COMMENTARY

The AmCham Chairman of the Board of Governors recently address the 470 members in Ho Chi Minh city:

"There is something going on in Ho Chi Minh City right now at levels that I haven't seen in a long time: a whirlwind of energy, enthusiasm, optimism, and perhaps above all, confidence that things are continuing to move in the right direction.

"The City Leaders are happy because FDI is increasing steadily. Landlords are enjoying high occupancy rates with increased rental incomes.  Consumer product manufacturers are seeing increased demand for staples as well as life enhancing personal items.  IT firms are garnering international attention for the value and quality of their work. Textile and garment manufacturers are scrambling to uncover their piece of the new market frontier resulting from the trade agreement.  Lawyer are seeing more traffic in their offices. Even the bankers are starting to grin a little!

"Despite a global slowdown, Vietnam is thriving.  How do we help preserve this positive growth while also preserving the stability and rationality that made it possible?  I believe the answers come from frequent and constructive interaction with the community at large. I encourage all of our members to take advantage of the opportunities AmCham provides to learn, grow, and share." See his full comments.

We have similar remarks.  Perhaps it was just the pre-Tet holiday travelers, but on our weekend arrival, the airport was jammed with more than 600 passengers patiently waiting, 20+ in each of the 30 lines, to clear immigration. Not a dong nor dollar was seen being passed.  No agents were cutting into line for the paid VIPs to get ahead.

There is still a shortage of good jobs for skilled staff, but the hotels are booming and have a need to increase beyond the bare substance levels at which they've been operating for the past three years. There is not  much office space available for large companies to expand, but there is still an abundance of small office space available.

While there is no resumption in high-rise construction yet apparent, a more aggressive leasing campaign for available space is long underway.

There are fewer going away parties - perhaps because most every one left already? But interestingly, the number of arrivals was evenly divided between foreigners and returning Vietnamese.  The number of business inquiries is starting to give many new reason to hope, but the past disappointments are still too fresh to allow folks to glow.  There is no marked increase in the numbers of receptions for new comers, but some old hands are making a return. 

And the authorities are beginning to speak truthfully about the planned second oil refinery in such terms as: who needs it anyway? See story, below.

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DISPATCHES

Agent Orange To Be Studied In Vietnam.  The Voice of America, the official word from the American government, recently announced that: 

Former foes Vietnam and the United States are beginning joint research on the defoliant Agent Orange, used during the Vietnam War.

The U.S. National Institute of Environmental and Health Sciences will send researchers to Hanoi next month to prepare a research program on the defoliant's impact on human health and the environment.

The United States sprayed millions of gallons of Agent Orange and similar chemical agents in Vietnam to kill jungle growth that provided cover for Communist fighters. The defoliants contained the deadly carcinogen dioxin.

Hanoi says the health of thousands of Vietnamese is still affected by the poison. The four-day conference will begin on March 3.

The purpose of this meeting is to review research results of dioxin impact on human health and the environment, measures to reduce the hazards of dioxin, and consider further research.

This will not be the first joint research undertaken on this still volatile situation.  Reports of dioxin in some forms, an unintended pollutant in the defoliant called agent orange for its color when sprayed, have been related to human injuries for more than 20 years. 

The United States sprayed millions of gallons of agent orange and other defoliants on Vietnam from 1962 to 1971 to deny communist fighters jungle cover. Some of the chemicals were contaminated by TCDD, the most dangerous form of dioxin, a known carcinogen in mice and still hotly debated as a causative agent of cancer in humans.

Hysterics generated by American lawyers seeking to generate huge fees for themselves from claims by American Veterans against manufacturers of agent orange (many succeeded), were met by the manufacturers’ obfuscation to restrict or thwart those actions in order to preserve their corporate wealth. 

Both sides generated huge volumes of data going both ways on the subject. The claimants' side produced data supporting, and the manufacturers' side has data disproving, a causative effect in humans from exposure to dioxin in the quantities found in agent orange sprayed in Vietnam.

