Chinese School - WTO entry no cure-all for Vietnam

WORLD / Wall Street Journal Exclusive

WTO entry no cure-all for Vietnam

By JAMES HOOKWAY (WSJ)
Updated: 2006-11-08 13:51

http://online.wsj.com/public/article/SB116289797661215462-JRxepW89QO_xpg6xg
_uqy_GGJlE_20061114.html?mod=regionallinks

Vietnam was formally invited to join the World Trade Organization after
more than a decade of entry talks in which it steadily reduced its
tariffs and pledged to open its banking sector.

But the Communist-run country still faces obstacles to expanding its
trade: The world's major trading nations, for now, continue to consider
it a "nonmarket economy." That means Hanoi is vulnerable to claims that
it subsidizes its exports and dumps them on the world's markets, analysts
say.

Vietnam, the fastest-growing Asian economy after China in recent years,
has already concluded bilateral trade deals with major trading partners
such as the European Union, Japan and Australia. Since the U.S.
normalized trading relations with its former adversary in 2001, trade
between the two has quadrupled to almost $8 billion a year.

Congress is expected to vote on whether to grant Vietnam "permanent
normal trading relations" by year's end.

With 84 million people, Vietnam has been the second-largest economy,
after Russia, that wasn't a member of the global trade group. The country
is an increasingly attractive destination for foreign investment. Intel
Corp., for instance, has begun work on a $300 million semiconductor
factory in southern Vietnam and is considering increasing that
investment, Vietnamese officials say. The Asian Development Bank expects
Vietnam's economy to grow 7.8% this year.

As the WTO's 150th member, Vietnam will likely attract more foreign
investment, analysts say. In particular, the country will benefit from
the removal of quotas that limit its textile exports to Europe and the
U.S.

But with WTO membership, which is expected around year's end, Hanoi will
have to give up subsidies and tax breaks for domestic companies, as well
as open up its markets to foreign competition.

Until Vietnam takes these steps -- something that could take years -- it
will be regarded as a nonmarket economy, enabling rivals to accuse it of
using state subsidies to give domestic companies an unfair advantage.

In the past few years, the U.S. has imposed antidumping tariffs on
Vietnam's catfish and shrimp exports; in October, the EU decided to
impose antidumping duties on Vietnamese shoe imports. Although joining
the WTO won't necessarily remove those tariffs, Vietnam will have the
option of challenging their legality within the WTO.

Vietnam suffers from other homegrown impediments to its continued strong
economic growth. The quality of its infrastructure lags behind that of
regional competitors such as China and Thailand. Corruption also is
endemic, affecting nearly every aspect of life in the country.

Vietnam's human-rights record grates with some of its trading partners,
too. On Friday, a court in Ho Chi Minh City will try seven people,
including three Americans of Vietnamese descent, for an alleged attempt
to take over state radio stations to call for a popular revolt against
the country's Communist leaders. Penalties for conviction could range
from 12 years in prison to execution by firing squad. Yesterday, the Bush
administration urged Vietnam to give the three U.S. citizens a fair trial.

Sen. Mel Martinez (R., Fla.) has raised the case of one of the defendants
in an attempt to block the latest trade bill on Vietnam, which President
Bush hopes to sign before visiting the country during a summit of Asia
and Pacific leaders in mid-November.

Prime Minister Nguyen Tan Dung told a visiting American business
delegation in Hanoi yesterday that during Mr. Bush's visit, he would like
Vietnam to be granted the status of a country with "permanent normal
trade relations" with the U.S.

Certain issues continue to worry foreign investors. They are keeping a
close watch on a government investigation into Dutch bank ABN Amro
Holding NV. Vietnamese authorities allege ABN Amro employees illegally
traded with officials from a state-owned bank, resulting in a loss of
$5.4 million for the state bank. Two ABN Amro employees have been
detained in jail pending charges, while two others are under house arrest.

ABN Amro officials have said the bank did nothing wrong and it stands by
the trades, which took place over the course of three years and have
already been settled. Other foreign banks have voiced concern about how
Vietnamese authorities appear to be criminalizing normal trading
practices, raising questions about whether Vietnam is ready to join the
international trading community.

In a directive last week, Mr. Dung urged police to complete their
investigation. He also indicated no one would be convicted if ABN Amro
repays the state bank's foreign-exchange losses.

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