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Trade deal to bring harsh competition to Vietnam

Reuters | Tuesday, May 16, 2006

Trade deal to bring harsh competition to Vietnam

HANOI, MAY 15: Vietnam’s small economy faces harsh competition and other challenges after a trade deal with the United States put it on the threshold of the World Trade Organisation, economists and businessmen said on Monday.

“This is a game where the strong will live and the weak will die,” said a Hanoi shipping company director Nguyen Vu Hiep, reflecting pragmatism amid excitement over the communist-run Southeast Asian country moving closer to joining the world’s biggest trading club this year.

Vietnam, whose economy of only $52 billion in gross domestic product had one of the world’s fastest growth rates at 8.4% in 2005, reached agreement with Washington on Saturday on a new trade deal. Expected to be signed in June, the deal was hailed as another milestone in two decades of normalizing relations between the former enemies and paving the way to Vietnam becoming a WTO member in 2006, 11 years after it began applying.

Professor Tran Dinh Thien of the Vietnam Institute of Economics said membership would create momentum for the government to push through more economic reforms - a major theme of April’s five-yearly ruling Communist Party National Congress.

“Market access for Vietnamese firms will be greater but so are the challenges,” said Thien. “The biggest challenge is competitiveness - that will determine whether WTO membership is a good thing or bad thing for businesses at the end of the day.” Vietnam has completed deals needed to join the WTO with all of its leading trade partners, but still has to finish a multilateral agreement in Geneva this year bringing its overall trade regime in line with global rules.

Steve Price-Thomas, Vietnam director of Oxfam Great Britain charity, said the Geneva talks would be the last chance to ensure fairness for the country’s 83 million people, almost a third of whom still live in poverty despite success in poverty-reduction. “We hope in the remaining negotiations Vietnam is allowed to accede to the WTO in a deal that recognizes it as a low income and still developing country,” said Price-Thomas, who has argued that rich countries have a double standard in demanding countries such as Vietnam phase out export subsidies when they join WTO.

Vietnam’s trade deal with the United States lowers Hanoi’s tariffs on US industrial and farm products and removes other barriers that block US companies in the telecommunications, retailing, banking, insurance and energy sectors.

Among Vietnam’s future challenges are streamlining an economy still dominated by state-owned enterprises and beset by bureaucracy and corruption, economic analysts said. Raising education standards to meet the demands of a ‘knowledge-based economy’ was another. In its quest to become Asia’s next economic ‘tiger’, Vietnam’s growth has been driven by market-oriented measures and less communist-style central control.

The National Assembly, or parliament, has passed a score of laws in recent years to help reduce the complications of running a business in Vietnam. It convenes on Tuesday for a six-week session that is expected to pass several more laws.

Changes in the economy have already included private business tripling in the last five years, foreign direct investment rising 24 percent in the first quarter of this year and big companies such as computer chipmaker Intel Corp. and defence giant Lockheed Martin making significant investments.

Students mobbed Microsoft founder Bill Gates like he was a rock star when he visited Vietnam in April. Senior government economic adviser Le Dang Doanh said the opening of sectors such as telecommunications would be gradual and some businesses would not be able tocompete in the new era.

 source: Financial Express