-8 with 330 souls all in summer uniforms and fear were not comforted by the steam rising as the doors opened onto the quiet, sultry night at Cam Rahn Bay.   

Almost twenty-four years later our return on board a ship with 770 tourists was startling if for no other reason then the city of Saigon did not seem to have physically changed at all.   It was January 1994 and the talk was when, not if, the US embargo would be lifted, and "maybe next year we will have MFN with America," was the popular refrain.

The Bilateral Trade agreement was finally inked in July 2001, passed by both houses of Congress and signed off by President Bush, and left to Vietnam for the final, formal process of agreeing and signing.  However, by early December of this year, the prestigious Vietnam Investment Review, the mouth piece of the Ministry of Planning and Investment, in its headline story about this by now seemingly inevitable event, shouted in bold type, 

"Assembly mulls US trade deal. The bilateral trade agreement was submitted last week to the National Assembly by President Tran Duc Luong, the first time an international trade pact had been send to the legislative body for approval."

Hopefully the good men and women of the NA will not take it upon themselves to now really discuss and debate the pros and cons of this agreement, and need Joe Demond to return to explain it to them and all its nuances.

But perhaps the National Assembly will deem it appropriate to chastise America for its policy on this or that, as Congress saw fit to add extra words about Vietnam's these and those.

And yet the nation waits, no longer with bated breath, and no longer with banners or even headlines that anyone any longer cares to read.  Domestic and foreign invested factories gear up advertising, machinery, and sales force to attack the US market where tariffs will drop from as high as 60% to as low as zero as soon as the National Assembly and President Luong do what this nation has waited from before the time of our arrival eight years before.

Gone are the projections of increases in export trade for 2001 by $800 million. They were already included in this year's budget and failed to materialize.  Now with America in its first recession in ten years, many here now ask why Vietnam mulled so long and lost the benefit from free trade for all those years.

And yet the National Assembly believes it is appropriate to still mull over the trade pact.

No one asked us but if they did we would advise our friends to sign that wonderful document immediately before you waste more time and loose more income.

But these are the same friends who have been burning $2 million + per day for more than 10 years because they can't reach a decision on what to do with the associated gas they can't yet fully use on shore.  That's more than $7 billion lost, so what is there to worry about a mere $800 million.  Soon the associated gas will run out.  So too may the desire of Americans to buy from Vietnam, now that China is in the WTO and producing so many more goods of world class quality.  

Appealing as well is the ability to now seek sanctions against China for the dumping China still considers its right.  Will China balk or pay is the questions most traders ask, not when or what goods Vietnam may offer to the market place.

But the world marches on ,even as the National Assembly mulls over the  Bilateral Trade Agreement.  The end is not in doubt, nor the timing, as the session will end in December.  What is left to question still is why, when the nation sought and needed this agreement nine years ago, the leaders allow themselves the time to still mull over the deal?

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Muscle-Flexing In Vietnam* - Vietnamese parliamentarians have long had the constitutional power to sack incompetent and corrupt cabinet ministers. But, cowed by the Communist Party's lock on personnel matters, they have never exercised that power. Now the national assembly is making a new bid to flex its muscles as it prepares to approve a constitutional amendment that would allow members to hold a no-confidence vote on unsatisfactory ministers in mid-term. 

Party chief Nong Duc Manh, a former assembly chairman, is said to support the idea. But while some political observers believe the amendment is an important step toward strengthening checks and balances, others say it could all turn out to be smoke and mirrors. For example, a no-confidence vote will not cause a minister to automatically lose his job, because the matter is still returned to the prime minister, who originally nominated him. At the very least, the move reflects growing impatience with some ministers' waffling during question-and-answer sessions at the assembly. 

A fresh slate of ministers is scheduled to be nominated following assembly elections next May.  Issue cover-dated December 20, 2001 http://www.feer.com/articles/2001/0112_20/p008intell.html

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Trade Agreement Now In Effect - The official time was 3 PM Monday, December 10, 2001 in Washington, which was 3 AM Tuesday, December 11, 2001 in Hanoi.

It is almost anticlimactic.  MFN is now in effect, but it took so long the name changed to NTR. Letters implementing the pact were exchanged between America and Vietnam to commemorate the official start that also ended a battle that began in 1945 when Ho Chi Minh and America first split.  It was not Vietnam's longest struggle, but among its least productive.

The two millennium long struggles with China continue but Chinese influence is strong: religion, education and writing (until the 1850s), art and architecture, and more recently, politics.

The French left behind architecture, modern writing form, and a system of round-a-bouts that make driving havoc all the more prevalent, but for the wide boulevards which they connect.

