Business in Vietnam

FEATURES:
Background
The American business community in Vietnam
Jackson Vanik Amendment
Bilateral Trade Agreement

click to enlargeBackground
If full reconciliation is to be achieved, it must be based on building strong economic ties between the United States and Vietnam. Ten years ago, Vietnam's doors were closed to establishing links with capitalist countries. Today Hanoi recognizes how important those ties are if the quality of life of the Vietnamese people is to be improved. The transition from a central-planning to a market-oriented economic system has not been easy.

Vietnam's transition began with Doi Moi, the open-door policy enacted in 1986, which paved the way for radical economic reforms. By the first quarter of 1993, foreign investments in the Vietnamese economy totaled over $3 billion, more than double the figure of only two years prior. Vietnam was dubbed "the next Asian tiger"; spirits rode high. A building boom began: five-star hotels and business centers sprang up in Ho Chi Minh City and Hanoi. Countries lined up to bid on massive infrastructure projects such as rural electrification, building roads and bridges, and oil and gas exploration. But in 1997 a devastating financial crisis spread throughout Asia. This recession, coupled with Vietnam's slow pace of economic reform, has made investors skeptical.

Vietnam's policy makers respond to criticism over their unwillingness to move quickly by stressing the need to maintain stability. They see both the Asian financial crisis and Eastern Europe's political instability as examples of what happens when change--either economic or political--comes too rapidly. A sense of fierce independence coupled with a fear of social unrest have stalled Vietnam's earlier thrust for rapid reform. Deputy Prime Minister Nguyen Manh Cam told foreign investors in June, 1999 that " slow and stable has to be more preferable than a fast step up, then a collapse. "

click to enlargeThe American business community in Vietnam.
With the lifting of the U.S. trade embargo in 1994, American companies were finally able to invest in Vietnam. The United States now ranks eighth among Vietnam's top foreign investors with 70 licensed projects worth $1.4 billion. Ambassador Peterson said, "This is just the tip of the iceberg." The Vietnamese have an historical preference and admiration for American products and technology. Vietnam's commercial potential for American companies is enormous.

It's been a difficult market for the Americans. Asian, European and Australian competitors had had an enviable head start. Even today American investment in the country is only four percent of the total foreign investment. American companies are handicapped on two additional fronts: Asian business practices in which bribes and under-the-table deals are common, and their own government which has set up legislative hurdles such as the annual waiver of the Jackson Vanik Amendment. American companies are often characterized as inflexible, believing business can only be done the American way. Yet those companies willing to take a risk and invest for the long term in Vietnam may reap the benefits of their gamble.

What is Jackson-Vanik and why is the waiver of this amendment important to American Business ?
Introduced in Congress during the 1970s to promote the emigration of Jews from the Soviet Union, the Jackson-Vanik amendment prevents the U.S. Administration from giving government trade and investment funding to countries which do not allow their citizens unhindered freedom to travel abroad and to emigrate. This legislation significantly influences relations between the United States and Vietnam. Every year the U.S. President must decide whether to waive the Jackson Vanik Amendment. It is then sent to Congress, which can either uphold his sanction or turn it down by a two-third vote.

Without the Jackson Vanik Waiver, American projects in Vietnam cannot access loans from the Export-Import Bank of the United States (EX-IM) or the Overseas Private Investment Corporation (OPIC). This places American companies at a severe disadvantage to foreign competitors who receive government support for their projects in Vietnam.

"I continue to tell the Vietnamese that capitalism and a free market is essentially the freedom to do two things. Freedom to succeed and freedom to fail and they have to learn that. They have to learn how to become competitive. And who best to teach them that then America."

Bilateral Trade Agreement
The United States and Vietnam have been negotiating a Bilateral Trade Agreement for nearly three years. On July 25, 1999, the two nations shook hands on an "agreement in principle"; a formal agreement which must still be approved by the U.S. Congress and the Vietnam National Assembly could be in place by Fall, 1999. Under US law, the United States cannot extend Normal Trade Relations to countries in transition like Vietnam without a Bilateral Trade Agreement (BTA). The purpose of the Agreement is to ensure trade rules are clear, to stimulate and increase trade, and to help Vietnam achieve economic integration, including membership in the World Trade Organization (WTO).

Ambassador Peterson offers these comments on its importance:

"The Bilateral Trade Agreement will yield significant economic benefits to both nations. Vietnam's exporters will have access to the massive U.S. market on a competitive basis, greatly enhancing Vietnam's ability to export and to attract foreign investment. This will lead to the development of new industries which in turn will create new jobs for the Vietnamese people and improve the quality of life in Vietnam. Many U.S. companies and individuals in a large variety of industries have expressed interest in doing business in Vietnam. This Agreement will send a positive signal to them about Vietnam's commitment to integrating into the world economy. And, of major significance, implementation of the U.S.-Vietnam Bilateral Trade Agreement will mark the normalization of our two countries' economic relationship."

Links:
Vietnam Business Journal
Vietnam Online-promoting business in Vietnam
American Chamber of Commerce


The Mission: Reconciliation
Two Nations Grieve | Business in Vietnam | The Political Arena

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