Sunday, October 29, 2006

More Vietnam trade expected Bay Area businesses have entered the quickly developing market ahead of WTO membership

David Armstrong
San Francisco Chronicle Staff Writer

Sunday, October 29, 2006

With Vietnam set to become a member of the World Trade Organization in the coming weeks, an already rapidly growing trade between the United States and its former wartime adversary is set to grow even faster, according to Bay Area officials and trade experts.

Vietnam, while still largely a poor country, is increasing its gross domestic product by nearly 8 percent a year, second in Asia only to China. As the 44th-largest trade partner of the United States, Vietnam exports furniture, shoes, clothing and coffee to this country. It is emerging as a favored place for foreign investors and offshore manufacturing.

Approved for WTO membership on Thursday, Vietnam will officially become the 150th member of the WTO 30 days after the Vietnamese parliament approves the deal. The WTO sets trading rules and adjudicates trade disputes between members.

As an additional sign of Vietnam's integration into the global business system, Hanoi will host the Asia-Pacific Economic Cooperation summit on Nov. 7, with President Bush scheduled to attend.

Bay Area businesses have jumped into Vietnam's fast-developing market ahead of the country's WTO membership, despite reports of corruption, theft of intellectual property and rudimentary infrastructure in the Southeast Asian country.

Oakland's California Waste Solutions, for example, recently broke ground in Ho Chi Minh City (formerly Saigon) on a $107 million plant for recycling and composting solid wastes. Company Chief Executive Officer David Dong said the plant is the largest environmental project in Vietnam and was the largest direct U.S. investment in Ho Chi Minh City when the contract was signed last year. The plant is scheduled to open in March 2008.

For its part, Intel Corp. has invested $300 million to build a semiconductor and test facility in Vietnam, earmarking another $300 million for possible expansion.

All this wheeling and dealing and mutual courtship is a stunning turnaround in relations between the United States and Vietnam, whose communist rulers beat the U.S.-backed South Vietnamese regime in a grinding war that finally ended in 1975. For nearly two decades after the war, the United States put a trade embargo on Vietnam. President Bill Clinton ended the trade embargo in 1994 and in 1995 normalized diplomatic relations.

Since then, the erstwhile foes have increasingly engaged one another commercially. Last year, trade between Washington and Hanoi hit a record $7.6 billion, up 400 percent since 2001. That surge took place with Vietnam still outside the WTO. But having Vietnam in the world body should help streamline and expand trade, experts say.

"It's definitely a plus for California and the Bay Area,'' said Sean Randolph, head of the Bay Area Economic Forum. "Although China gets most of the attention, Vietnam is a significant and growing market. I'd expect to see a significant growth in two-way trade and investment.''

Vietnam, a socialist nation of 84 million people that began seriously experimenting with capitalism in the mid-1990s, sells nearly 10 times as much to this country as it buys. The low cost of labor in Vietnam, which makes Vietnamese products very cheap here, combined with Hanoi's trade barriers, have kept the trade deficit from closing.

"The volume of business with Vietnam is currently quite low, but we're delighted that Vietnam is entering the WTO, and we believe eventually it will benefit California agricultural exporters,'' said Dan Westerlin, special assistant to the executive director at the Port of Oakland, the nation's fourth-largest container port.

Vietnam ranked No. 17 as a destination for exports by weight shipped through the Port of Oakland in 2003, the most-recent year for which figures were available.

The port has wooed Vietnam even before obtaining the WTO seal of approval.

In May, the Port of Oakland signed a cooperation pact with the Port of Danang, located in central Vietnam, calling for joint marketing efforts, staff exchanges and trade promotion, Westerlin said. The port also has a cooperation pact with the sprawling Port of Saigon, the riverside shipping nexus for Ho Chi Minh City, Vietnam's business capital and biggest city.

Port of Oakland spokesman Robert Bernardo said trade with Vietnam is expected to double in the next five years, driven by imports of consumer electronics from Vietnam and exports of U.S. cotton to Vietnam.

Vietnam agreed to make a wide variety of market-oriented economic reforms to gain WTO membership, which it applied for 12 years ago. Vietnam has agreed to slash tariffs to 15 percent or less on more than 90 percent of U.S. manufactured goods and two-thirds of U.S. agricultural exports. In services, Vietnam will provide greater access in key service sectors to U.S. providers, including financial services, telecommunications, distribution and energy services, according to the U.S. Trade Representative's office.

These changes should streamline trade relations between the United States and Vietnam, said Jose Duenas, executive director of the Bay Area World Trade Center.

"It levels the playing field,'' said Duenas, who led a Bay Area trade delegation to Vietnam in April. "We have been at a disadvantage with the Japanese and others who have invested in Vietnam. This allows us to catch up. And we have a lot of catching up to do.''

Most U.S. businesses back Vietnam's ascension to the WTO, with the notable exception of U.S. textile manufacturers who fear a flood of cheap Vietnamese imports.

However, top companies such as Intel Corp., the Gap Inc., Chevron Corp., Oracle Corp. and Hewlett-Packard Co. support Vietnam's WTO membership. And the nation's retailers, who import many of their goods from Vietnam and China, are delighted Vietnam got in.

Vietnam and the WTO:
-- The WTO sets trading rules and adjudicates trade disputes among its members.
-- Vietnam will become the WTO's 150th member.
-- Vietnam and the United States did $7.6 billion in trade in 2005, up 400 percent since 2001.
-- Vietnam, which sends apparel, shoes, coffee and furniture to the United States, sold nearly 10 times as much to the U.S. last year as it bought. Trade watchers say WTO rules requiring Vietnam to slash tariffs and subsidies should help Washington to narrow the gap.

Source: Chronicle research.

E-mail David Armstrong at


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