Liberal Trade Laws, Changing Policy Creating New Dawn for Vietnamís Economy by Sean OíDriscoll Ask many Americans what first comes to their minds when they hear the word Vietnam&Mac226; and the results are not surprising: the Vietnam War, poor villages and a tightly controlled economy. Itís a perception that the modern Vietnam is struggling to overcome. As Vietnamese business people repeatedly stress to the media, nobody can diminish the suffering of the Vietnam War, but those trying to forge economic links between Vietnam and the United States are desperate to overcome its legacy. According to Pham Binh Minh, deputy chief of mission of the Vietnamese Embassy in Washington, D.C., the responsibility of the U.S. government to the victims of the war, especially those suffering long-term effects of Agent Orange, is a separate issue from the growing economic ties between the two countries. ìIn daily life, you can see the consequences of the war, especially the victims of Agent Orang e,î Minh said, ìbut this does not affect the ways of business people working with the U.S. They can work with the U.S., and on the other hand, they want to see humanitarian efforts to help the victims of Agent Orange. But that is not a precondition on doing businessóthe two issues are really separate.î Minh, along with many others from his country, point to the huge diplomatic and economic changes that have taken place since the days when the United States and Vietnam viewed each other with mutual disdain. The two governments restored diplomatic relations in 1995, and the United States is now one of Vietnamís largest trading partners, with American companies investing $1.4 billion into the Vietnamese economy last year. On the streets of Hanoi and Ho Chi Minh City, a new generation is adapting to a globalized society of Internet cafÈs and American-style fashion boutiques. Itís a phenomenon not completely surprising in a country overcoming two decades of centrally planned economics in favor of liberal trade with the outside world. Experts differ on when Vietnam first began its journey from the old tariff-heavy system and started to look to the West as an opportunity, not as an enemy. Many point to the Sixth National Congress of Vietnamís Communist Party, held in December 1986, which accepted a completely new economic policy. Popularly known as Doi Moi&Mac226; the policy initially aimed at shifting economic priority from heavy industry to investment while increasing production of food and consumer goods. The new system, similar in some ways to the changes taking place in the Soviet Union at that time, were showing clear results: Inflation fell from a staggering 700 percent in the 1980s to less than 10 percent in the mid-1990s. The government now says that inflation dropped to 1 percent last year. The Doi Moi policy has produced other positive results. Despite the adverse impacts of the recent regional economic crisis, Vietnamís gross domestic product more than doubled between 1990 and 2000. The public has more confidence in the economy than at any time before: Domestic savings rose from 14.4 percent of GDP in 1991 to 27 percent in 2000, and 35,000 private enterprises have been established in the past two years. The exchange rate with the U.S. dollar has remained relatively stable, a massive boon for international trade. The government has also learned the benefits of a liberal economy: State revenue rose from 15.2 percent of the GDP in 1990 to 27 percent in 2000. Trade deficits have also been narrowing, from around $4 billion in 1996 to less than $1.2 billion in 2000. Virginia Foote, president and co-founder of the U.S.-Vietnam Trade Council, believes the huge change in economic fortunes has been matched by a similar change in psychology. ìIn the old days, business was slow to react, and there was a general feeling that the country would not change. Now, there is a great sense of self-confidence in the air, especially among the young,î Foote said. ìThey constitute more than 50 percent of the population, and they are ready for a new world. They know they can compete, they know they are goodóthatís the biggest change of all.î Some experts point to November 1996 as the real beginning of this confident new Vietnam. That month, the government passed the Law on Foreign Investment, which is now considered among the most liberal investment laws in Southeast Asia. By 1997, Vietnam had signed a groundbreaking deal with the United States that protected U.S. intellectual property rights, throwing the doors open to greater investment in the country. Indeed, then-U.S. Secretary of State Madeleine Albright signaled a new era of cooperation when she made a knowing joke at the past in her speech after the deal was signed. ìI would have said, ëGood morning, Vietnam&Mac226;íî she told the assembled guests in Ho Chi Minh City, ìbut we just signed an agreement yesterday to protect intellectual property and the State Department does not want to get a bill from Robin Williams.