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 davidarmstrong@sfchronicle.com.

Tipping Point for War's Supporters?

By Thomas E. Ricks and Peter Baker
Washington Post Staff Writers
Sunday, October 29, 2006; Page A01

As the fighting in Iraq swerved toward civil war in February, Senate Armed Services Committee Chairman John W. Warner (R-Va.) expressed "a high degree of confidence" that a new government would take charge and that by the end of the year the conflict "won't be the same."

As October opened, Warner returned from Iraq with a far grimmer assessment. "The situation," he said, "is simply drifting sidewise." His judgment gave voice to Republican doubt that had been suppressed in a campaign season. Lawmakers who had vowed to "stay the course" called for change. One GOP senator declared Iraq "on the verge of chaos." By last week, President Bush was saying he too is "not satisfied" and is looking for a fresh approach.

October 2006 may be remembered as the month that the U.S. experience in Iraq hit a tipping point, when the violence flared and shook both the military command in Iraq and the political establishment back in Washington.

Plans to stabilize Baghdad collided with a surge in violence during the holy month of Ramadan. Sectarian revenge killings spread, consuming a town 50 miles from the capital. U.S. officials spoke of setting benchmarks for the Iraqi government to take on more responsibility, only to have the Iraqi prime minister call that suggestion election-year grandstanding. Bush compared the situation to the 1968 Tet Offensive -- often seen as a turning point in the Vietnam War -- and urged Americans not to become disillusioned.

"October has been very busy from a standpoint of operations on the ground and certainly back here in Washington," White House counselor Dan Bartlett said.

With Iraq again dominating the national dialogue right before key midterm elections, "there's an expectation in the air that after the election, the partisanship and the politically charged environment will dissipate somewhat and people can start looking for ways to work together on this issue," Bartlett said.

Republicans are anxious about what happens in the meantime; polls show wide discontent. "Republicans are responding to the nervousness of the American people," said Sen. Lindsey O. Graham (R-S.C.). "People have begun to wonder about the basic premise that the Iraqi people are capable of solving their problems politically."

If October does prove to be a turning point for the Iraq war, historians are likely to point to two events, one in domestic U.S. politics and the other in Iraq.

The first was Warner's visit to Baghdad. As the chairman of Armed Services, a stalwart Bush supporter and a pillar of the Republican establishment, he rattled much of Washington with his dour assessment Oct. 5. If events have not improved in 60 to 90 days, he said, the Bush administration should find a new course. While still opposed to a precipitous troop withdrawal, Warner made clear that staying the course is no longer a viable option.

Warner's comments proved to be the starting gun for a race toward an exit strategy. Other Republicans had nursed similar doubts but kept quiet for fear of giving Democrats ammunition in a tough campaign cycle. Warner's remarks freed them to express their own misgivings.

Sen. Kay Bailey Hutchison, a Republican from the president's state of Texas, began talking about the need for a different approach in Iraq, such as partition. In Virginia, Sen. George Allen, who maintained in September that he would not "second-guess" the war, said that "mistakes have been made, and progress has been far too slow." More Republican candidates called for Defense Secretary Donald H. Rumsfeld to be fired.

Sen. John Cornyn (R-Tex.), a strong Bush supporter, was struck that Warner's comments echoed those of the ranking Democrat on Armed Services, Sen. Carl M. Levin (Mich.), who has advocated putting more pressure on the Iraqi government.

"They reminded me of some of the things Senator Levin has been saying for some time," Cornyn said last week. "We fought to allow Iraqis to control their own future, and I'm a little concerned about our making demands on them as if we are an occupying force."

In Iraq, meanwhile, the key moment was the realization by top commanders in mid-October that sending 12,000 U.S. troops back into Baghdad did not have the calming effect that had been hoped for. As Shiite-Sunni tensions erupted in the city, civilian casualties doubled in a matter of months, with 2,660 deaths in September alone.

"Operation Together Forward has made a difference in the focus areas, but has not met our overall expectations of sustaining a reduction in the levels of violence," Army Maj. Gen. William B. Caldwell IV said Oct. 19, using the U.S. military name for the Baghdad operation. In other words, the U.S. military had played its ace in the hole -- it had asserted itself in Iraq's most important city -- yet had not been able to improve deteriorating security in the capital.

A Marine colonel said he is seeing a major shift even inside the military. "There's a concern now that there wasn't previously," said the colonel, who remains on active duty and is not authorized to speak publicly on political matters. "Folks that took things at face value in the past are asking more questions."

Searching for a way out, Washington has focused new attention on the work of the Iraq Study Group, a panel of well-connected luminaries led by former secretary of state James A. Baker III and former representative Lee H. Hamilton (D-Ind.). Recommendations from the group, once seen as a sop to Congress, are expected in late December or early January and promise to be the first major subject tackled by the members of the next Congress.

People familiar with the group's option papers expect it to recommend either a scaling back of U.S. ambitions in Iraq, making stability rather than democracy the top priority, or, less likely, a slow but steady withdrawal of U.S. forces.

