This Country Commercial Guide (CCG) presents a comprehensive look at Vietnam's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies.

The stated goal of Vietnamese government policy is to establish an industrialized economy that is thoroughly integrated into the international economic system. To that end, Vietnam has just completed the first ten years of an economic liberalization process intended to introduce market forces. At its Eight Party Congress, held in June 1996, the Communist party leadership stated its commitment to continue market reforms, on a step-by-step basis, while maintaining a leading role for state-owned enterprises.

Vietnam is endowed with significant economic resources and potential market growth. In the past few years, it has attracted $24 billion in direct foreign investment commitments and another $5 billion in official development assistance.

Given its large, relatively young and literate population of 75 million; low-cost labor base; substantial energy and other mineral deposits; well-developed agricultural capability; and long, marine-rich coastline, there is reason to believe that the country will achieve its objective of becoming competitive with its more prosperous neighbors in ASEAN, the fastest growing sub-region in the world. International lending institutions have been impressed with the government's ability to manage the difficult transition from a command to a market-oriented economy. First, it averted economic calamity when the ex-Soviet Union precipitously cut aid and trade in the late 1980's. Since then, it has maintained sound economic fundamentals. Gross Domestic Product has averaged between 9 and 10% the last three years, with the industry sector expanding 14% annually, while exports and imports grew at 25-30% and 30-35%, respectively. Inflation in the first half of 1996 fell to less than 5%, although a growing trade deficit has created some concern.

Vietnam's economic transformation is incomplete and still faces formidable challenges. Creating the institutional, legal and regulatory framework necessary to sustain high growth rates will require a process of continuous change. The Vietnamese government has undertaken a series of administrative and judicial reforms intended to streamline the bureaucracy, restructure key sectors such as the financial, and provide transparency and consistency in the legal system. The first Commercial Code, new tax laws and an updated Law on Foreign Investment are in preparation for consideration by the National Assembly. New fiscal and monetary measures will also be introduced to help promote a higher level of domestic investment, as well as to ensure the flow of foreign investment necessary. It is hoped that these and other initiatives will buttress Vietnam's comparative advantages vis--vis other economies in the region.

Since the U.S. lifted its trade embargo with Vietnam, in February 1994, commercial presence in this market. American Chambers of Commerce in Hanoi and Ho Chi Minh City offer an array of services to assit American firms and many of our major companies number among its membership. From a base of zero, U.S. firms already rank 6th as investors behind Taiwan, Japan, Korea, Hong Kong, and Singapore. Bilateral trade relations are also developing rapidly. Opportunities are especially impressive for products related to infrastructure development, light manufacturing, and agriculture and fishing, along with consumer goods. The U.S. government is pursuing economic normalization with Vietnam and substantially strengthened the ability to assist our companies when it opened an Embassy in Hanoi, just over a year ago. Bilateral cooperation is expanding over a broad front and official delegations are visiting both countries with increasing frequency. A trade agreement designed to secure market access and protect intellectual property, which would lead to granting Vietnam Most Favored Nation status, is under discussion.

The U.S. faces strong competition from Asian and European firms that have had a "head-start" in gaining a foothold in this market. Nevertheless, the Vietnamese government attaches great importance to building economic relations with the U.S. Our technology maintains a strong reputation and U.S. firms are considered world leaders in many, if not most, economic sectors. Moreover, Vietnam realizes that its ability to meet its development objectives, especially in a meaningful timeframe, depends on having strong commercial ties with the U.S. In order to take best advantage of the promising potential which commercial relations with Vietnam now offer U.S. companies, they should consider several factors. Approaching the market with the intent to develop and implement a long-term business strategy will both facilitate market entry and enhance the prospect of ultimate success. Differences in culture, customs and business practices also need to be taken carefully into account. For example, many American executives are predisposed to rely on the legal structure of an agreement to ensure its longevity, where as in Vietnam, personal relations tend to have greater influence. In many respects, Vietnam's economy is still very open. The challenges to market entry ought not be underestimated, but neither should the expectation be overlooked that the U.S. is likely to become one of its major trade and investment partners. U.S. firms are encouraged to consider evaluating their business prospects in Vietnam now.

Country Commercial Guides are available on the National Trade Data Bank on CD-ROM or through the Internet. Please contact STAT-USA at 1-8-STAT-USA for more information. CCGs can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS.

Last update: March 1997 by VACETS