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Sunday, February 23, 2020

Vietnam-US trade yet to fully tap potential despite flourishing growth

Updated: 10:34’ - 27/07/2010

On the occasion of 15 years of Vietnam-US relations and 10 years of the Bilateral Trade Agreement between the two nations, Frederick Burke, Managing Partner of Baker & McKenzie*, spoke with Vietnam Law and Legal Forum, giving his comments on business prospects for investors of both countries as well as challenges facing them.


What is your assessment of the role of BTA and its implementation to promote Vietnam-US bilateral trade and investment?

Based on the trade statistics, the BTA has been an unqualified success. Trade between Vietnam and the US has grown from nearly nothing in 2001 to total two-way trade of nearly US$20 billion this year, with Vietnam exporting over US$15 billion to the US and the US exporting almost US$4 billion to Vietnam. The first graph attached shows the steady growth of exports following the entry into effect of the BTA in 2001. The BTA also laid the groundwork for Vietnam’s WTO accession in 2007, which helped sustain the export growth by securing the US garment market, which now accounts for over US$6 billion in Vietnamese exports.  Translated into new jobs, taxes and other spin off benefits for Vietnam, the BTA has been remarkably successful. I recall in the late 1990’s some Vietnamese enterprises expressing concern that they were not ready to compete in global markets. They said that they “only had small boats, and could not sail on the big ocean”. But the last decade has already shown what excellent sailors Vietnamese enterprises can be.

Do you think Vietnamese and US investors have fully tapped their business opportunities with the BTA signing?

Not yet. Even though the US has become one of the top sources of investment capital for Vietnam, I believe that US investors over the past decade were preoccupied with other opportunities in the US and in China. Moreover, Vietnam is still not an easy place to invest. There have been some outstanding exceptions, such as the Intel investment in the Saigon High Tech Park, and I believe that already we are seeing a new trend of greater interest from US investors based on the fact that the opportunities they had elsewhere are now gone or less attractive. For example, with China’s currency appreciating, its labor and other cost inputs becoming more expensive, manufacturers are starting to look at Vietnam as one of several alternative manufacturing bases. In the IT sector, the US is already a major player in Vietnam and will likely continue developing that role.  Both there are still some very significant market access limitations that stop US service providers from realizing the full potential of Vietnam’s opportunities, such as the “Economic Needs Test” for retail establishments beyond the first one, and the “dis-integrated” licensing regime that makes a competitive, modern supply chain, logistics and service operation impossible for foreign companies. Hopefully, as the relevant authorities realize the impact these inefficiencies have on the cost structure for consumers and exporters alike, they will introduce measures to allow for foreign investment in the supply chain, including retail sales and service to reduce prices and meet the aspirations of Vietnamese consumers. 

What are your recommendations for Vietnamese exporters to expand their US market?  

Vietnamese exporters wishing to expand their US market already understand what a competitive global marketplace exists today. Facing continued weakness in foreign markets, prices and delivery times have both been under extreme pressure. The most immediate support they need is for the Government to continue making their businesses more competitive by improving transportation infrastructure and allowing better logistical support services, by helping to train more qualified managerial staff, and by continuing to streamline customs and other administrative procedures. On the US side, well, it’s no cakewalk over there either, given the legal and tax liabilities of stepping into the US marketplace, so it is often better for the Vietnamese exporters to take an arm’s length approach and sell to intermediaries and buyers directly. Over time, Vietnamese exporters will develop the contacts and expertise to deal more directly and capture more of the value chain.

In your opinion, what are Vietnam’s remarkable efforts in building and improving its legal system over the past?

