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Vietnam Market

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Tips:MarketMarket Overview Vietnam is a true emerging market, offering ground floor and growing opportunities for U.S. expor
 Market

Market Overview  

Vietnam is a true emerging market, offering ground floor and growing opportunities

for U.S. exporters and investors. Vietnam’s economic growth rate has been among

the highest in the world in recent years, expanding at an average about 7.2 percent

per year during the period 2001-2010, while industrial production grew at an average

of about 12 percent per year during the same period.

Vietnam registered GDP growth rate of 6.7 percent in 2010 and was one of only a

handful of countries around the world to experience such levels of economic growth.  

Moving forward, inflation remains a main risk to Vietnam’s economy, which the

Government of Vietnam (GVN) is addressing by balancing growth targets with price

stability measures. This challenge will not be easy to meet.  Nevertheless, the GVN

has confirmed its commitment to economic growth and is targeting 2011 GDP growth

at 6.5 percent. 

The momentum and direction generated by the entry into force of the U.S.–Vietnam

Bilateral Trade Agreement (BTA) in 2001 transformed the bilateral commercial

relationship between the United States and Vietnam and accelerated Vietnam’s entry

into the global economy with Vietnam joining the WTO in January of 2007. Since the

BTA, bilateral trade has increased over six-fold from $2.9 billion in 2002 to $18.6

billion in 2010. 

Despite the continuing global economic recession in 2010, U.S. exports to Vietnam

grew by an impressive 19.8 percent to $3.7 billion.  During the same period,

Vietnam’s exports to the U.S. increased 21.0 percent to $14.9 billion resulting in an

$11.2 billion bilateral trade deficit with Vietnam.

In 2010, U.S. exporters saw significant growth in agricultural products sectors, which

accounted for roughly one-third of U.S. exports to Vietnam.  Industrial inputs also

continued to see steady growth as Vietnam continues to import machinery,

chemicals, instrumentation and software to support its growing industrial sector.  

New commitments of foreign direct investment (FDI) in Vietnam saw an 18 percent

decline in 2010, following the direction set in 2009, though disbursed FDI increased

by 10 percent.  However, the industrial/manufacturing, real estate/tourism and

construction sectors continued to attract a major share of new capital flowing into thecountry, while utilities projects – electricity and gas production and distribution –

gained increased interest from investors in 2010.

The bilateral trade and investment momentum has continued with the United States

and Vietnam signing a Trade and Investment Framework Agreement (TIFA) in 2007.

Under the TIFA the United States and Vietnam continue to address trade and

investment issues with the aim of advancing the BTA and Vietnam’s WTO

commitments.  

In November 2010, Vietnam joined the United States, Peru, Chile, Malaysia,

Singapore, Brunei, New Zealand, and Australia to participate as a full member in the

Trans-Pacific Economic Partnership (TPP) negotiations to conclude a high-standard,

21st century Asia-Pacific free trade agreement. In 2010, Vietnam moved forward on

its commitment to WTO obligations by implementing laws and regulations to increase

compliance of local industries. 

Through 2015, the GVN has committed to implementing far-reaching economic,

regulatory and administrative changes that will provide an increasingly favorable

environment for American businesses to enter and expand in the market. 

To this end, from 2007-2010, the Ministry of Planning and Investment implemented

Prime Minister Dung’s initiative to cut, simplify, and revise the national and provincial

regulations that affect businesses and citizens throughout the country under the  

National Public Administrative Reform Project (“Project 30”).  Administrative reform

will continue under the new Administrative Procedures Control Agency established

as part of this process.  The MPI also plans to pilot a revised public procurement

process, which is expected to make infrastructure development projects more

transparent and provide such projects with greater access to public financing through

the capital markets and public-private partnerships.

Vietnam’s recent convictions of political activists, arrests of lawyers and journalists,

pressure on independent research organizations and tightening restrictions on the

media threaten to impact negatively the growing bilateral economic relationship.

Market Challenges 

The evolving nature of regulatory regimes and commercial law in Vietnam,

combined with overlapping jurisdiction among Government ministries, often result in

a lack of transparency, uniformity and consistency in Government policies and

decisions on commercial projects. 

Corruption and administrative red tape within the Government has led to a lack of

transparency and has been a vast challenge for Governmental consistency and

productivity.

Many firms operating in Vietnam, both  foreign and domestic, find ineffective

protection of intellectual property to be a significant challenge.

“Tied” official development assistance, in addition to corruption, continues to be a

significant challenge for U.S. firms bidding on infrastructure projects.

While Vietnam has reduced tariffs on many products in line with its WTO

commitments, high tariffs on selected products remain.  U.S. industry has identified

a range of products, including agricultural products, processed foods and nutritional

supplements, where it sees significant potential of export growth if Vietnam’s tariffs

could be reduced further.  

Investors often find poorly developed infrastructure, high start-up costs, arcane land

acquisition and transfer regulations and procedures, and a shortage of skilled

personnel.  

Vietnam’s labor laws and implementation of those laws are not well developed;

international companies sometimes face difficulties with labor management issues.

Lack of financial transparency and poor corporate disclosure standards add to the

challenges U.S. companies face in performing due diligence on potential partners

and clients.

Investment

Openness to Foreign Investment  

Vietnam encourages foreign investment as part of its development strategy, and the

Government of Vietnam (GVN) is committed to improving the country’s business and

investment climate.  The Investment Law of 2005 provides the legal framework for

foreign investment in Vietnam.

 

Vietnam became the 150th member of the World Trade Organization on January 11,

2007.  Vietnam's commitments in the WTO increase market access for exports of U.S.

goods and services and establish greater transparency in regulatory trade practices as

well as a more level playing field between Vietnamese and foreign companies.  Vietnam

undertook commitments on goods (tariffs, quotas and ceilings on agricultural subsidies)

and services (provisions of access to foreign service providers and related conditions),

and to implement agreements on intellectual  property (TRIPS), investment measures

(TRIMS), customs valuation, technical barriers to trade, sanitary and phytosanitary

measures, import licensing provisions, anti-dumping and countervailing measures, and

rules of origin.  Vietnam has made solid progress in implementing its bilateral and

international obligations; however, concerns remain in some areas, such as protection of

intellectual property rights (IPR) and effectiveness of the court/arbitration system.

 

The GVN holds regular "business forum" meetings with the private sector, including both

domestic and foreign businesses and business associations, to discuss issues of

importance to the private sector.  Foreign investors use these meetings to draw attention

to investment impediments in Vietnam.  These forums, together with frequent dialogues between GVN officials and foreign investors, have led to improved communication and

have allowed foreign investors to comment on and influence many legal and procedural

reforms.

 

Despite the GVN’s commitment to improving the country’s business and investment

climate, Vietnam is still transitioning from a centrally planned economy to a more marketoriented and private-sector based model.  As indicated by the following indices,

Vietnam’s business climate is generally  improving, but the country still faces

development challenges relevant for foreign  investors, for example:  poorly developed

infrastructure, underdeveloped and cumbersome legal and financial systems, an

unwieldy bureaucracy, non-transparent regulations, high start-up costs, arcane land

acquisition and transfer regulations and procedures, a shortage of skilled personnel, and

pervasive corruption.  Some companies have experienced delays in obtaining

investment licenses, and inconsistent licensing practices have been noted between

provinces.  Investors frequently face policy changes related to taxes, tariffs, and

administrative procedures, sometimes with little advance notice, making business

planning difficult.  Because Vietnam’s labor laws and implementation of those laws are

not well developed, companies sometimes face difficulties with labor management

issues.
 


Keyword: Vietnam Market

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