[Vnbiz] Vietnam's WTO membership will cut both ways, bringing opportunities and challenges

[Phan, Tai]

Vietnam's WTO membership will cut both ways, bringing opportunities and challenges
The Associated PressPublished: November 6, 2006

 

HO CHI MINH CITY, Vietnam: Banking on new business after Vietnam joins the World Trade Organization, electrical appliance maker REE Corp. added a new office tower to Ho Chi Minh City's burgeoning skyline. But it's also bracing for an onslaught of competition from global giants like Toshiba and Samsung.

For REE Corp. and for Vietnam, WTO membership will cut both ways.

"Joining the WTO will create a lot of opportunities," said Nguyen Thi Mai Thanh, the company's general director. "But it will also present strategic challenges."

WTO members are expected to approve Vietnam's entry on Tuesday, bringing to an end 10 years of negotiations with the communist country, which has recently begun accelerating the pace of market reforms. The deal will take effect 30 days after Vietnam's National Assembly approves it, which it is expected to do swiftly.



WTO membership will give Vietnam increased access to foreign markets and the opportunity to take trade grievances to a neutral arbiter, strengthening its hand against nations that accuse Vietnam of illegally dumping goods on their markets. In return, the country will be required to drop its high tariffs on foreign imports and eliminate subsidies for state-owned companies.

Foreign companies will enjoy far greater access to Vietnam's economy, which has averaged 7.5 percent growth over the last decade, one of fastest rates anywhere in the world.

Many Vietnamese businesses, especially garment makers, are excited about new export opportunities. Others, like REE Corp., are eager to supply goods and services to foreign companies that come to Vietnam.

But some businesses here - particularly in banking, insurance and financial services - also worry about the new competition WTO membership will bring. State-owned domestic companies, still steeped in the old central-planning mentality, will inevitably be forced to change or perish.

"Foreign competition is bitter medicine for Vietnamese enterprises, but it will help them become stronger," said Le Dang Doanh, an economist at the Ministry of Planning and Investment.

As of April 1, foreign banks will be able to operate their own, fully-owned branches for the first time, said Alain Cany, head of the European Chamber of Commerce and director of HSBC Bank's Vietnam operations.

"We are in a country of 84 million, most of them very young people who like saving and like buying," Cany said. "They will take loans from us and use our credit cards. It's going to be a great market."

At the Eastern Asia Commercial Bank, one of Vietnam's more successful banks, director Tran Phuong Binh is rapidly installing new ATM machines and opening new branches, some in rural areas that will be difficult for foreign banks to serve.

In addition to introducing a new ATM card, Binh also developing a "take-out" service for customers, who can call and have money delivered to their house.

"We sometimes have to cross rivers to serve our rural customers," Binh said. "I don't think foreign banks will be able to serve this market."

Unlike other foreign companies, American businesses may not be able to take advantage of the WTO agreement immediately because the U.S. Congress has yet to grant Vietnam "permanent normal trade relations" status. President George W. Bush hopes a PNTR bill will be passed before he visits Hanoi for the APEC summit Nov. 18-19, but that looks unlikely.

Among other obstacles, Sen. Mel Martinez, a Florida Republican, has been blocking consideration of the bill due to concerns about a Florida pro-democracy activist who is being held in a Vietnamese jail, suspected of plotting against the Vietnamese government.

The PNTR bill is expected to be approved eventually. But without it, U.S. companies will not be able to enjoy the benefits of the WTO agreement - unless Vietnam decides unilaterally to treat them like other member countries.

Foreign investment in Vietnam has surged ahead of Tuesday's vote, rising 41 percent in the last year. Foreign firms have been encouraged by Vietnam's market reforms, which began tentatively in the late 1980s, moved in fits and starts during the 1990s and greatly accelerated over the last three years.

The government has approved new enterprise and investment laws that grant equal treatment to foreign and domestic firms, and it will soon approve a securities law that will increase the transparency of Vietnam's small but booming stock market.

"Entering the WTO sends a very important signal that everything they have done so far is not just temporary," said Cristoph Wyesner, head of the European Commission's political, economic and trade section in Hanoi.

Since the United States and Vietnam implemented a bilateral trade agreement five years ago, trade between the former foes has grown from US$1.2 billion in 2000 to US$7.8 billion last year.

Vietnam's garment exports to the U.S. have skyrocketed, and the industry is hoping to reap even greater profits after joining the WTO, which will require the United States to lift quotas on Vietnam's garment exports. But expectations have been tempered by ongoing negotiations on the trade normalization bill.

 
In response to concerns raised by two senators from the textile-producing states of North Carolina and South Carolina, the U.S. Commerce Dept. has struck an arrangement under which it will keep a close watch on Vietnam's garment exports and initiate antidumping measures if the clothing is judged to be sold at lower-than-market costs.

Vietnamese garment manufacturers plan to tread carefully, limiting export growth to about 20 percent a year, said Nguyen Huu Binh, deputy general director of Vinatex, Vietnam's largest garment company, which produces clothes for Wal-mart Stores Inc., Nike Inc., and other U.S. retailers.

"We don't want them to bring anti-dumping cases against us," Binh said. "That would be even worse than quotas."

Vietnam also recently approved a franchising law that will make it easier for companies like McDonald's and Starbucks to gain a presence in cities where U.S. chain stores remain largely absent.

If Vietnam's cities lose some of their distinctiveness and become more like other bustling Asian cities, that's just the price progress, said Doan Duy Khuong, vice president of the Vietnam Chamber of Commerce and Industry.

"In a market-driven, money-driven society, we can't avoid the laws of life," Khuong said