Vietnam Business Forum
Melia Hotel, Hanoi
December 4, 2007
Statement by Christopher Muessel
AmCham Vietnam Chairman
I am pleased to speak to you today about AmCham’s perception of the investment environment in Vietnam and I thank the Ministry of Planning and Investment, supported by the World Bank and the International Finance Corporation, for their role in bringing together business and government leaders to discuss how to improve business conditions so as to promote economic and social development in Vietnam.
Today I would like to highlight a few key areas of interest in AmCham’s Investment Climate Perception. I should say in advance that AmCham’s perceptions are generally positive, but that there are some areas for improvement.
I. Positive Macroeconomic Outlook
AmCham companies recognize that Vietnam has recorded continued strong economic performance, with non-oil exports remaining an important engine of growth. Private investment has also increased, led by accelerated foreign direct investment (FDI) disbursements in the wake of Vietnam’s WTO accession. Construction, industrial activity, retail sales, and trade all mean continued growth in GDP, at 8% or better in 2007-2008.
Recognizing this positive outlook, there has been a significant increase in the number of high-level executives, including CEOs, of American companies visiting Vietnam to explore business opportunities, for example, the recent visit by U.S. Commerce Secretary Gutierrez and a Business Mission in November 2007.
II. Positive Trade Outlook for Vietnam vis-à-vis the United States
The U.S. market continues to be a positive influence for Vietnam’s exports and growth. U.S. imports from Vietnam In 2007 will exceed $10 billion in 2007, and may reach $15 billion by 2010, creating a very positive “export multiplier” effect.
At the May 2007 Vietnam Business Forum, AmCham recognized the close cooperation and consultation with domestic and international industry that the Ministry of Trade conducted with respect to the export of apparel to the United States in the early months of this year.
U.S. imports of apparel from Vietnam during 2006 were $3.4 billion, accounting for 40% of total U.S. imports from Vietnam of $8.6 billion, and representing also about 60% of Vietnam’s total exports of apparel.
However, the U.S. Import Monitoring Program that began on January 11, 2007, and the risk that the U.S. Department of Commerce would self-initiate anti-dumping investigations, raised serious concerns about uncertainty and business risk that it would discourage exports from Vietnam of these products.
In response to this concern, the Ministry of Trade, together with the Vietnam Textile and Apparel Association, initiated a series of consultations with domestic and international apparel businesses in Hanoi, Danang, and Ho Chi Minh City, and decided to establish an export licensing system that would assure a predictable environment for U.S.-Vietnam apparel trade that would build confidence on the part of the major U.S. importers and retailers, as well as their suppliers in Vietnam.
An Inter-ministerial Circular on Exports of Apparel to the U.S. was issued on Feb 28, 2007. The business environment and objectives of the system were discussed at a morning workshop on Thursday, Mar 1, 2007 in Hanoi with an intergovernmental group including then-Minister of Trade Truong Dinh Tuyen, Deputy Minister of Industry Bui Xuan Khu, Office of Government, Ministry of Finance, Customs Dept, etc., VN Textile and Apparel Association, AmCham and representatives of U.S. major importers and others.
Based on actual experience since Vietnam’s export monitoring program went into effect, orders have not been “moved out” of Vietnam, and U.S. imports of apparel from Vietnam continue to surge in the first nine months (January-September) of 2007: up 26% over the same period in 2006 for a total of $3.4 billion, equal to the total U.S. imports of apparel from Vietnam in 2006.
If this trend continues, U.S. imports of apparel from Vietnam may reach $4.3 billion this year, more than 40% of the projected U.S. total imports from Vietnam of over $10 billion. By comparison, U.S. imports of apparel from Vietnam in 2006 were $3.4 billion, an increase of 18% over 2005 ($2.8 billion).
This close consultation and cooperation between government and business has preserved and expanded U.S.-Vietnam apparel trade.
III. Physical infrastructure, especially seaports and electric power
Later this morning we will hear a presentation on infrastructure, and especially ports and telecommunication, so I would like to make only brief remarks on this topic.
At the May 2007 Vietnam Business Forum, we noted that infrastructure, especially seaports and electric power, is another key factor for firms considering the investment climate in Vietnam.
Infrastructure constraints threaten FDI for manufacturing and export. Private sector participation in infrastructure development, finance, and management is needed urgently, especially in deep-water seaports and electric power generation.
Port congestion is particularly acute in the Ho Chi Minh City area, where FDI has been concentrated. AmCham member firms, and other international firms, have submitted recommendations and proposals on seaport projects, in cooperation with Saigon Port. We again request that the authorities allow and encourage this private sector participation in infrastructure development. And we again suggest that the Government make additional efforts to speed-up the development of the landside infrastructure, including roads and bridges.