The Japanese and Koreans left behind a lot enmity for the wanton destruction of life during  World War II. But the Americans...?

America's influence pre-BTA has been less perminent, consisting so far of war memories,  American accented spoken English,  soft drinks, cosmetics and soaps, and pirated moves and computer software.  

However, symbolizing the new trade agreement, Boeing and Vietnam inked an agreement on the day the BTA took effect for the sale of 4 aircraft with a total value of $680 million.  Enacted the next day by Vietnam's National Assembly was approval of a constitutional amendment formally guaranteeing private firms equal treatment with the state sector.

Don't blame us for being skeptics as duel pricing was outlawed more than three years ago and is still the favored way of doing business.

Effective at the official time, duties on imports from Vietnam to America are now slashed to 4% or less. Buyers are cautioned to check with their local US Customs offices at ports of international entry to be certain all follow the plan of the BTA.

Last year by USTR figures, US firms exported goods to Vietnam with a value in excess of $368 million while Vietnam exported $821 million in goods to the US.  Imports to America are expected to grow substantially as Vietnam increases is available hard currency. Vietnam exports to Vietnam will increase considerably more slowly.

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Vietnam: Safe but Very Stressful   Last month’s report on the relative sense of safety placed Vietnam on top, as the place expatriate business people felt the most security in Asia. 

This month the second half of the equation is that Vietnam remains one of the top three most stressful lands as a high-pressure country for expats. This is an improvement as last year Vietnam was rated the most stressful location, now held by Indonesia, followed by South Korea in second slot.

At the other end of the scorecard is Japan, again rated the least stressful land but more stressful than it was last year.

It is important to note that high degrees of stress alone are not bad for business.  Many American companies internally drive up stress levels to increase productivity. Getting the balance right between stress and growth is the key.  China and South Korea seem to have found the correct formula, as they both continue to draw more direct foreign investment that countries with better marks on the survey.

The most stressful nation in Asia is ranked 1 with a rating of 7.33: Indonesia.

The least stressful nation in Asia is ranked 10 with a rating of 2.00: Japan.

The full list of ranks and ratings follows: Maximum stress rating level is 10; minimum is 1

Most foreigners in China and Vietnam enjoy a good life, particularly when contrasted to the life styles of most domestic nationals.  Expat frustrations deal with bureaucracy, language, and cultural barriers, and some relatively minor living inconveniences.  Where police actions in China are mostly directed towards native and expat Chinese, and while police actions are on the wane in Vietnam, Vietnamese expats must deal with a government not yet accustomed to world-level business.

Most investors still consider the cost of doing business in Vietnam as too high, particularly the cost of utilities, transportation, and communications.  Further frustrating growth in Vietnam is frequent changes on the laws and regulations, lack of uniformity in enforcing the laws and regulations, and the relative lack of experience of new administrations at every level of government thus necessitating returning to square one on major foreign investor undertakings with almost every new Chair to a local, district, or provincial people’s committee.

Vietnam enjoys the benefits of those nations raking less stressful, but through frequent missteps, cannot sustain those feelings in a consistent manner. Singapore does better perhaps in part because there is greater confidence in the leadership there then in the nations rated below it.  The Philippines seems to suffer from an inexhaustible sense of optimism, and Malaysia (but for its outspoken leader) is one of the least confrontational societies in Asia. Thailand’s success appears to be based on the absence of extremism and the willingness of most Thais to seek a rapid accommodation.

The effort to and the fact of compromise among Thais go a long way towards creating a comfortable environment among expats.  Vietnamese make the effort but are shy in actual acts of compromise.

Perhaps next year will be less stressful in Vietnam as NTR takes hold and brings both more hard currency and new business to this expanding nation.

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China - Vietnam & WTO -  Vietnam waits impatiently as China enters the WTO and knows that it’s own entry is well on track. But what to expect from this point to then is troubling many of China’s neighbors, none more so than Vietnam.

The two nations have a 2,000 + year long mutual history blessed with long periods of relative silence and brief bursts of extraordinary violence.  Dominated and controlled as a province of China for nearly 1,000 years before the revolution led by Trung Hung Dao in about 921, Vietnam still tries to keep its distance while following along.  A bit of schizophrenia on the subject of this large northern neighbor is understandable.

Commenting on the effects China’s entry to the WTO will have in Vietnam recently elicited this response from the Vietnamese Central Institute of Economic Management.  “We lack preparation and coordination between the involved parties; a shortcoming that should be fixed as soon as possible.”

