Vietman Ecomonic Times Interview

America's first trade contacts with Vietnam dates back to 1835 when Edmund Roberts, Andrew Jackson's Ambassador-at-Large, was dispatched around the world to sign commercial treaties with Sultans, Kings and Emperors, including King Rama III of Thailand. In the course of this world spanning voyage, Roberts arrived in Hue for talks with Emperor Minh Mang in 1835. No agreement resulted from the visit, however, because according to accounts at the time the Vietnamese thought Roberts was arrogant and unfriendly because he spent most of his time indoors. In fact, this was a misunderstanding, one of many in US - Vietnam relations. Mr. Roberts was severely ill and dying of dysentery.

My own experiences with Vietnam go back some way, but not quite as far as those of Ambassador-at-Large Roberts. My first contacts with Vietnam date from 1969 when I served in the US Military in Vietnam; then again in 1975 when I served on President Gerald Ford's Presidential Clemency Board for Vietnam Draft Deserters and Evaders. In 1993 I served as US Special Negotiator for Vietnam and shortly thereafter arrived in Hanoi with a very dedicated and gifted team of mostly young US diplomats and started the process that led to the lifting of the US Embargo, the opening of the US Liaison Office in 1994 and the opening of the Embassy a year later. Six years ago after a tour in China, I took early retirement from the Diplomatic service and started my own company working with Chinese, Thai, Vietnamese and US companies. Our website, www.business-in-asia.com, currently gets over a million hits a month from US, European and other buyers seeking opportunities in Asia. Routinely we have introduced large buyers to Vietnamese companies as US and European companies take our advice and spread their supply chain risk by moving some of their buying and manufacturing, to non-China locations like Vietnam.

During my tenure in Hanoi we started negotiations on the US-Vietnam Bilateral Trade Agreement (BTA) which concluded with the signing of the agreement in 2000 and its ratification in December 2001. We have now had just over three years under this trade agreement and trade between out two countries has continued to grow strongly. The BTA led to the granting o: Normal Trade Relations (NTR) status h the United States, and a long series o; phased-in trade policy changes and legal changes by Vietnam. Since then, trade jumped dramatically but the rate of increase is starting to moderate. Final trade figures for 2004 show bilateral trade of over $6 billion. As a direct result of the BTA and o: lower customs rates, Vietnam's exports to the United State rose by some 128 percent in 2002 and 90 per cent in 2003. The US buys from Vietnam garments, shoes and many other products. Vietnam's import from the US also more than doubled between 2002 and 2003, although they largely showed little growth in 2004 Vietnam has become a potentially significant buyer of Boeing airplanes, tractors, oil drilling technology, computers, and cotton.

Starting in December 2004, a number of important BTA obligations came into force These include more significant customs reductions, the introduction of some new trading rights, permission for US companies to establish joint ventures to offer internet services, the right to mortgage land use rights at foreign banks, and the termination of a number of restrictions on investment, including the elimination of minimum capital requirements for joint ventures.

Beyond the BTA, in July 2004, the US and Vietnam extended the bilateral textile agreement until the end of this year. The extension will expand the amount of textiles and garments that Vietnam can sell to the US, which is good news for Vietnam's garment industry. In 2005, Vietnam garment exports continued to hold their own in the US market but were under strong pressure this year by a deluge of exports from China which were undercutting Vietnam exports on price and may well mean that export value for 2005 may actually be stagnant although export volume for garments may actually rise.

In 2004, US investment in Vietnam topped $l billion, but this understates the real total. The data does not include investments by US subsidiaries in Singapore and elsewhere in the region, including $1 billion by Conoco-Phillips alone. If these are added, US investment in Vietnam is just under $3 billion, which would make the US in the top five or six foreign countries investing in Vietnam.

Vietnam is working hard this year with numerous countries to win support for its bid for WTO membership, which we all hope can occur this year but more realistically may take until 2006.

Despite the above growth which is truly impressive, there are still bumps in the road as both sides go forward.

With increased trade, the likelihood of trade disputes will also continue to exist, although both sides will increasingly deal with these in the context of a wider and deeper relationship. For example, in 2002 when Vietnam experienced trade disputes with the US including over catfish, the catfish case was one of 276 anti-dumping cases initiated worldwide in 2002. (Between 1999 and 2001, Vietnam's 400,000 catfish farmers managed to export up to 896,000 kilos frozen catfish fillets, worth $2.6 million). In 2001, the claim was that Vietnam was selling the fish under false pretenses. A Congressman from Arkansas, for example, asserted that the bottom feeding, smooth-skinned, whiskered Vietnamese fish of the Pangasius family are "no more related to a catfish than a cat is to a cow." (American catfish are from the Ictaluridae family). Vietnam therefore had to label all such fish under the local names "basa" and "tra". In 2002, a diametrically opposite complaint - that Vietnam was unfairly dumping catfish - led to a 64 per cent tariff penalty. By August, Vietnam's catfish earnings had fallen to 21,000 kilos and $57,000, as Vietnamese farmers responded by switching to other fish.

