Features

Vietnamese businesses know little about the US market in terms of laws, trade practices, marketing activities and trade lawsuits

Appropriate policies will appeal to American investors and traders

The landmark Vietnam-US Bilateral Trade Agreement (BTA) has benefited the nations enormously durng the past decade. Now the Trans-Pacific Partnership (TPP) is ready to take this solid trade relationship to a new level, writes Prof. Nguyen Mai, former Vice Chairman of the State Committee for Cooperation and Investment (now the Ministry of Planning and Investment)

Two-way trade between Vietnam and the United States has skyrocketed since the signing of the Bilateral Trade Agreement but Vietnam needs to work harder to maintain this momentum.

In 2001, before the trade pact, litterally known as the BTA, took effect, bilateral trade turnover was just $1.51 billion. That figure jumped to $2.89 billion in 2002, before soaring to $6.75 billion in 2005, $18.1 billion in 2010 and an estimated sum of $20 billion this year.

Vietnam’s export volume to the US increased from $2.45 billion in 2002 to $5.93 billion in 2005 and $14.24 billion in 2010, a 19.5-fold rise against 2001. Securing high export growth to this demanding market helped Vietnam move towards diversification of its exports.

Vietnam’s trade surplus with the US continuously increases to $10.47 billion in 2010, helping offset Vietnam’s trade deficit of $12.71 billion with China. The US dumping suits against Vietnamese catfish and garment imports in 2002, other trade lawsuits and the implementation of the Vietnam–US textile agreement in May 2003 had hit Vietnam’s export to the US hard in the following years. However, export growth to the US still reached 16 per cent in 2004, 18.8 per cent in 2005 and 32.8 per cent in 2006.

In January 2007, the US removed the import quota on Vietnamese garments, which has helped enhance Vietnam’s textile and garment exports to the US, playing an import role in making the products Vietnam’s biggest forex earner. This year garment and textile exports are expected to rise 30 per cent on-year to $13.5 billion, showing a five-year high and accounting for 15 per cent of the country’s total export turnover of $96 billion.

Vietnam’s exports structure to the US has been improved. Processed goods have become staples while the proportion of semi-processed products and natural resources has dropped steadily.

In 2001 before the BTA came into effect, 78 per cent of Vietnamese exports to the US were semiprocessed products – mainly shrimp, oil and gas. Two years after the agreement took effect, the ratio of Vietnam’s processed exports to the US rose to 72 per cent in 2003 and this is 74-75 per cent at present.

In 2002 and 2003, the main processed products shipped to the US were textile and garments, electronics, leather and footwear, and woodwork. These products accounted for nearly a half of Vietnamese exports to the US last year.

In 2010, the US export volume to Vietnam saw an 8.2-fold increase against 2001 with key shipments including means of transport, machines, manufactured products, food and semi-processed products.

But American exports to Vietnam did not grow constantly. In the first two years of BTA implementation, US exports to Vietnam increased from $460 million (in 2001) to $1,324 million in 2003, mainly based on Boeing aircraft purchase agreements. The figure stood at approximately $1.1 billion a year from 2004 to 2006 and reached $1.68 billion in 2007, $2.85 billion in 2008, $2.71 billion in 2009 and $3.77 billion in 2010.

Before the inking of the BTA, Vietnam’s key export markets comprised Japan, the European Union (EU) and the ASEAN. After the BTA kicked in, and especially from 2005 onwards, the US has grown into Vietnam’s biggest export market.

In 2010, Vietnamese exports to the US accounted for 19.72 per cent of the country’s total export turnover, higher than other big partners including ASEAN ($10.35 billion or 14.3 per cent of total export turnover), EU ($11.36 billion or 15.73 per cent) and Japan ($7.72 billion or 10.7 per cent).

This is a positive sign for Vietnam’s export activities because the country has further expanded and diversified its export markets. Furthermore, in the diversified trade environment, Vietnam can adapt better to changes in trade conditions of each nation in case of economic downturn or anti-dumping measures, technical barriers and trade sanctions.

Since the signing of the BTA, the competitiveness of Vietnamese goods in the US market has been improved significantly. Thousands of Vietnamese enterprises have surveyed the US market and participated in exhibition fairs to seek trade partners. Nevertheless, Vietnamese businesses know little about the US market in terms of laws, trade practice, marketing activities and trade lawsuits. And in recent years, Vietnamese businesses have coped with anti-dumping lawsuits in the US.

To expand Vietnam-US bilateral trade relations, Vietnam must improve its image in the US, promoting the quality, designs and prices of its goods via diversified channels while actively avoiding and coping with anti-dumping lawsuits. Vietnamese companies need to invest in market survey, setting up long-term partnership relations based on confidence and the sharing of interests.

Untapped investment potential

After 10 years of BTA implementation, US direct investment in Vietnam remains modest in comparison with trade turnover, despite the US taking the lead in foreign direct investment (FDI) worldwide and investing huge sums in ASEAN countries such as Singapore, Thailand and Malaysia.

Before President Bill Clinton declared the lifting of the US embargo on Vietnam on February 3, 1994, some US businesses had invested in Vietnam via a third country. From 1995 to the end of 2011, the US has had total registered capital of $13.1 billion in Vietnam, giving it seventh place among countries and territories investing in the South East Asian nation.

US disbursed capital in Vietnam stood at $248 million per year on average from 1996 to 2001 and surged to $479 million in the 2002–2006 period but has risen slowly since then.

The most striking feature of US investment in Vietnam is the project by the world’s largest chipmaker Intel Corp. at Ho Chi Minh City’s Saigon High-Tech Park. The $1 billion project is currently underway, involving some 3,000 engineers and skilled workers.

Why is the US investment in Vietnam still modest and what should be done to boost the FDI flows into Vietnam? The answer lies on both sides. On the US side, there may be domestic hindrances and American businesses’ concerns about regulations, publicity and the transparency of Vietnam’s laws.

There may also be concerns about intellectual property rights and the investment climate in the country, particularly administrative procedures, qualified human resources and technical infrastructure.

In order to find out the solutions, Vietnamese diplomatic agencies, investors and businesses need to talk openly with American partners on a cooperative and mutual-benefit basis.
On the Vietnamese side, an FDI promoting policy is considered the most important orientation for a new stage and a precondition to attract more investment from the US.

Under a new growth model, Vietnam must improve investment efficiency, including both FDI and domestic investment in order to develop a modern economic structure. Therefore, the quality must be the first criterion in attracting FDI.

To attract high-quality FDI, Vietnam must shift its focus from labour-intensive industries to electronics, information technology, petrochemicals, supporting industries, high-end services, human resources training, healthcare and technical infrastructure.

The quality of FDI is closely linked to policies on encouraging partnership between transnational corporations (TNCs) and domestic enterprises. FDI attraction geared towards high quality and efficiency with the above prioritised industries and areas will appeal to foreign investors, especially large US groups.

To reach the goal of pulling in more FDI to Vietnam, particularly from American TNCs, the country needs to renovate investment promotion activities, and provide necessary information about infrastructure such as electricity supply, traffic jams and administrative procedures in timely fashion.

Vietnam should be more active in approaching American TNCs, aiming at high-tech projects which are in line with the country’s new FDI orientation and economic restructuring.