Recently the Government approved an ambitious electricity development plan, including increasing capacity to satisfy increasing consumption of 22% per year. However, it may be beyond the capacity of EVN to meet these goals. AmCham member firms, as well as other international firms, have submitted proposals to develop electric power projects in cooperation with Vietnamese partners, and we suggest again that the Government give favorable consideration to these projects that allow increased private sector participation in developing infrastructure needed for Vietnam’s continued economic and social development.
WTO accession means making (or continuing to make) very substantial changes to the domestic legal system as it relates to foreign trade and investment in goods, services and intellectual property. These changes are required for two reasons: (1) to comply with WTO rules, and (2) to enhance Vietnam’s competitiveness in a new global situation and continue to attract foreign direct investment.
At the May 2007 Vietnam Business Forum, AmCham and other business associations raised questions about the interpretation of WTO commitments, particularly in the area of trading and distribution rights and investment in services. The response from the Government has not yet been satisfactory. We would like to reiterate our concerns and suggestions.
Circular No. 9/2007/TT-BTM, 17 Jul 2007 (“Circular No. 9”), Guiding the Implementation of Decree No. 23/2007/ND-CP, 12 Feb 2007 (“Decree No. 23”), imposes new market access obstacles for international investors in Vietnam, some of which are inconsistent with Vietnam’s BTA and WTO commitments.
We have three specific concerns:
Single Licensed Distributor Circular No. 9, Article 3-1(d) restricts foreign invested importers to selling to one single Vietnamese distributor for any given HS Chapter category of goods. This is inconsistent with Vietnam’s WTO commitments, as expressly stated in Paragraph 147 of the Working Party Report. The new single-distributor restriction in Circular No. 9 also violates the national treatment principle since the same restriction does not apply to Vietnamese importers.
Definition of “Retailing” and “Retail sales outlet” Decree 23 and Circular No. 9 stretch the ENT concept, which is supposed to be applied to retail sales outlets selling to individual consumers, to cover ALL sales operations/outlets by foreign-invested enterprises, even industrial/commercial sales to business end users of products such as chemicals, equipment and raw materials for production. These kinds of operations are not what the WTO definitions, as set out in the Central Product Classification (CPC) lists, contemplate when they define “retail services,” so this element of Decree 23 / Circular No. 9 is inconsistent with Vietnam’s WTO commitments.
Economic Needs Test (ENT) Non-objective Criteri In addition, Circular No. 9 adds a new and subjective standard to the “Economic Needs Test” that is contrary to the principle of transparency in the investment licensing process. Specifically, Article 4.3 a) of Chapter I states: “The establishment of retail outlets outside the first retail outlet shall be considered case-by-case … the sustainability of the investment project to the plans of the province or city.”
To address these concerns, we suggest that the Government revise Decree 23 and Circular No. 9 promptly to clarify that
1. Foreign invested importers may sell to the “… distributor or distributors of their choice provided that such distributor or distributors had the right to distribute the respective product(s) in the customs territory of Viet Nam,” as provided for by Paragraph 147 of the Working Party Report and Article 3-4 of Decree No. 23;
2. “Retailing” and “Retail sales outlet” (“cơ sở bán lẻ”) should be defined more accurately , in accordance with WTO definitions. Specifically, Decree 23, Article 3, para 8 should be revised as follows: “Retailing is the activity of selling merchandise for personal or household consumption including services incidental to the sale of the goods (retailing services).”
3 The Economic Needs Test criteria should be limited to “… pre-established publicly available procedures, and approval … based on objective criteria. The main criteria of the ENT include the number of existing service suppliers in a particular geographic area, the stability of market and geographic scale,” as provided in the Working Party Report.
V. Governance and Anti-Corruption: “An ounce of prevention … ”
AmCham continues to applaud the efforts by the Government of Vietnam and the Donors to weed out corruption. Progress has been made since the State Inspector General of Vietnam signed an Official Letter announcing Vietnam’s endorsement of the “Anti-Corruption Action Plan for Asia and the Pacific.”
Vietnamese government leaders, media and public continue to expose and strongly condemned corruption. The newspapers have been very active. The government has also taken action to remove corrupt officials and to initiate appropriate punishment, including jail sentences for the former Director of PMU18 and three former senior officials of the State Inspectorate.
“An ounce of prevention is worth a pound of cure.” So we would welcome additional information about control systems to be established by the Donors and the Government, which still seem inadequate to prevent corrupt officials from misappropriating funds intended for public infrastructure.
In closing, let me remind you again that, as we in AmCham believe and a World Bank study confirmed in 1998, it is foreign direct investment and trade, attracted by good government, that promotes growth.
Countries, economic zones, cities, and provinces need good economic policies and a good legal and regulatory infrastructure to attract FDI, promote trade, and spur economic and social development.
We appreciate this opportunity to participate in the Vietnam Business Forum and the leadership of the Ministry of Planning and Investment, the World Bank, and the International Finance Corporation, with the support of many Government Agencies and business associations, in facilitating communication.
I wish good health to the Minister, representatives of business associations and the diplomatic corps, and all of the Representatives here today.