Hanoi hesitates over trade liberalisation HANOI - Vietnam's leaders got cold feet when they were about to sign a landmark trade deal with the United States last November. After three years of negotiations, they backed off at the eleventh hour when they feared they had given too much away. Now, they want to re-negotiate parts of the proposed agreement, but the Americans are not willing to do this. The wide-ranging pact commits Vietnam to ensuring transparency in government procurement, publishing economic data, lowering tariffs on industrial and agricultural products, removing restrictions on imports, protecting intellectual-property rights and liberalising trade in services. In short, Vietnam has to liberalise and open up its economy in a way it had never contemplated. Small wonder its leaders are having second thoughts. The Vietnamese have precious little experience in trade negotiations. They feel vulnerable. They become even more suspicious when pressed by the Americans to sign the proposed agreement in its current form. Vietnam is not ready to open up in some areas because it is not ready for competition, says Mr Hoang Anh Tuan, a research fellow at the Institute for International Relations, a Foreign Ministry think-tank. ""We don't want to make any mistakes,'' he adds. By some estimates, Vietnamese exports could increase by US$1 billion (S$1.7 billion) as companies boost their investments in Vietnam to gain access to US markets. But the proposed agreement is not just about dollars and cents. The US ambassador to Vietnam, Mr Pete Peterson, had said the pact, if signed, would signal a fundamental shift in Vietnam's policy on opening up its economy. Thus, the delay in signing could be seen as a big setback for reforms -- and a drag on Vietnam-US ties. Rather than let it fall through, it is wiser for the Americans to review the parts about which the Vietnamese have grave reservations. It is better to have a pact than none at all, if one of the key US objectives is to encourage reforms. As it is, the Vietnamese are just not ready to sign anything, even though they know that they have less leverage than China in negotiating with the US. Unlike China, there are no major US investors in Vietnam to lobby for them in Washington. So the proposed pact is left in limbo as Hanoi's leaders gear up for the five-yearly congress of the Vietnamese Communist Party, its ninth, in the middle of next year. They are likely to postpone big decisions till then. At the same time, the US is preoccupied with November's presidential election. Vietnam's failure to conclude the trade agreement has sent out negative signals. It shows that Vietnamese leaders are still deeply divided over the content and pace of economic reforms. But Mr Ha Hong Hai, assistant director-general of the Foreign Ministry's Institute for International Relations, says: ""Vietnam will push ahead with reforms whatever the outcome of the trade talks with the US. ""We have not stopped our reform process. It's not a question of stepping on the brakes. It's how to open up without putting stability at risk. We are not reversing the course of renovation.'' But doi moi, the renewal policy, has stalled. While there is growing realisation in the government that Vietnam has no choice but to proceed with fundamental reforms, it lacks the political will to make anything more than piecemeal changes. Inefficient state enterprises are still being protected. This keeps the prices of key commodities such as fertilisers, sugar and cement artificially high in Vietnam. Says a senior Foreign Ministry official: ""We pay a price for being too slow. But there are also dangers in going too fast. Vietnam cannot resist globalisation, but it must determine its own speed and not be pulled by alien forces. Globalisation favours the rich countries at the expense of the poor. ""We have to be extremely cautious. Vietnam has to determine its own agenda and move at its own pace.'' If this is the prevailing mindset in Hanoi, then it, effectively, puts paid to the trade pact in its current form. Says the official: ""We are proposing to the US to sit down with us once again to find solutions to adapt to Vietnam's real situation. Some adjustments are necessary in the original draft. ""We don't say "no' to the trade agreement, but we want something more suitable for Vietnam.'' But he declines to disclose what changes Vietnam is seeking. All this cannot but leave observers with the conclusion that however important the trade agreement is, Hanoi just will not be rushed into it. Doing a deng DR LE Bo Linh, vice-director of the Institute of World Economy, a government research body, says that Vietnam's leaders still have to be persuaded that opening up the economy, with all its ramifications, will do more good than harm. But he is convinced an agreement will be signed eventually. ""If not, reforms will