Vietnam’s law building achievements over the past two decades have been remarkable. Virtually every law that governs trade and investment has been adopted or substantially amended within the past ten years. For the most part, these new laws are of international standard, absorbing the best practices of other relevant economies. Good examples of successful laws would include the Enterprise Law and the Securities Law, which has supported a dramatic rise in Vietnamese businesses and helped them to raise the capital they need for their growth. The Investment Law is however a different story, having produced increasing confusion and inconsistency in the licensing and regulation of various types of foreign investment projects, and reversing the “negative list” approach that was once intended to open the door more widely to all investments except for those that are restricted or prohibited. The other problem that has come out of Vietnam’s impressive law building program is that investors have found the constantly changing legal environment too unpredictable and risky. Each time a new law is promulgated, it needs to be followed by decrees, circulars, official dispatches, etc., and this usually involves a period of years to clarify even basic questions of interpretation and implementation, and not always in the investors’ favor. Hopefully, Project 30 and other legislative reform projects will help improve the quality of new laws so that the regulations they introduce will not choke enterprises with still more red tape, and that lawmakers will stop putting unsustainable regulatory burdens on the shoulders of local governments.

What do you think are legal problems facing foreign and US investors in Vietnam?

As noted, the biggest legal problem is red tape and legal uncertainty. For example, the Enterprise Law allows foreign investors to buy shares in Vietnamese companies that are not in restricted or prohibited fields, but recently the Ministry of Planning and Investment required such purchases to be registered with the local Departments of Planning and Investment, even though the local DPIs in HCMC and elsewhere refuse to take on this heavy task.  As a result, Vietnamese companies will have trouble raising funds from foreign investors, involve foreign strategic partners to make their business more competitive, or just to sell their companies for the capital gains they have built up.  Moreover, the mentality of “closing the loophole” that made this avenue of investing easier than getting an Investment Certificate for a new company is troubling. First, it is a wrong interpretation of the WTO principle of “most favored nation”, which provides only that traders from one country be treated “no less favorably” than those from another, not that they be treated “just as badly as” any other investor. Second, it reflects a troubling protectionist mentality in post-WTO era where global integration was supposed to be encouraged.

What should Vietnam do to improve its legal environment to lure more foreign investors, especially US ones as one of the largest foreign investors in Vietnam?

Following through resolutely on Project 30 and eliminating or streamlining 30% of the administrative procedures that face enterprises, both Vietnamese and foreign, would be a great step in the direction of making the investment environment more attractive. The first list of proposals for reforming 258 administrative procedures has been issued, and now the Ministries need to take action to implement them. A second, larger round is expected in the coming months. Second, it is very important that lawmakers see the bigger picture of the whole economy and resist the numerous protectionist pressures that seem to be growing up in various fields, from distribution to property development as local vested interests increase their wealth and power. If not, Vietnam’s competitiveness will weaken and its overall growth will deteriorate.

How’s your business and life in Vietnam now? Your future plan?

Personally, I am trying to find ways to reduce my professional commitments and make sure I have enough time for my family.  I love my job and feel it is very rewarding to be participating in Vietnam’s successful growth story.  Since I first came to Vietnam in 1991 the improvement in the quality of life for most people has been incredible, and I hope that our law firm’s work on initiatives like Project 30 will make a contribution to seeing that continue.  However, in addition to the work we’ve been doing on Project 30, I am on the boards of the American and Hong Kong Business Associations I still co-chair the Manufacturing and Distribution Working Group of the Vietnamese Business Forum, Supply Chain Council and many other business community organizations so I need to pare those obligations down a little.  Our firm has grown to nearly 60 professional staff and we have active consultancy practices in areas ranging from M&A, property development, major projects, banking and finance, securities to IT and Intellectual Property, etc., so that’s a lot to manage.  But I can’t complain because I could not have dreamed of a more interesting and rewarding career and I hope to continue playing a constructive role in Vietnam’s development.-


* Baker & McKenzie is a global law firm with lawyers from over thirty countries and territories working together out of more than 60 offices around the world. Established in Chicago in the 1950’s, the Firm has grown with trends in cross border trade and investment, becoming the leading multinational law Firm today. The Firm’s Vietnam offices were established in 1994 and now are home to more than 60 professionals from Vietnam, the US and several other countries. The Firm has been proud to have been part of Vietnam’s amazing achievements over the past two decades of “doi moi”.


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