The Vietnamese government looks upon the conference as laying a foundation for further cooperation in this field, as well as seeking funding for future projects.  

Vietnam claims two million Vietnamese were affected by toxic chemicals, mainly agent orange. In the first decade after the war, Vietnam claims about 50,000 children were born with deformities or paralysis to parents affected by toxic chemicals, and that dioxin causes cancer, immune system malfunction, and birth defects, particularly cleft pallets.

Claims that agent orange is the route cause of nearly every otherwise undiagnosed medical malady suffered by the nation, and American government concerns of trying to meet just claims while eliminating those with no reasonable basis for causation, have deterred any reasonable joint effort to date.

At least once before joint field teams of Vietnamese and American research workers collected demographic, historical, and soil/air background data in order to learn the actual results of Vietnamese exposure to American sprayed products.

This is needed as even today many pesticides banned in the western world are openly and routinely used in Vietnam in its effort to boost agricultural production. Vietnam still does not have in place many (much less strictly enforced) safeguards to protect farm and industrial workers, or even innocent bystanders.

Pollutants are found in nearly every major waterway in the nation 31 years after all American activity halted. Surely there can be agent orange residuals found in soil, streams, and waterways that originated 3 decades ago or longer. 

However, Vietnam still has a nearly unrestricted use of herbicides (defoliants such as agent orange are herbicides), fungicides (to kill fungus), and pesticides (insects and small animals) in its rural farm communities.  City canal pollution today from human and industrial waste still deposited is so high that only black death is found. 

To conclude that there is a causative effect between the injuries claimed and the pollutants of agent orange, any reasonable study must also investigate post-American and current use of chemicals, and the water spillover effect in the delta growing regions that are sometimes below sea level.

The last time this work was undertaken, the Vietnamese government refused to release to the American participants the background data collected.  The conclusion drawn then by the American side was that the Vietnamese were hiding something.  

It could have been that the collection of the background data was flawed and the Vietnamese sought to exclude improperly collected data.

However, no such claim was made, no explanation offered, and American speculation as to the actual Vietnamese motives did not help.

We suspect that these and other issues will be honestly and forthrightly addressed by both sides in the up-coming meetings, and resolution found in the front end of any investigation to prevent grumbling, or avoidance of the results, on the back end.

Watch this space for developments.

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Oil Patch Politics. The time has come to realize that just building infrastructure projects will not cure what ails Vietnam.

France's Total raised the alarm in 1995 when it back away from the first refinery.  Planned for Vung Tau at land-fall of the long oil delivery pipeline which is soon to be a one hour drive to the nation's manufacturing center, Total realized there would be no return on its investment after the State chose to move the refinery 700 km north to Dung Quat in Quang Ngai province near Da Nang. Almost equally distant from HCMC and Hanoi, the plant will be even further distant from the major producing fields that are not yet on stream.

The State in 1996 refused to acknowledge the cost would soar to $1.5 billion which is still the low estimate for the plant that is still "approaching" its construction phase six years later.  The added costs to transport the crude to the refinery and then ship the refined fuel to the end users has not yet been adequately treated in the market place or by the budget planners. 

Will Vietnam really gain when it looses the import dollars garnered from selling crude and then subsidizes the cost of locally produced refined products to equal the price imported refined products are now sold for? That still remains a guess, but not a hard one.

So, it is of little surprise that the concept of a second, even more remote, refinery is less than one year after it was first proposed, being carefully looked at. But then, looking at Dung Quat is all the planners seem to have done way  back in the early and mid 1990s.

The reason to place the refineries in the central coastal areas is clear: to boost and promote the development of that part of the nation not currently getting  a boost from the new economy.  However, unless the State has the resources to undertake such projects on its own, it must depend on ODA or investor funding. Both have been hard to find for a refinery project.

Now as the State promotes its second refinery, once again foreigner's urge caution. But will the real politics of Vietnam listen?  

