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Copyright ©  1999-2013  Vietnam Venture Group, Inc. All rights reserved.   Updated February 27, 2004

The Bilateral Trade Agreement - 2001
By: Peter N. Sheridan

One of the first acts by incoming President George W. Bush is his pre-inaugural re-appointment of  Douglas "Pete" Peterson as Ambassador to Vietnam for an indefinite term. This is important as Ambassador Peterson (formerly a Democratic Congressman from Florida) has a long, personal and more recent professional history in Vietnam.  A POW in Hanoi for 6 years during the war, he was the first US Ambassador in Hanoi and for the past 4 years has been a  guiding force to the signing last July of the Trade Agreement. The BTA must still be ratified by the United States Congress where some vocal but insubstantial dissention is expected.  

Signed by U.S. Trade Representative Charlene Barshefsky and Vietnam's Trade Minister Vu Khoan in Washington on Thursday, 13 July 2000, it took five years and two days after normal diplomatic relations were opened between the two nations and four years after negotiations first began.

This agreement was stalled for the past nine months after the Politburo pulled the rug out from under Prime Minister Phan Van Khai, who reportedly went to the APEC meeting in Auckland, New Zealand in October 1999 in part to sign the agreement. It is not known yet if any substantive changes were made between that and the agreement now signed. 

Clearly the BTA will favor Vietnam and investors in Vietnam.  However, still needed in addition are substantial business, financial, and political reforms within Vietnam that some in the leadership of this otherwise progressive land would prefer not to see, or to put off for as long as is possible. 

We expect no opposition from Vietnamís National Assembly (NA). We can only presume that the Politburo supports this agreement. If the BTA is again rejected by the Politburo, it will never see the light of day in the NA which, along with the US Congress, must approve the Agreement. 

We do not expect the American Congress will act with any dispatch on this agreement. As the House and Senate will recess in August, there is still speculation if the President will put off a vote until after the November elections.

A presidential trip to Vietnam is in the planning stages for November, presumably if the  BTA can get through Congress in September, or if the President feels, even absent Congressional approval, the trip will have more positive than negative aspects for its passage.

As a full vote up for the agreement is needed from both house of Congress, we expect a noisy outcry from the same, tired, old conservative voices arising out of the VietKieu dominated communities as before, represented as they are by staunch American conservatives. 

It is reasonable that a lame duck Republican Congress may not be eager to vote on the bill after November, which will force it to wait for the new Congress that first sits in January 2001.  However, should the BTA not pass this session, following January with a new US President, Trade Representative, and Congress, passage of the bill as it may now be presented can also raise some concern for further delay.  

The Chinese BTA, granting Permanent NTR, was voted up by the House two months ago and has not yet passed the Senate.  If that bill does not pass before the August recess, it is expected to pass in September.

As PNTR has not been included in the BTA with Vietnam, we see no profit to the Clinton Administration by trying to attach the new bill to the pending Chinese bill, if issues on the Vietnam bill could hold up the more important and larger issue of trade with China.

Only after both nationsí legislative bodies approve the BTA will NTR come into effect.  There is no additional act or regulation that is needed, but for the fact that Customs Officials in both nations must be alerted to the new tariff schedules. Ancillary agreements, on airlines, particular tariff reductions, and the like, should proceed smoothly once the BTA in the main is brought into effect.

The major changes we expect stemming directly from NTR are few but substantial:

From the American Side:

  1. Import duties will be reduced from as high as 60% to as low as 3%.  However, this 3% minimum will NOT automatically apply to all goods unless they are specifically mentioned in the body of the BTA.  Usually, smaller trade agreements on specific items are worked out between the two nations on an as needed bases.
  2. American investors will feel a greater relief than ever before, but still ambivalent of their opportunities to get a fair rate of return from their existing, or from new, investments.  While there are many, newly wealthy Vietnamese, the Vietnamese still do not universally show an understanding that an opportunity for a foreigner to invest in Vietnam MUST be accompanied by a fair chance to recover a good rate of return from that investment.
  3. Non-Governmental Organizations will find a fresh source of revenue from US private donors who should rightly feel a sense of actual security from the full normalization of trade relations. However, that sense will fade quickly if the rule of law is not even more quickly established in Vietnam.  To date, ďlack of transparencyĒ remains the diplomatically acceptable phrase for Vietnamís continued refusal to publish real numbers of past, present, and future economic activities, and a means to check the published numbers to insure their accuracy.
  4. Tourism will grow, but perhaps not as dramatically as Vietnam would like.  The need for affordable and dependable accommodations, communications, transportation, and health care will continue to deter traffic until those needs are more fully met.
  5. National Treatment for American companies is a key element of the BTA. While we must first see how this is provided for in the full document, in concept, American companies are to be given the same opportunities to form and operate companies in Vietnam, as are Vietnamese domestic companies. This includes every aspect of business and trade to include costs and taxes.  In return, Vietnamese companies will be given the same rights to form an American business, as are American companies.

Of course, business operations for Vietnamese domestic companies are also still burdened with bureaucracy and corruption.  However, the new Enterprise Law favoring domestic reforms should apply to American owned enterprises and in general, things should improve. 

National Treatment is well established in some other Southeast Asian nations.  For more than 160 years, Thailand has enjoyed National Treatment with America. The 1833 Treaty of Friendship allows wholly owned American businesses to operate outside of the restrictions imposed on other foreign investors.  This very important aspect of the BTA has not yet been fully understood by American investors, but is decried by Americaís competitor nations.

From the Vietnamese Side:

  1. Factories will start gearing up for greater production runs for those products that Vietnam can produce well, such as ceramics, garments, and handicrafts.
  2. Imports will not grow substantially but for those products now being imported to include fruits, canned foodstuffs, and small electronic parts.  We expect that duties on luxury goods not yet manufactured in Vietnam, will remain high for several years in order to allow Vietnamís growing industries to become stronger.  This will include automobiles.
  3. A need to enforce copyright and patent laws will increase, but the need and the BTA will not be sufficient to stem the tide of pirated goods. We see that same problem existing throughout Asia and expect no miracles from Vietnam.

From the side of Asian Investors:

Far less cautious than their American or European competitors, we expect to see a substantial growth in the light manufacturing for export industries: appliances, ceramics, clothing, electronics, and handicrafts.  Singapore, South Korea, Taiwan and Thailand can be expected to take advantage of Vietnamís strong, vast, and well-educated work force that will produce quality goods at a very favorable rate of return.

Unlike the out-of control quality problems still suffered with some Latin American production, American markets favor the Made In Vietnam label and will pay more for these goods. The labor rates are less than the Latin American nations, even after accounting for the costs of shipping. The rate of return is higher due to lower quality rejection rates as well.  Profits will be considerably higher for goods made in Vietnam, provided the Vietnamese government does not interfere with higher rates of taxation (or other hidden costs) for goods manufactured in foreign owned shops.

From the side of European Investors:

There are some press reports that National Treatment is to be given all nations as a result of this BTA.  That seems strange and must wait for a full review of the agreement.  This is a bi lateral, not a multi lateral agreement. It would seem a strange twist for the American side to have negotiated an all important National Treatment provision for its politically friendly economic competitors in Europe.

We have already heard the complaints: the BTA requires National Treatment for US companies in Vietnam that will not be passed on to their European competitors.  Of course, the EU nations have been enjoying free trade with Vietnam for nearly 10 years already, but they often forget their advantages when they see American progress, and hide behind the American umbrella when there are problems to be solved.

We suspect that at best, other nations can on their own argue for National Treatment along the same lines granted the America. When the full text of the Agreement is fully analyzed, we will report on this point again.

Should the progressive elements of the government of Vietnam win the day and prevail upon their more reluctant associates to either change their practices or retire, and if this is accomplished before the start of the 9th Party Congress in March Ė April 2001, we look forward to a rapid and substantial change in the business environment for all of Vietnam. 

A Regional Need for Action.

