Letter to U.S. Commerce Secretary Carlos M. Gutierrez, 12 Oct 2007

October 12, 2007

The Honorable Carlos M. Gutierrez
Secretary of Commerce
1401 Constitution Ave., NW
Washington DC 20230

Dear Mr. Secretary:

The American Chamber of Commerce in Vietnam (AmCham) warmly welcomes your mission to Vietnam and looks forward to supporting the mission with a number of events. In addition to this support, we would like to bring to your attention some key issues of concern so that your mission will make a positive contribution to improving the environment for trade and investment between the United States and Vietnam. We believe that you should strongly deliver several key messages during your visit:

  • Vietnam is to be congratulated for managing apparel industry growth;
  • The growing trade imbalance is a concern to U.S. business and government;
  • Vietnamese Government and State-owned enterprises’ contracts with U.S. companies should be a top priority and completed soon;
  • Vietnam should implement robustly its market access requirements in the Bilateral Trade Agreement and WTO Accession Agreement.

With regard to apparel trade, we wrote you and U.S. Trade Representative Schwab on October 6, 2006 to express concern

“… that the promised program may be a discriminatory harassment action, introducing a politicization so wisely avoided in the prohibited subsidies enforcement mechanism, which would create so much uncertainty and business risk that it will discourage exports from Vietnam of these products. Already, factories in Vietnam and U.S. importers/retailers have talked of ‘moving orders out of Vietnam’ into other supplying countries that are not subject to this same program.”

However, based on actual experience since the program went into effect, we believe that both governments and industries should be congratulated for managing successfully a complex and challenging situation. Thanks in part to the extensive public consultations by the Import Administration, as well as the export monitoring program put into place by Vietnam’s Government, after extensive consultation with Vietnamese and Foreign Direct Investment (FDI) producers, and U.S. Importers/Retailers, orders have not been “moved out” of Vietnam, and U.S. imports of apparel from Vietnam in the first seven months (January-July) of 2007 are up 25%. If this trend continues, U.S. imports of apparel from Vietnam would reach $4.25 billion this year, more than 40% of the projected U.S. total imports from Vietnam of over $10 billion.

VN-US Trade, 2001-2010With regard to the structural U.S. trade deficit that has developed with Vietnam since the Bilateral Trade Agreement went into effect, it may be useful to recall that, in 2001, U.S imports from Vietnam were $1.05 billion, while U.S. exports to Vietnam were $0.46 billion; in 2007, based on actual trade for the first seven months of the year (January-July), U.S. imports from Vietnam are projected to be $10.1 billion, while U.S. exports will be only $1.56 billion; and by 2010, U.S. imports from Vietnam may be about $15 billion, while U.S. exports may reach about $2 billion. The chart, based on trade data from the U.S. Department of Commerce, illustrates this point.

While we recognize that macroeconomists believe trade should be viewed in a multilateral framework, nevertheless, we would like to highlight that U.S. exporters of goods and services to Vietnam are not yet enjoying the balance of market access opportunities and concessions that were promised in the Bilateral Trade Agreement. This may be especially true for small and medium U.S. exporters, but it is also true even for larger U.S. exporters of goods and services.

One way both the U.S. and Vietnamese Governments might cooperate to remedy this imbalance would be to take practical steps to conclude contracts that U.S. firms have proposed to the Vietnamese Government and Government-owned enterprises, especially key infrastructure projects. This would help improve the trade balance, and, at the same time, would contribute to economic and social development in Vietnam. Former Ambassador Marine predicted that U.S. investment in Vietnam would double in 2007 with “three to four large-scale U.S. projects waiting to be licensed.” You are well aware of these projects through the fine work of the Advocacy Center. However, many of the projects are not moving forward as rapidly as we would like. There may be a number of reasons for delay, including an over-reliance by Vietnam on government and development bank ODA-funded projects instead of private sector projects. We hope that both Governments will work to reach agreement on many of these projects before your visit.

Most importantly, to resolve the structural imbalance issues, Vietnam should implement its market access commitments in the Bilateral Trade Agreement and the WTO Accession Agreement. In this area, we have many very serious concerns, which are shared by many other international business associations in Vietnam, as well as some domestic business associations.

We have submitted the detailed specifics of our concerns to the U.S. Mission here in Vietnam, and, through them, to officials from the U.S. Trade Representative’s Office and the U.S. Department of Commerce.

We would like to bring to your attention a few examples of our concerns, to illustrate the need to resolve these market access issues before your visit here.

The “Economic Needs Test” (ENT), as a compromise to Vietnam’s retail level market access commitments, in practice denies US companies the ability to sell their industrial products directly to their industrial customers. The Ministry of Industry and Trade’s (MOIT’s) interpretation of “retail trading” includes ALL sales to ALL end users, whether consumers or industrial enterprises. So the ENT is being used to deny applications from US firms to sell industrial chemicals, power generating equipment, HVAC systems, security surveillance systems, etc. out of more than one sales office in Vietnam.

MOIT has carved up the various steps in the sales process, each subject to a different market access phase-in, to reduce all trade and distribution activities for integrated sales operations to the lowest common denominator of market access. Separate permits are now required under Vietnamese law for import trading, wholesale agency, commissioned agency, retail, marketing, promotion, warehousing, accounting, and freight forwarding.

MOIT’s position is that the most restrictive market access phase-in provision will apply to all related services. So, if the phase-in for warehousing is 100% by 2015 and distribution is 100% in 2009, a combined distribution-and-warehousing business must wait until 2015 even if warehousing is merely incidental to the distribution business.

Another specific example of denial of market access is Vietnam’s violation of Article 147 of the WTO Working Party Report, which clearly provides that foreign invested companies should have the right to engage in import trading so long as they only sell to “licensed Vietnamese distributors” (plural). But the MoIT’s new Circular No. 9 limits that right to a single licensed Vietnamese distributor. In many cases, foreign firms are now being told to breach existing distribution agreements they had based on the pre-WTO system. This restriction is blocking all new import trading license applications because of the difficulties of choosing and proving the single licensed distributor in a market where they don’t exist in many product categories.

In effect, the MOIT is saying that any sale to an end user is retail, triggering the Decree 23 / Circular 9 licensing requirement and the ENT. However, MOIT’s interpretation of “retail trading” goes beyond the Central Product Classification (CPC) definitions and should not apply to wholesale industrial transactions between industrial goods suppliers and their corporate customers.

In the words of one major U.S. telecommunications company, “Anything that requires a 60-page or more sales contract should not be considered ‘retail.’”

In closing, we would like to express appreciation for the vigorous efforts that the Commerce Department and other U.S. Government Agencies have been making on these key issues. In the very difficult current environment surrounding trade agreements, one of the best arguments in favor of new agreements is the vigorous enforcement of existing ones, so that trade, and U.S. exports, are actually increased.

We are looking forward to welcoming you and your mission to Vietnam, and hope that your visit will serve to accelerate cooperation between both governments toward achieving more balanced trade between the United States and Vietnam.

Respectfully yours,

/s/ /s/
Christopher Muessel David Knapp
Chair, AmCham Vietnam/HCM CityChair, AmCham Vietnam/Hanoi

Notes:

1. U.S. imports of apparel from Vietnam in the first seven months (January-July) of 2007 are up 25%.

2. “The Parties shall seek to achieve a satisfactory balance of market access opportunities through the satisfactory reciprocation of reductions in tariffs and nontariff barriers to trade in goods resulting from multilateral negotiations.”—U.S. – Vietnam Bilateral Trade Agreement, July 13, 2000 Chapter I, Article 3. General Obligations with Respect to Trade.