The Japanese International Cooperation Agency (JICA) recently suggested it would be better for Vietnam to focus on crude oil exports than refining operations. There is a current glut of refining capacity in East Asia. The surplus is estimated at between 250,000 to 700,000 barrels per day.

As Japan is Vietnam's largest ODA donor, and as JICA is a key advisor to the Japanese government and industry on large overseas projects, one would think that Vietnam would pay attention to this advice.

Vietnam's current consumption of refined fuels is about 150,000 barrels per day and was met by importing 9.1 million tonnes of refined products in year 2001.  This is well within the current refining capacities of the region.  With Vietnam's demand projected to increase to 300,000 barrels per day (15 million tonnes per year), that is still within the projected capacities of local producers as measured against projected overall growth of demand.

The second refinery, planned for central Nghi Son district of Thanh Hoa province, is even further from HCMC and not much closer to Hanoi. These two cities consume 88% of all refined products with HCMC taking a gulping 62% of that amount. The distance from land fall and the off shore well heads is even further than is Dung Quat.

It is not the first time the State heard that large scale oil refineries are usually located near the consumption centers in order to keep down the cost of transportation that can exceed the cost of refining.  JICA once again made this point to the State, and also showed how Vietnam would suffer from the loss of its export sales of crude that account for at least 25% of Vietnam's total export earnings.  This income will evaporate by at least 40% with the opening of the Dung Quat refinery, and disappear if the Nghi Son refinery comes on line.

However, domestic politics rule and the State remains optimistic about both refineries, seeing them as the means to boost social and economic development much as the Hoover Dam in Nevada helped to develop the Las Vegas area.

That is a good comparison some say, but in this case while Vietnam owns the house, it does not yet control its own finances.

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Vietnam As A Port For Investment deserves its reputations as a safe but stressful according to Hong Kong’s Political and Economic Risk and Consultancy Group.

The World Economic Forum’s ranking of Vietnam on competitiveness place it at a low no. 63 in a list of 75 nations.  For openness Vietnam ranked not much better at no. 55, strategy and corporate activities were ranked at 64^th as was the ranking for overall quality of the business environment.

The nation is politically and economically stable, even if both are not always in the best tradition of western success. While planned stress is often a positive element to achieve success, inherent stress without purpose hampers growth in all markets and sectors.

  Corruption and red tape encouraged by the public sector are not Vietnamese inventions or isolated to this long and narrow nation.  Neither are high prices, but both plague Vietnam and help to drive investors elsewhere.

In a report by Japan’s JETRO, among Southeast Asian nations and China (strangely excluding Hong Kong), low labor rates in Hanoi and HCMC compare favorably to all but for laborers and engineers who get paid less in Jakarta.  One must wonder about productivity in higher priced locations such as Singapore, Kuala Lumpur, Bangkok, and Shanghai.

However, Vietnam is topped in office costs only by Shanghai and Jakarta.  The competitiveness of Shanghai is noticed by phone and electric rates that are half those in Vietnam.

Investment Expenses in Southeast Asia (US$) compiled by JETRO

* wage includes bonus; **Office area averages 100 sq. meters

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Cam Ranh Bay, to be vacated by the Russians in 2004 and eyed by this American reporter as among the world's most beautiful beaches since his first landing there in April 1970, may soon be available for commercial development. But then again,....

Overall ties between America and Vietnam have warmed since the coming into force on 10 December 2001 of the BTA, an agreement establishing normal trade ties. Washington agreed to lower its high tariffs on Vietnamese products, while Hanoi pledged to allow foreign companies to compete on more equal terms with its state-owned enterprises.

US Pacific commander Admiral Dennis Blair reportedly said closer cooperation is possible in fighting terrorism, narcotics, international crime, piracy, and in humanitarian assistance and international peacekeeping as he expressed a U.S. interest in possible visits by American naval ships to Cam Ranh Bay.

The US military is seeking an "arrangement" that will allow it to use the base at Cam Ranh Bay for port calls and support for its operations in southeast Asia, Blair told reporters after talks here with Vietnamese officials. But Washington is not looking to set up a permanent base here or anywhere else in southeast Asia, he insisted.