True reforms in the Vietnamese rule of law, trade practices, transparency, eliminating corruption at all levels, banking practices, and police practices will bring an influx of hard currency.  Then the nation will be transformed and come to forefront of 21st century global economies.  WTO membership is yet years away, as is PNTR, but Vietnam should be able to strut its stuff on the American Market in short order if it moves forward, now.

This will not come too soon.  With reportedly 1 million  to 1.3 million youths entering the labor market every year, in a market now in its 3rd year of downsizing, the failure to seize this opportunity could encourage instabilities seen in neighboring lands.

In the Bangkok mayoral race, the ruling DP party's candidate lost to a corrupt, though experienced, opponent. The defeat underscores the Thai people's dissatisfaction with their government - a dissatisfaction that is gathering force throughout the region.

The choice of the voters reflects the frustrations in Thailand.  They not only rejected the DP candidate - whose campaign never really got off the ground - but passed over a skilled professional who positioned herself as the choice of modern Thailand - and the globalization and economic reform that goes along with it.

Sustained economic recovery hasn't taken hold in other parts of Asia and ruling parties are paying the price. Indonesia's economy is in ruins and its President is under intense political pressure. Voters in Taiwan rejected the Kuomintang (KMT) party, not because they liked the new President's anti-China rhetoric but because they wanted to separate the KMT from the economy. The Philippine President's popularity is still in the doldrums, along with his country's economy. And even Malaysian President Mahathir Mohammad faces invigorated domestic opposition.

The current pace of reforms must increase.   Back in Vietnam, a few new projects and some old, long stalled ones are showing new signs of life in both Ho Chi Minh City and Hanoi.  Concrete trucks are rolling, not yet in fleets, but at least they are not both idle and rusting. 

There have been many windows of opportunity that closed due only to the inaction or misdirection of many in leadership positions in Vietnam. The leadership must not allow that to happen now.

Based upon serious complaints made to us by foreign investors, we caution the good leaders of Vietnam to pay attention: foreign investors once fooled into making initial investments are now most hesitant to enter new or larger projects.

Many foreign investors that entered Vietnam since 1994 are bitterly disappointed. Absent needed reforms, the up-side potential found in China by virtue of its size alone is not found here.  Some say that they will not give Vietnam another chance, and will continue to place projects in other lands that are as well known and convenient,  but seem more hospitable.

We sympathize with investors who came as friends with a desire to help develop the nation, and were welcomed by Vietnamese merely as "resources" from whom only their technology and hard currency were sought.

However, we also urge investors to pay attention: Vietnam as place to invest in still has advantages not found elsewhere in the world.

Some Reasons to Invest With Vietnam.  Vietnam is filled with nearly 80 million people who are hard working and industrious.  By way of example, rice farmers are able to grow three crops annually against Thailandís single crop. This is only because the industrious Vietnamese long ago built an extensive, national system of irrigation canals.  

In the same way, 150 years ago Vietnam moved away from Chinese-style print to a romanized alphabet. As a result, with a 92%+ literacy rate, there is a near universal desire by Vietnamese to learn to the level available and beyond.  

Walk the city streets and find youths under 25 (who comprise the vast majority of the population), mostly all speaking some English.  It seems one can wander Thailand for days and not hear any English.

The Vietnamese workers, in contradistinction to many in neighboring lands are hard working and loyal to their jobs, provided of course they have a fair employer.  

The strategic location of the Vietnam, the natural beauty of the land, the physical beauty of the people (who really do smile), and the nearly perfect year-round weather, makes Vietnam a place everyone should visit for holidays. Families are always welcome.

For our clients and friends, we continue to urge, as always, a conservative optimism on all matters in Vietnam. However, as this is a nation that for nearly 2000 years has longed for its own chance to shine, that time now seems to be upon them. 

Based upon our 30 year-long experience with the people of Vietnam, and particularly our past seven consecutive years in this region, we believe that the next 12 months can be an extraordinarily exciting time for growth in Vietnam, provided the nationís leaders and foreign investors both have the courage and the foresight to move forward. 

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