This brings us to where the relationship will go from here. Vietnam is increasingly becoming an important exporter to the US market with its main export earners being textiles, seafood, footwear and woodwork.

Based on export figures from January this year, Vietnam was the 33rd largest exporter of the US, totaling $537 million, up 42.1 per cent over last year's same period.

Textiles, seafood, footwear and woodwork are the country's biggest export earners in the US market. In January, Vietnam's textile exports to the US market hit $227 million, making the country the seventh biggest textile exporter to the US after China, Mexico, India, Hong Kong, Canada and Indonesia. Currently, Vietnam's textiles constitute about 3 per cent of total US textile import turnover.

Seafood exports to the US in January reached $72 million, which puts Vietnam behind only Thailand, China and Canada. Despite the catfish and shrimp anti-dumping cases, the country's seafood still remains competitive in the US and holds a 7.2 per cent market share.

Footwear also is a leading export for Vietnam to the US although its export turnover was only $55 million in January and its market shares just 3.5 per cent.

Vietnam is also among the top 10 woodwork exporters to the US. In January, woodwork exports hit $54 million, holding 1.5 per cent of the US market. Although the figure only rose slightly from December, it was 170 per cent higher than last year's same period and continues to grow rapidly. I would project that woodwork will top footwear this year in terms of Vietnams exports to the US.

For the future, I see the following for Vietnam:

a. Steadily rising trade between Vietnam and the US although not at the rates seen between 2003 and 2004.

b. Increased sourcing of manufactured items from Vietnam. We have already introduced several major US buyers in the manufacturing sector and many more are in active discussions with us now about further projects.

c. Assuming continued liberalization of foreign investment licensing and both a diversification of approval to lower levels and a speeding up of licensing, which I continue to urge Vietnam to do to be a leader and not a follower in the region in terms of opening its economy to investment and trade, even greater levels of US investment will come to Vietnam as US and other European companies spread risk in Asia from China.

d. A Vietnam that is integrated economically into the region and the world. A Vietnam that is an active proponent of increased trade liberalization and greater trade in organizations like ASEAN, APEC, the WTO and other organizations.

e. Growing awareness among Vietnamese at all levels that failure to protect intellectual property is as much a problem for Vietnamese artists, software entrepreneurs, film directors and others as it is to huge US firms like Microsoft, Disney and United Artists.

f. Increased US Investment and involvement in Vietnam's software industry and continued outsourcing of computer software to Vietnam as Vietnam increasingly becomes the regional leader for computer software outsourcing and development.

g. Vietnam will develop an increased electronics industry which although it may not have the depth of that in China or in Thailand, will still be strong and vibrant.

h. A growing private economy. Deputy Prime Minister Vu Khoan, in an article in Vietnam Economic Times, noted that in 2004 the number of private businesses exceeded 150,000 and represented 25 per cent of total capital, creating about 50 per cent of domestic products and attracting up to 90 per cent of workers. It is obvious from these figures that private business is becoming more critical to the economy and that Vietnam is developing a more active and productive private sector.

i. Increasing price pressure for Vietnam exports in textiles, garments and other sectors from China, which is essentially elbowing smaller exporting countries aside for the US export market in many sectors.

j. Recognition by the US that the US-Vietnam trade relation is just as important to the US as it is to Vietnam. Vietnam does not currently have unconditional normal trade relations (NTR) status (also known as permanent normal trade relations (PNTR) status with the US. Unconditional NTR is enjoyed by virtually all US trading partners. Vietnam deserves similar treatment.

k. Expanding tourist arrivals and rising investment by US tourism companies in Vietnam.

1. A growing service industry in which the US places a leading role which leads to increased employment and opportunities for Vietnamese to learn from the best and biggest service providers in the world.

I am therefore optimistic about the future of US-Vietnam trade. Yes, there will be continued bumps on the road and, yes, things may not always move at the pace we all would hope. Further, as Vietnam liberalizes its customs laws, some industries will suffer to foreign competitors. It has happened in the US and it will happen in Vietnam. Also, China is a major competitor and will complicate exports for Vietnam and for other exporters as it continues to aggressively grow its exports. Despite this, with a willingness to listen on both sides, a better appreciation of the similar interests that bring us together instead of the differences that divide us, and goodwill on both sides, US-Vietnam trade relations are bright and will soon be even more vibrant.

About the Author:

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.