Viewed as one of the best natural harbors in the region, the Cam Ranh Bay base was ironically originally built by the Americans but lost to the then Soviet Union following the US humiliation in the Vietnam War.

Last year a cash-strapped Moscow announced that it would give up the base when its 25-year lease runs out in 2004 as it can no longer afford it.

"The status of Cam Ranh Bay has obviously now changed with the end of the Russian lease," said Blair.

US ambassador Raymond Burghardt said one possible arrangement would be for Vietnam to declare Cam Ranh Bay open to port calls by foreign warships, as it has already done with the ports of HaiPhong and Ho Chi Minh City.

That arrangement would not be exclusive to the United States but would allow port calls by its warships.

"Vietnam has taken the position that its ports are open to ship visits on a multilateral basis," said Burghardt.

"Vietnam will have to decide whether to open Cam Ranh Bay to ship visits. If it is open to ship visits, it will be on the same basis as the two existing ports."

In a quick response, the Foreign Ministry of Vietnam said that the port will not be exclusively set aside for military purposes, but the door is open for visits from ships of all kinds and many nations.

Read the full account at: http://www1.timesofindia.com/articleshow.asp?art_id=1643409596 and http://www1.timesofindia.com/articleshow.asp?art_id=545023 both  from THE TIMES OF INDIA

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MOU for New USA-VN Garment JV Signed  The first new garment JV since the effective date of the BTA (10 December 2001) has reportedly been signed in HCMC.

US based Providential Holdings  Inc. and Minh Hieu joint-stock company of HCMC reportedly signed a memorandum of understanding to set up a JV to manufacture garments for sale in America.

That a new JV is being established in the light of so many older JVs being bought-out to form wholly foreign owned enterprises is what makes this news worthy, in addition to the indication that trade between the two nations may finally take off more than 8 years after the trade embargo was lifted.

It is projected that the JV will begin operations in a few months, following the drafting and approval of a new JV investment license.  While capital contributions between the parties has not yet been announced, it is reported that Providential Holdings will have a 30% stake.

That too is unusual. As originally drafted, the Foreign Investment Laws specified that a foreign owner could not hold more than a 30% interest in any JV. That was soon revised to mandate that the minimum Vietnamese contribution must be 30 per cent.  In time the fallacy of that scheme became apparent which resulted in a spate of buy-outs and the new direction of fully foreign invested projects being the fashion.

Perhaps for good reason this new enterprise has made a full circle as it seems that the Vietnamese partner has something of value to contribute. 

The Vietnamese company now has 1,500 workers and nearly 1,000 sewing machines.   An open question is the vintage of the machines, the size of the capital contribution actually needed to make the venture's operation competitive and profitable, and if the JV management has the skills needed to tackle the US garment trade.

This is not the American company's first deal in Vietnam. Last year, it signed a deal to build infrastructure in Chu Lai industrial park in Quang Nam province and is a partner in the liquid crystal display joint venture Manna Technologies in Dong Nai province. It also has an information technology center in Ho Chi Minh City.

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Profile of the New US Ambassador.  Raymond F. Burghardt became the second U.S. ambassador to postwar Vietnam when he presented his credentials at a state ceremony Tuesday morning.

Burghardt, 56, a career Foreign Service officer, most recently served as director of the American Institute in Taiwan. The institute serves as Washington's unofficial diplomatic mission in Taipei.

Burghardt also previously served as consul general in Shanghai, China, and as deputy chief of mission at U.S. embassies in Manila, Philippines, and Seoul.

After a post-college stint in the Peace Corps, Burghardt joined the Foreign Service in 1969. During the Vietnam War he worked as a political officer in Saigon, now Ho Chi Minh City. Later, in the Reagan administration, he had a post on the National Security Council and worked on Latin American affairs with Oliver North and other military officers and diplomats.

