| BUSINESSWEEK ONLINE : AUGUST 16, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Vietnam: Welcome Back? (int'l edition) A trade deal could powerfully boost U.S. investment in Vietnam A huge, untapped market. Millions of diligent, low-wage workers. A government that promises the moon. Enthusiastic foreign investors heard it all before from Vietnam, in the early 1990s--only to become gravely disillusioned by corruption, red tape, and obstinate Communist bureaucrats. As such multinationals as Raytheon, Chrysler, and Sheraton Hotels pulled out in frustration, investment plunged, and growth stalled. Now, chastened officials are relaunching the charm offensive--and this time, the gains could be lasting. On July 25, Washington and Hanoi announced an agreement in principle that would give U.S. companies greater market access. Banks, insurance companies, law firms, and retailers would be able to operate freely in Vietnam, while telecom companies would be permitted to own limited stakes in local ventures. Vietnam also pledged to dismantle tariff barriers on hundreds of U.S. goods. In return, Hanoi will get what it has long craved: Normal trade status with the U.S. that will open the doors to Vietnamese-made shoes, garments, and other products. Even though Washington ended its economic embargo in 1994, high tariff barriers kept Vietnamese exports to the U.S. at only $550 million in 1998. With the deal, Vietnamese exports could double next year. BREAKTHROUGH. U.S. officials are hailing it as one of the most comprehensive bilateral trade acts they've ever negotiated. More than three years in the making and covering more than 100 pages, the preliminary document goes into exhaustive detail over such matters as intellectual property right-protection customs and tariff rules. Some details still must be hammered out, but ''the guts of the agreement are in place,'' says a senior Clinton Administration official. Negotiators hope to wrap up in time for President Bill Clinton and Vietnamese Prime Minister Phan Van Khai to sign the deal in New Zealand at September's Asia-Pacific Economic Cooperation summit. Congress and Vietnam's National Assembly then must approve. Although some officials doubt it can be rammed through Capitol Hill this year, others hope it will go into effect in January. Frederick Burke, a Ho Chi Minh City-based attorney with Baker & McKenzie, calls it a bigger diplomatic breakthrough than ending the embargo because ''establishing a trade relationship means real engagement between the two countries.'' The European Union hopes to conclude a similar pact. Don't expect another corporate stampede into Vietnam immediately. Just in the past few months, Motorola, Qualcomm, and Cigna have sharply retrenched because they grew tired of losing money. Permission to own just 20% to 30% of a venture sometime in the future, as provided in the pact, may not be enough to lure them back. But excitement is building in some sectors. U.S. banks, currently allowed only limited operations in Vietnam, are especially bullish. Eventually, they are to get the same rights as domestic institutions to make loans and offer financial services. ''Long term, we're looking at having full, unrestricted access to the market,'' says Citibank country manager Bradley C. LaLonde. ''This certainly will instill more confidence in the place.'' Companies using Vietnam as an export base also are elated. Take Nike Inc. Through its Taiwanese and Korean subcontractors, Nike is the largest foreign employer in Vietnam, with 43,000 workers. A dozen factories produce $400 million in shoes and garments yearly--5% of Vietnam's total exports--for Europe and Asia. Few go to the U.S. because of tariffs that average 30%. In anticipation of the deal, one Nike shoe factory in the southern district of Cu Chi--where a network of tunnels sheltered Viet Cong guerrillas in the war--already plans to boost its workforce by 50%, to 9,000. By shifting work to Vietnam, where wages are around $50 a month, Nike officials say they hope to lessen their reliance on China and Indonesia. ''We're a winner--definitely,'' says Nike Vietnam manager Chris Helzer. What's more, Nike and other retailers for the first time would be able to sell directly to Vietnamese consumers. Companies such as 3M, which pays duties of up to 40% on its Scotch tape, also are hobbled because they must compete with smugglers who bring their products in from neighboring countries. ''If the tariffs are lower, smuggling will go down,'' says Ronald R. Kiel, managing director of 3M's Vietnam office. Economic pressures are behind Hanoi's haste to make a deal. The Asia crisis has caused investment from companies in recession-ridden Hong Kong, Singapore, and South Korea to plunge. Foreign investment approvals fell from a peak of $9.2 billion in 1996 to $4.1 billion last year. Just $1 billion is expected in 1999. That, in turn, has hammered Vietnam's economy, which is growing at only half its pre-crisis average of 9%. The U.S. trade pact also could add momentum to economic reform. In the early 1990s, the government made bold promises to reduce the state sector and liberalize the financial system. But bureaucrats stalled most reforms. As a result, only one-third of Vietnam's 5,800 state enterprises are profitable. Exposing the companies to foreign competition could force them to modernize. ''This reflects a change in the mind-set of our government. They're more practical now,'' says Pham Chi Lan, executive vice-president of the government-linked Vietnam Chamber of Commerce & Industry (VCCI). ''People realize they have to become more competitive to survive.'' SECOND CHANCE. Hanoi also hopes greater U.S. exports will create jobs. The Labor Ministry forecasts that by next year, 8 million people--20% of the workforce--could be unemployed. And 1.3 million adults join the workforce each year. ''We have to find a way to employ them,'' says Industry Vice-Minister Nguyen Xuan Chuan. ''Once the U.S. market is opened, there is a big opportunity for us.'' Private entrepreneurs, such as Phan Khac Hoa, have the same idea. Hoa's Vinh Phat Export Garment Co. outside Hanoi makes 750,000 coats, sports shirts, and trousers every year. By exporting to the U.S., where profit margins are up to 15% higher than in his current markets in South Korea and Europe, Hoa is adding another 150 workers to his staff of 500. ''We've been waiting for this day for a long time,'' comments Hoa. For many battle-scarred foreigners, this latest round of openness in Vietnam may be too little, too late. For those companies, Hanoi offers contrition. Says Lan of the VCCI: ''It would be easy to blame the Asia crisis, but we blame mainly ourselves. The government realizes that fact.'' Vietnam is looking for a second chance. It certainly needs it. By Sheri Prasso in Hanoi, with Paul Magnusson in Washington _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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