In the wake of Warner's revelation and the unchecked violence in Iraq, Bush's language in discussing the war changed markedly. As late as the end of August, he was still describing his policy as "stay the course." But with Democrats pounding away in campaign advertising, saying he refused to recognize the unfolding disaster in Iraq, the White House officially jettisoned the phrase this month, saying it did not adequately describe the administration's flexible approach.

"We've never been 'stay the course,' " Bush told an interviewer. The concept will not die that easily, though. On Friday night, Vice President Cheney told reporters traveling with him on Air Force Two that "the United States' ability to stay the course and get the job done is a very, very important piece of business."

As congressional Republicans peeled away from the president, the White House grew more isolated. Debate over a National Intelligence Estimate's conclusion that Iraq had become a "cause celebre" for Islamic extremists and several books critical of the administration's handling of the war kept interfering with the White House message.

Democrats, once deeply divided over the war, coalesced around the idea of a phased withdrawal and aired television ads on Iraq in most of the competitive races around the country. Republican candidates, on the other hand, started ignoring Karl Rove's advice to talk about the war. Senate Majority Leader Bill Frist (R-Tenn.) told an interviewer that "the challenge is to get Americans to focus on pocketbook issues, and not on the Iraq and terror issue."

Other conservatives grew more skeptical that there is anything the United States can now do to fix Iraq. "I don't know what the new course would be," said Richard N. Perle, former head of the Pentagon's Defense Policy Board and an early supporter of the war. "The options are extremely limited now. The new course that's necessary is new Iraqi leadership."

The last full week of October underscored the fitful attempts by the White House to get on top of the situation. U.S. officials announced plans for benchmarks for Iraqis to assume more security duties, but Prime Minister Nouri al-Maliki said his government had not agreed to any deadlines. Bush called his second news conference in as many weeks to assure the American public that he is "not satisfied" with the way things are going, while still asserting that "absolutely, we're winning."

Inside the White House, officials were glum, trying just to get through the election in hopes that after the rhetoric fades there might be a chance for both parties to fashion a new approach. "I'm not disparaging new ideas; I'm welcoming new ideas," national security adviser Stephen J. Hadley said in an interview. But, he noted, "no one I know has come up with a silver bullet."

Hadley described the administration's three top priorities: a political agreement among Iraqi sects, enhanced security with Iraqis taking more of the lead and greater international support.

"There's an opportunity to try to figure out how to do better," he said. "A lot of it is not a conception issue; it's an execution issue. It's an execution issue for the American government, and it's an execution issue for the Iraqi government."

All the while, in the background was the drumbeat of U.S. deaths in Iraq, with October's toll of 98 so far the worst in a month since January 2005. Iraqi forces have recently paid an even heavier price, with 300 troops dying during the month of Ramadan, the U.S. military said.

A series of grim events on the ground in Iraq deepened fears that the nation is sliding closer to a full-blown civil war. A battle between two towns -- one Shiite, one Sunni -- on opposite banks of the Tigris River earlier in the month epitomized the factors tearing the country apart. A vengeance killing blamed on Sunni Arab insurgents based in the farm hamlet of Duluiyah prompted a killing spree targeting Sunnis across the river in the predominantly Shiite city of Balad. The U.S. military and residents of both Duluiyah and Balad accused the towns' police of taking part in the killings.

Looking for protection, Shiites in Balad turned not to their elected government or to the U.S. military but to Shiite militias, summoning them from Baghdad. By the time the killing ebbed three days later, at least 80 people were dead. Balad was all but empty of Sunni families, which had lived among Shiites for generations.

The militias blamed in many of the Sunni deaths belong to two Shiite religious parties that dominate Iraq's five-month-old government. Maliki, a Shiite, has used his position to block U.S. efforts to crack down on militias. Last week he denounced a U.S.-backed Iraqi raid into Sadr City seeking the most notorious of the death-squad leaders. U.S. officials had not notified Maliki before the raid.

The White House said reports of a rift were overblown, but privately U.S. officials wondered about the Maliki government's competence. Maliki's comments to Reuters last week underscored a growing divide. "If anyone is responsible for the poor security situation in Iraq," he said, "it is the coalition."

Looming over this deteriorating situation is the fact that, despite the training of 310,000 Iraqi soldiers and police officers -- close to the number once thought necessary to ensure security -- those new forces have not brought calm to the capital and the area around it.

Experts disagree whether the past month represents the beginning of the end of the U.S. involvement in Iraq. But there was little question among them about whether it will be remembered as a major turning point. "We are at a real crossroads," said Graham, who sits on the Senate Armed Services panel. "Personally," said James Burk, a military expert at Texas A&M University, "I think the 'experiment' . . . is over."

But Dov S. Zakheim, who was a senior Pentagon official under Rumsfeld, said he thinks this is simply the beginning of a new phase in the U.S. effort in Iraq.

"Everyone knows that if we leave Iraq, not only will that country have little hope of regaining any form of stability, we will likely destabilize the entire region," he said. So the current turmoil reflects the "recognition in all policy circles that we are about to enter a new phase."

Correspondent Ellen Knickmeyer in Baghdad contributed to this report.