Burghardt was the first of several new ambassadors to present their credentials to President Tran Duc Luong. Afterward, Burghardt declined interview requests and issued no statement.

He succeeds the popular Pete Peterson, who was tapped by President Clinton to
become the first U.S. ambassador to communist Vietnam.

Peterson, a former prisoner of war in Hanoi, served four years as ambassador before stepping down last summer. He recently returned to Vietnam to work on trade and business issues as head of the U.S.-Vietnam Trade Council.
By Mark McDonald Knight Ridder Newspapers CONTACT: http://www.mercurycenter.com/  Distributed by Knight Ridder/Tribune Information Services.
(C) 2002 Knight Ridder News.

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Vietnam To Allow Telecoms Competition.  With a population near to 80 million and 4.25 million telephones (including more than 1 million mobile phones or 5.3/100 people), Vietnam’s monopoly on telecoms allows its rates to remain the highest in all Asia. While 10% reductions are made from time to time, and another is being discussed for calendar year 2002, the rates are still from two to four times higher than those charged by its Asian neighbors.

The state monopoly ends when by 2005 new companies will be allowed to take between 25% and 30% of the market.  The plan calls for new companies to eventually take from 40% to 40% of the telecoms market.

A planned division of state monopoly VNPT into a postal service and several telecom companies is the start of the implementation of this new policy.  There will be a telephone company and a mobile phone company, which together with new private telecom companies that enter the market will need to subsidize the loss-making postal sector by contributing a portion of their profits to a national fund for that purpose.

Vietnam will need US$ 4 billion to US$ 6 billion in investment over the next 10 years to develop the post and telecoms sectors, with more billions needed for years to come thereafter.

Vietnam’s recent announcement is not so much an innovation or gift bestowed upon the nation, as it is an important step towards Vietnam keeping to the terms of its international obligations. 

Pursuant to the Bilateral Trade Agreement between Vietnam and America (BTA), referencing Annex F at page 106:  Annex on Telecommunications & Telecommunications Reference Paper  “The Parties agree that the Annex on Telecommunications to the WTO Agreement on Trade in Services (GATS), …. [and] the Telecommunications Reference Paper ("Reference Paper") to the WTO Agreement on Trade in Services (GATS),  [are] hereby incorporated into this Agreement.”

Later, at page 120, at Section “4.3 Prices and fees of some goods and services under the State's control: Vietnam is in the process of reforming its pricing system in order to develop a uniform set of fees and prices. With a view to creating a more attractive, non-discriminatory business environment, Vietnam shall:

 (a) upon the entry into force of this Agreement, (i) refrain from imposing new or more onerous discriminatory prices and fees; and (ii) eliminate, discriminatory prices and fees for the installation of telephones, telecommunications services (other than the subscription charge for local telephone service), water, and tourist services….”

But is this competition for real? There are already many foreign invested joint venture projects (for equipment manufacturing and selected other projects)  or business cooperation contracts (BCC) with domestic partners needed to develop the networks.  About 95% of the total investment (close to US$ 2 billion) comes from BCC projects.

Seemingly good for Vietnam, these are no longer favored by investors as they have no say in management or long term project development.  Being sought are more joint ventures or real competition with wholly foreign owned projects.

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What's Hot In Vietnam - Updated -Honda announced the introduction of a new Wave Alpha model motorbike to be made in country.  With annual sales expected to reach if not exceed 200,000, this is a very hot item. The Alpha is a 110 hp four stroke "racer."

Typically outfitted by young hot-rods with exhausts that point up at a 45 degree angle, the bike does not make the familiar buzzing sound or produce the stream of pollutants as do the 2-stroke racer models from Honda and others.  With the more sedate hi-rise handle bar, flat seat, and electric starter, this is seen as the first model produced to challenge if not replace the ever-popular but upper-end dream.

However, the Wave Alpha is being marketed to the working and not the fashion classes in Vietnam.  Advance "announcements" that proclaim the quality of the Wave Alpha will be "slightly lower" than other Honda models will not help sales. In addition, the Chinese imitation of the Wave, discounted by some dealers to VND 6 million (US$ 400) provides quite a challenge to budget minded Vietnamese.