slow down and Vietnam will not be able to integrate into the global economy,'' he says. These issues will be debated at the party congress next year. But the really big question that Vietnam has to settle is whether it is ready to make the bold moves which China embarked upon under Deng Xiaoping in 1978. Says a young Vietnamese: ""We've been waiting for change, but we see no obvious signs that things will change. ""Internal dissent is suppressed. Externally, the party can block it out. It's our own fault that we remain poor.'' To be fair, there have been some changes -- well, at least for foreign investors. They are now allowed to open offshore accounts. Procedures will be simplified for permits and labour recruitment, and certain tax exemptions have been approved. The Vietnamese authorities will charge less for electricity and telecommunications. In a recent survey, the Ministry of Planning and Investment found that the main gripes of foreign investors were the dual-pricing system (lower price for Vietnamese, higher price for foreigners for the same product), discrimination against private firms in favour of state-owned enterprises, and difficulties in getting land. There are also many obstacles caused by the lack of administrative reforms. The division of responsibilities between different Vietnamese authorities for licensing is often unclear. Up to 12 ministries can get involved in the licensing process, and this layering is an open invitation to corruption. The latest amendments to the investment laws deal with some of these problems. Says Mr Cheong Kai Kong, general director of the Vietnam-Singapore Industrial Park (VSIP): ""Vietnam has the potential. It is now a caged tiger. Proper implementation of the reforms will transform the economy.'' He is encouraged by the recent revival of investor interest in the VSIP, which has attracted 16 new projects so far this year, compared to nine projects in 1999. The trouble is that many delegates in the National Assembly are still doubtful about the role of foreign investors. They put more trust in state enterprises, which is why many of them do not like to give tax concessions to foreign companies. They think this is being done at their expense, and, worse, the incentives for foreign investors hurt their own state enterprises, which are convinced that all foreigners are, by definition, rich, and ought, therefore, to be milked for what they are worth. Mr Nguyen Bao, deputy director-general of the Trade Ministry's promotion commission, says: ""The complaints by locals about preferential treatment for foreign investors have to be taken into account. Vietnam cannot rely just on foreign investors.'' FDI Reservations Planning and Investment Minister Tran Xuan Gia says the problem is to balance the importance of domestic and foreign capital. ""Some people do not look at foreign direct investment (FDI) as one component of the national economy. They think FDI is them, not us.'' It is not just a matter of changing the laws. Implementing them will be more difficult, the minister concedes. Local authorities did not heed the central government's orders to stop work on 27 projects last year. Says Mr Gia: ""The answer lies in changing perceptions about the roles in the economy of FDI, domestic capital sources and business. We have not succeeded in reforming the administrative system and now, the question is how to change ourselves. This is a very difficult question.'' But while Vietnam's leaders agonise over whether to proceed with reform, and how quickly, the procrastination spells more poverty for the country, which, in turn, has repercussions on Asean as a viable regional grouping. A widening wealth gap between the rich and poor Asean countries could cause political friction and hinder regional cooperation. Catalyst needed Vietnam, Cambodia and Laos are three neighbouring states which form a natural geographical sub-group within Asean to enhance economic linkages in Indochina. The trouble is that all three are among the poorest in the 10-nation grouping. How can Vietnam, Asean's second-largest country, ever emerge as a substantial player if it cannot even make up its mind? Clearly, it lacks the equivalent of China's Deng to push through a radical change in direction and re-position the country's economy. Vietnam's best hopes are in its younger leaders, who can be the catalyst for change. But they are unable to do this in the current political climate. Yet a young reform-minded government economist is undaunted. He says: ""We Vietnamese are a resourceful people. I have faith that we will rise to the challenge when our backs are to the wall. We sent out the danger signals six months ago to the political leaders. The government and party know that the most difficult period is not in the past but ahead. They have to act.'' By Lee Kim Chew - The Strait Times - June 17, 2000.