Socialist Republic of Vietnam

The US market now offers more opportunities than challenges to Viet Nam’s exporters, an assessment of the Bilateral Trade Agreement has found. But the assessment, published on Monday, says limited production capacity is the major hindrance to any growth of Viet Nam’s exports to the US.

And Le Dang Doanh, a senior advisor to the Planning and Investment Minister Vo Hong Phuc, cautions that the dent to the confidence of Vietnamese exporters caused by the accusations of catfish dumping into the US market tempers the optimism of the report.

The assessment was written by the STAR-Viet Nam Project’s senior economic adviser, Professor James Riedel and Project Director Steve Parker in co-operation with the Viet Nam Central Institute of Economic Management.

Funded by the US Agency for International Development, the project began in mid-October 2001. Its objective is to provide technical support in Viet Nam’s implementation of the BTA, and the assessment is its first report since it was established.

"The lack of MFN, most favoured nation, access to the US market before implementation of the BTA was a major impediment to Viet Nam’s efforts to pursue export-oriented industrialisation," it says.

"With the granting of MFN status, US tariffs on imports from Viet Nam fell dramatically and immediately, on average from around 40 per cent to around 3-4 per cent, for the first time opening up the US market for many products in which Viet Nam has a strong comparative advantage (in particular, labour-intensive manufactures)."

"Vietnamese exports to the US increased by 128 per cent in 2002 compared to 2001, while over the same time Viet Nam’s exports to the entire world increased by only 10 per cent.

"Indeed, about 90 per cent of the incremental increase in Vietnamese total exports in 2002 was attributable to the increase in exports to the United States."

The report notes that the export of manufactures – most severely restrained by high US tariffs before the BTA – grew disproportionately at more than 500 per cent a year.

"Within manufacturing, the biggest gainer was clothing exports, which increased to around US$900 million in 2002, an 18-fold increase over the amount exported in 2001.

It is here, that the report suggests the US market now offers more opportunities than challenges to Viet Nam’s exporters.

"A commonly held pessimism that Vietnamese companies lacked the experience, know-how, and information needed to penetrate the large, sophisticated and distant market of the United States was misplaced," it says.

"Almost all managers interviewed recognised that the BTA created enormous opportunities for expanding production and exports. Almost none of them found it particularly difficult to locate customers in the United States. Indeed, most indicated that they had more demand in the US market than they could satisfy."

"The main constraint that they face in expanding exports further is insufficient production capacity, a constraint they are working hard to remove through ambitious plans for investments to expand and upgrade plant and equipment."

However, the researchers limited their interviews to managers in the two fastest growing export sectors: clothing and footwear.

And advisor Le Dang Doanh told the conference to launch the publication: "Businesses will feel more secure if they are better informed about the possibility of being sued and facing other barriers."

"In the textile sector, quite a few companies had cut their pay roll, and restricted new investment because of the impact caused by the US garment quota."

He also listed the limited marketing skills of Viet Nam’s exporters to explain why exporters had not approached the US distribution and supermarket network such as Wal Mart.

The report finds that the BTA has had a positive, although far less dramatic, effect on US exports to and investment in Viet Nam, although most of the provisions in the agreement that directly affect US exporting and investing firms have yet to be implemented.

In 2002, the first year of the BTA, US exports to Viet Nam increased by 26 per cent and this trend has continued although US exports and global trade weakened. — VNS