Tuesday, November 15, 2011

Half-free trade in Vietnam....

Half-free trade in Vietnam....
By M Goonan....!

HANOI - When a number of Vietnamese travelers returned from abroad with sex toys in their luggage, customs officers were at a loss over how to react. Importing the objects for commercial purposes is illegal in Vietnam, but it was not clear to the trade authorities if there was a regulation against import for personal use.

After local media pumped up the story, the government announced in October a new ban against all sex toys entering Vietnam. That restriction built on a previous import prohibition against "debauched and reactionary products" to include objects that could have negative impacts on the population's "dignity, education and social security".

Like many of Vietnam's trade-curbing laws, the new code leaves much open to interpretation. While substantial improvements have been made in recent years to the country's trade and investment-related legislation, vague provisions like the new ban on sex toys raise concerns among foreign chambers of commerce and their respective governments about Vietnam's commitment to free trade....

Since acceding to the World Trade Organization (WTO) in January 2007, Vietnam has harmonized many of its customs and other trade-related laws to international standards. For instance, valuation of goods is now consistent with General Agreement on Tariffs and Trade (GATT) customs codes, modernizing a system that was previously widely prone to corruption and often unduly high levies.

Other trade codes, however, are still at odds with WTO requirements. In particular, foreign investors here complain that the process of obtaining and presenting so-called "automatic" import licenses, certain of which are not concerned with quality or safety standards, adds unnecessary time and costs to trade. As one American businessman who requested anonymity put it: "If it's automatic, why does it need a license?"

The legal inconsistencies, critics say, are geared specifically to limit imports and build up trade surpluses. As Western economies, including the United States, falter under debt burdens, many are now pushing for better access to developing world markets to narrow their trade deficits. US President Barack Obama has pledged to double the value of US exports by 2015 from 2009 levels.

That's bringing many of Vietnam's trade laws under sharp new scrutiny. As part of the so-called 2007 Trade and Investment Agreement (TIFA), US trade officials periodically review Vietnam's WTO commitments and propose various ways to enhance bilateral trade and investment. That includes US negotiations now under way with Vietnam to join the trade-promoting Trans Pacific Partnership, a US-led initiative targeting eight Pacific nations.

The US ran a US$11.2 billion trade deficit with Vietnam in 2010, driven by US imports of Vietnam-produced apparel, furniture and footwear, according to official US trade statistics. Certain of those flows could be in jeopardy if the two sides fail to reach a new agreement soon on customs cooperation, import licensing laws, biotechnology policies and sanitary measures, including provisions that have inhibited US beef exports to Vietnam.

US and European traders here also carp about a new government program that nominally aims to streamline trade processes by allowing them to submit export applications on-line, but in practice still requires them to present hard copies to customs authorities before they are allowed to send their products overseas.

Broad discretion
From national security to international commerce, Vietnam maintains many laws that are open to broad interpretation, giving authorities a large measure of arbitrary discretion. Despite Vietnam's WTO commitments, there are still various arcane customs laws on the books. Many are often twisted by unscrupulous customs officers for personal gain, according to international investors and traders.

Frederick Burke, a senior partner at Baker and McKenzie law firm in Ho Chi Minh City, believes that's inhibiting trade and investment. "Some customs officers are operating on bad faith. They'll take any rule and twist it and treat it the way they want until they get what they want," said Burke. "It's a systemic thing and has to be stopped. That kind of person is going to stop Vietnam being a competitor in international markets."

Burke noted a personal example where his mother used a local publishing house to print a book about San Francisco she planned to produce in Vietnam for global export. She was required by customs to display the Vietnamese publishing house's insignia on the book's front cover even though it would not be available for sale in Vietnam.

To be sure, the ease of doing business in Vietnam has improved markedly in the dramatic transition from an isolationist, centrally planned economy in the 1980s to a more outward-oriented and market driven one at present. Imports, exports and other commercial exchanges once confined to Soviet bloc countries are now geared towards the wider world, although Vietnam is still considered a "closed" economy in several respects.

The resumption of bilateral relations with the US in 1995, a bilateral trade agreement with the US in 2001, and WTO accession have all helped to integrate Vietnam into the global economy and contributed to several years of fast, trade-driven gross domestic product (GDP) growth. Vietnam is currently the world's biggest exporter of cashew nuts, the second-largest exporter of coffee and rice, and is quickly moving up the value-added ladder in various manufactures.

One explanation for the convoluted and contradictory trade codes is that the government desperately needs to maintain a healthy trade surplus to bolster the national finances. The local currency, the dong, continues to slump against the US dollar in market response to high inflation, which has surged in stretches by over 20% in recent years, rising debts at inefficient state enterprises and dwindling foreign reserves.

Foreign direct investment is down over 20% so far this year, putting additional pressure on national coffers. In response, Prime Minister Nguyen Tan Dung last month ordered the establishment of a new advisory committee to oversee fiscal and monetary policy. The central bank, meanwhile, has signaled plans to consolidate the unwieldy banking sector, which some analysts suggest could be teetering towards crisis.

To maintain confidence in Vietnam's direction, traders and investors here argue the government should prioritize trade law reforms. The economic stakes are high: many multinational manufacturers have established major facilities here in recent years, despite bureaucratic red tape, laggard infrastructure and the government's inability to manage macroeconomic stability.

According to a paper published this year by the American Chamber of Commerce, foreign invested manufacturing accounted for 42% of all production and more than half of total exports in 2010. The combination of high economic growth rates and low wages, as well as rising labor rates in China, have attracted foreign manufacturing investors to Vietnam, the paper noted.

That's included technology companies such as Intel and Canon, both of which have recently established their largest global production operations in Vietnam. Intel's chip operation here is valued at over $1 billion, while Nokia will complete a $280 million plant by next year. Regional players such as India's Tata Steel have also begun to invest heavily in Vietnam.

These major multinational investments reflected an earlier confidence in Vietnam's commitment to its WTO obligations and pursuit of free trade. Customs bureau corruption and contradictory trade laws, however, still represent substantial downside risks. If Vietnam genuinely intends to maximize its trade potential, authorities will need to issue soon clearer trade rules and regulations on more items than just "deviant" adult toys....

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