The Honda Dream, first popular in 1951 in Japan and more recently in the early 1990s in Vietnam (replacing the still present Honda '68s), is the most popular form of  solo transport, putting the make-on-a-date during  early evening rides about town, and family transport (we've seen as many as 7 on one motor bike), the Wave is already the new fashion in ever-fashionable urban Vietnam.

A well recognized Thai import for the past 4 years, competition from Chinese imports has placed a strain on domestic producers to do some re-tooling of their own to go beyond the locally produced Dream. This is the result.

The pity is that Thailand markets motor bikes only to the lower worker class. These efficient modes of transport are not popular among the middle classes but for a few students. However, even most Thai students prefer 4-wheel vehicles, including busses, if they can't afford to purchase a car. Thailand could use an advertising blitz campaign to lift the image of the humble motor bike and its drivers. 

Meanwhile, Vietnam could enforce on-the-book helmet laws to protect its citizens as is already the custom in Thailand.  But authorities here are reluctant to enforce the law on helmets for reasons that are not ever properly explained.

Soon, young professionals who are more budget than fashion conscious, and up-scale workers will be giving this latest craze a spin as the Wave Alpha becomes the life blood of Vietnam taking a more modern turn. 

A Head For Success

Even with locally produced Wave Alpha models  selling for under $800 in a nation with a per capita income still under $400 a year, overseas Vietnamese will soon be getting requests for more funds to purchase these more readily affordable status symbols. 

It is this available supply of cash from domestic or foreign sources makes a lie of the excuse offered by some in control that Vietnamese bike riders can't afford to purchase a helmet that often costs less than $30.

In the first ten days of 2002, motorbikes were in 786 of the 1,064 reported traffic accidents. With 10 million registered motor bikes on the streets (more if the unregistered were counted), motor bikes account for 62% of the 26,800 traffic accidents reported last year. This is a small fraction of the total number but seems to be a good working assessment of the total number of serious accidents.

Fatalities happened in 10,500 accidents, or nearly 40% of all accidents.

It is a safe presumption that nearly all reported motor bike accidents are major accidents that result in serious or fatal injuries.

The State media seeks to blame the least powerful as the greatest cause when a crash occurs.  Clearly there are hot and crazy kids driving in races and in other stupid pursuits,  along with drunks - both teens and much older.  But there is no respect in Vietnam for smaller traffic.

The so-called rules of the road place liability for any accident on the driver of the larger of two colliding vehicles - often without any other recourse to finding fault, and that may be as it should be given that so many drivers of larger vehicles consider it a game to push others off the road.  Watch a 20 tonne bus passing another bus to get ahead to capture then riders waiting at the next stop; or a car barreling down a narrow bridge with disdain if not disregard for pedestrian or motor bike traffic.

Witness the plight of a motor bike rider hugging the meager road edge a full meter above the rice field immediately below when the roadway to his left is filled with behemoth trucks and busses all trying to pass and speed ahead - often three abreast on a road-bed not wide enough for two.

It is long beyond time for Vietnam to get ahead and protect the heads of its citizen drivers and riders. 

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Exporters To America Under the BTA -- Beware!

 “Caviet emptor,” a Latin phrase meaning “buyer beware” was the rallying cry of manufacturers to the dismay of buyers left without any remedy in the period of the early western industrial revolution and for 100 years after, beginning in the mid 1800s. 

“Exporter beware” should be the phrase echoing around the Vietnam as this nation on the frontier of world commerce continues its dream that entering the US market will cure all that ails it.  Read this article in its entirety and learn more about:

• Manufacturing Defects vs. Reasonable Expectations of American buyers.
• Adding Value and not Just Bulk To Increase Sales in America.   
• Demands Of American Retailers upon all sellers of goods. 

See also a related article: Slowdown Rips Holes in the Apparel Industry.

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