î By 2000, the conditions were right for the signing of a bilateral trade agreement with the United States, arguably the most significant economic event in Vietnam since the ending of the war. Under its terms, Vietnam earned a most-favored nation status, allowing it much greater access to U.S. markets while agreeing to do away with restrictive tariffs on U.S. goods. The agreement also provided increased market access in Vietnam to U.S. service providers, such as banking, insurance and telecommunications. Despite widespread acclaim, the deal met with some opposition in the United States. The then-leader of the Senate Committee on Foreign Relations, Jesse Helms (R-N.C.), angrily denounced the deal and said an old adversary had duped President Bill Clinton. He also said that financing of new economic deals by the U.S. Export-Import Bank, among others, was likely to stop the Vietnamese governmentís economic reforms. However, according to Export-Import Bank Director D. Vanessa Weaver, the bilateral trade agreement has seen a very significant shift in U.S. trade to Vietnam and has benefited both countries accordingly. ìI traveled to Hanoi and to Ho Chi Minh City, and I spoke to many government officials, as well as U.S. and Vietnamese investors. I could see a new positive outlook on all parts and a feeling that this was really the start of something exciting,î she said. Weaver readily concedes that the Vietnam War still hangs over some business peopleís reluctance to invest in the country. ìI think that is the belief of some folks, but we are not talking about undoing the past. If increased trade can benefit both countries, then why not? This is not a question of anyone getting the upper hand. Itís a question of both sides working together.î Clintonís visit later that year brought scenes of public jubilation and a strong commitment from the president to help Vietnamís move toward economic reform. Although the more cynical said that the agreement guaranteed cheap labor for U.S. companies, Clinton was eager to explain the benefits of globalization to the Vietnamese public. He met with dock workers in Ho Chi Minh City before his departure and told them that although globalization can have ìunsettling and unpredictable consequences,î the deal would lead to a higher standard of living and greater opportunity for the Vietnamese population. The economic benefits for the United States speak for themselves: In 2000, U.S. exports to Vietnam totaled $367 million, a 26 percent increase over 1999, with particular growth in aircraft, exploration field machinery, medical equipment and education. Dana R. Dillon, Southeast Asia policy analyst with The Heritage Foundation, visited Vietnam earlier this year and discovered a country with an immense feeling of vitality and rebirth. ìBefore the bilateral trade agreement, the Vietnamese economy had not only reached a plateau but was going down. Since the agreement, I see the renewed energy needed to revitalize the country.î For him, the biggest change was in conservative Hanoi. ìHo Chi Minh City, or Saigon, has always been a bustling, booming Southeast Asian city. The enthusiasm in the more conservative Hanoi showed the new Vietnam to me. There was an overall confidence among the top U.S. business people I met. I got the impression that Vietnamese business people are also looking forward to a bright, open future.î Like everywhere else in the world, however, Vietnam has suffered a downturn in foreign investm ent since the dot-com crash and the Sept. 11 attacks. At the end of August, new Ministry of Planning figures showed foreign direct investment (FDI) capital had dropped 40 percent over the previous year. Vietnam has licensed 413 FDI projects so far this year, worth $771 million, but even this is much smaller than the volume of a year ago, despite signs of improvement. American firms had merely 20 projects capitalized at $49 million since Jan. 1 of this year, when the Vietnam-U.S. bilateral trade agreement became effective. According to Deputy Chief of Mission Minh, the country is under no illusions about the challenges it faces in the immediate future. ìFrom the U.S. side, we expected more investment with the bilateral trade agreement, but that has not yet happened in that way,î he said. ìOne reason is that the U.S. economy is not very bright, and the drop in investment is across Southeast Asia. When you compare the investment level with the potential of the U.S. economy, then you see how much we have to gain from there.î Nevertheless, the economyís liberal trade laws have made it far more robust than other communist countries. According to the Export-Import Bank, the Vietnamese economy should grow by 5 percent annually over the next number of years, and trade will remain an attractive option for U.S. firms hoping to find a base in Southeast Asia. Export companies also have far more freedom to adjust to the unexpected changes after Sept. 11. At present, all Vietnamese businesses, including private companies, have the right to handle export and import business and adapt accordingly. As a result, the number of companies engaged in export and import business rose from only 50 in 1986, when the reform was initiated, to around 12,000 in 2000, remaining at that level today. To some investors, Vietnam has rapidly rose from economic disaster to becoming a very attractive proposition thanks in part to liberal trade laws combined with low costs and a government eager to throw off the old ways of the past. ìThere has never been a better time to invest in Vietnam,î said Foote, president of the U.S.-Vietnam Trade Council. ìVietnam is a country very proud of its own culture. It is not going to be swamped by outside pressures. It knows what it wants. It wants inward investment and itís prepared to give a good deal. It hasnít thrown off the past, but itís now willing to look to the future.î Sean OíDriscoll is a freelance writer in Washington, D.C.