Others are not so parsimonious in their opinions. According to the Hong Kong based Political and Economic Research Consultancy, in (i) South Korea, 92.3% of the executives polled believe China’s entry will be positive; (ii) Japan had a 85.7% favorable rating; (iii) 82.1% favorable in Hong Kong; (iv) dipping to 40% favorable in Singapore; (v) slipping to 30.8% favorable in the Philippines; (vi) falling to 9.1% favorable in Malaysia, and (vii) bottoming in Vietnam with just 5.6% favorable.

Looked at in the other direction, 94.4% of executives in Vietnam feel that China’s entry to the WTO spells economic danger to Vietnam.

Vietnam too desires quick entry to the WTO, and is reportedly turned to foreign consultants to report on three large, State Owned companies.  Making improvements in the State Owned Enterprise sector is a necessary step for WTO entry.

The European Commission, while supporting Vietnam’s application to the WTO, points out that more progress is needed in revising the SOE sector and the banking sector in order to improve the overall climate for overseas investors.

Interestingly, while the EC nations operated in Vietnam under member states’ own bilateral trade agreements with Vietnam for more than 10 years to the distinct disadvantage of American trade with Vietnam.  Now, with NTR between America and Vietnam only days away, the EC nations are concerned that THEY may be discriminated against as the two former enemies implement their own trade agreement. 

It appears the European Commission may be holding its final approval for Vietnam’s entry to the WTO hostage waiting for a legally binding statement granting the EC nations the same hard fought concessions hammered out over 4 years with the Americans.

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Favoritism at Phu My 4?  National rules on EPC work on infrastructure projects call for the receipt of competitive bids.  However, EVN recently awarded a US$ 200 million contract to Germany’s Siemens on its exclusive bid.

Clearly additional tenders would have resulted in a more competitive bid even if the result was the same.  Reportedly Alstom, GE, and Mitsubishi Heavy Industries were waiting but not allowed to enter the bid process.

Reports circulate that Siemens’ bid on the Phu My 2.1 Extension plant was as much as 50% higher than some other contractors who bid that project.

EVN is not out of the woods on the 1,200 megawatt Son La hydroelectric project either.  With plans to displace up to 100,000 local residents, the recent approval by the National Assembly is yet to be reviewed by the Government.

While EVN claims it will finance Phu My 4 with domestic banks, they too are to provide the funding source for Son La that will need US$ 3.5 billion to US$ 4 billion.

UPDATE - Since first reporting this article, the EVN has changed its mind and opened up the bidding process.

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More Plans for a Modern Saigon - A recent seminar has brought to light more plans for making Ho Chi Minh City the modern urban center that will make memories of the old Saigon fade even faster.

Formerly comprised of 12 districts, there were three focal points: downtown, near-center, and suburban.  While District 1 (still called Saigon) forms the heart of the big business area, it is joined by Districts 3 and 5 that comprise the bulk of the Central Business District of the City. With population decreasing by up to 5 per cent in recent years with the relocation of many low income dwellers, more slums are slated to be razed to make room for further Central Business Development.

The near-center area (Districts 4, 6, 10, and Phu Nhuan) with a population density averaging 30,000 per square km is at near saturation points in many locations. This area could attain complete urban center status only if and when key traffic access and canals are improved.  Massive residential and small business relocation is needed to widen major thoroughfares such as Cach Mang Thanh Tam, a project that has been talked about for more than 40 years and has only gotten much worse over time.

Old suburban areas of Districts 8, Tan Binh, Go Vap, and Binh Thanh, are currently attracting many rural and Viet Kieu immigrants, as well as relocated dwellers from the center and near-center districts.  Population density remains low at 7,000 to 15,000 people per square km in spite of population growth of 200 to 250% in the past ten years.

Reflecting on the changes over the past 60 years and looking 20 years out from today, it was a pre World War II French plan to expand Saigon (District 1) and Cholon (District 5) to the west for industry, to the South for seaports and warehouses, and the northeast for residential purposes.

The current study shows the dramatic changes as expansion west and northwest are seen a more practical while east and southeast will present challenges best not undertaken due to the needed presence of an ecological forest and the near complete lack of infrastructure.

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TEXTILE & GARMENT FIRMS PREPARE FOR US MARKET 

Vietnam's textile and garment enterprises, both State Owned and Foreign Invested, are preparing to start direct exports to the United States after the approval of the Vietnam-US trade agreement. 

Vietnam's National Assembly and President Tran Duc Luong are expected to finalize their approvals in December. 

An industry dealer noted that Vietnam's textile and garment industry is facing two big opportunities. First, when the trade pact takes effect, Vietnam will be able to export its textile and garment products to the US market without quota limitations in the initial period.

Second, Vietnam is considered to be a safe country for business operation and investment. Therefore, it is well placed to take trade orders that have shifted from countries regarded as politically unstable such as Pakistan, Turkey, Indonesia and the Philippines, added the dealer.

Vietnam’s State Sector has already charted a long-term course for developing its textile and garment industry during this decade. Accordingly, the Government has given financial support to the industry, including policies providing soft bank loans with an annual interest rate of 3.5 per cent for 3 to 5 years as well as giving awards to the best exporters.

There are substantial challenges ahead for companies in both sectors, but it is clear that the State Owned enterprises have the longest haul to reach success.  America and the world expects the Foreign Invested textile enterprises (Korea, Taiwan and Singapore for the most part) will take the lions share of all exports to America in the opening competition when the BTA takes effect, presumably in December 2001.

Economists warn that Vietnamese domestic textile and garment exporters face big challenges in the US market. Many are not fully aware of procedures governing clients and customers, import-export tariffs on export items, and customs procedures.

In fact, most Vietnamese products currently found in the US market are made under sub-contracts between foreign companies and their Vietnamese partners. These products are sent to the U.S. via the European Union, Japan and Taiwan.

In response to the situation, many Vietnamese domestic enterprises and companies are hard at efforts to learn ways into the US market. The Vietnam Textile and Garment Corporation (Vinatex) said it has been preparing for two years now.  A delegation will be in America in December.

The Duc Giang garment corporation is preparing to export products to the US market in the spring of next year.  Investments reportedly reaching $2.5 million have been made since 1999 to upgrade its equipment, which it hopes, will allow its products to meet the requirements for the U.S. market.

While local media proclaim that such investment is sufficient, others know this is merely a further indication of how far the State Sector has yet to grow to meet its real challenge from China.   A factory near Beijing, with over $100 million spent on its modern  equipment, reportedly recently constructed its new car parking lot for more than Duc Giang spent for its equipment upgrade.

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Land Use Rights for Viet Kieu - New Decree.  Not since 1975 have all Vietnamese, both domestic citizens and expatriates, been permitted to own their own homes.  Long promised, the decree allowing "those who wish to stay a long time" was enacted and comes into force November 20, 2001.

Of course there is a catch, for this is still Vietnam.  Long term permission to live in Vietnam is not yet granted quite so easily. See our article on new visa authority.  

Decree 81/2001 implementing the provisions of the Land Law put into operation this past October is more broad, for it extends the right to purchase apartments, private houses, and villas, and extends land use right ownership to four categories:

1. VK committed to long term investment projects, applying to investors acting under the Foreign Investment Law or Domestic Encouragement Investment Law, that first requires that  the VK have an investment license or business registration from the appropriate authorities;

2.  VK who have made valuable contributions to the country. This will not apply to many VK living in North America or Australia, as it is restricted to:

• Those offered preferable conditions under the ordinance concerning "invalids, martyrs, and people who have helped the revolution,"

• Those who helped the revolution, or

• Those who participate on the management boards of social, economic, or political organizations for Vietnamese cities or provinces, or have helped Vietnamese representative branch offices abroad;

3.  Cultural specialists and socialists awarded certificates in science, education or culture, and economic experts who regularly return and are invited by the government to contribute to the country's development; and 

4.  Those who wish to stay a long time in Vietnam.

There is no wonder that to date reportedly less than 5 Viet Kieu have received permission to purchase land use rights. 

Restrictions noted are: (i) one house at a time; (ii) designated areas for VK homes are distant from the central cities; (iii) available housing styles are often more appropriate to foreigners than VK; and procedures for long term residency are still inadequate

While the current decree provides more details, there is still wanting a procedure for Viet Kieu to obtain long term visas, or permanent residence.

Contrast neighboring Thailand that has world class banking, hospital, and commercial opportunities and make one year visas available to any foreigner (not simply repatriated Thais) who are over 55 years old and show either (1) US$ 40,000 deposited in a Thai bank from overseas sources, or (2) a pension or other annual income of at least US$ 20,000. 

Going even further, after three consecutive one-year visas, any foreigner can become a permanent resident of Thailand.  This provision alone attracts hundreds of wealthy retired foreigners to live in Thailand where they invest heavily in the local economy by purchasing apartments, home furnishings, cars, domestic employment, restaurants, hotels, and entertainment.  

If only the authorities in Vietnam had equal vision and truly put the past behind them as they are so fond of saying that they have.

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