VN Bus. News (May 8, 1997)

[Vu Thanh Ca <vuca@envi.env.civil.saitama-u.ac.jp>]

May 08: Vietnamese trade law could discriminate against foreign bidders:report 
May 08: Foreign Lenders Ask if They Can Still Bank on Vietnam
May 08: Vietnam-Trade Law Vietnam adopts law on trade 
May 08: China opens ferry service to Vietnam to promote tourism 
May 08: Slow boat to US-Vietnam trade agreement 


Vietnamese trade law could discriminate against foreign
bidders:report 

HANOI (AFP) - Vietnam has passed a trade law that could discriminate
against foreign companies bidding for contracts, reports said
Thursday.

According to the English-language Vietnam News daily, National
Assembly deputies said that "Vietnamese bidders should be given first
priority in winning the bid (for contracts) if both foreign and
Vietnamese bidders have the same qualifications."

"There is a provision which might be overtly discriminatory against
foreign bidders and Japanese businesses would obviously be worried
about this," a Japanese diplomat told AFP.

Japan is Vietnam's largest bilateral donor, and Japanese companies
rely heavily on officially funded projects for contracts here.

Although the WTO has few provisions on government procurement
policies, the diplomat said the new bill "seemed to go against the
idea of WTO."

The law, which was passed on Wednesday in the National Assembly, has
been upheld as a key step in preparing Vietnam for eventual admission
to the World Trade Organisation (WTO).

The bill, which will take effect on January 1 next year, was hastily
passed by deputies at the urging of Prime Minister Vo Van Kiet, a
reform minded leader who is anxious to push ahead with Vietnam's
international economic integration.

But during debates many assembly deputies expressed their misgivings
with the legislation which was rushed through the lawmaking body
before it terminates its month-long session on Friday.

Deputies complained of vague and ambiguous clauses and in at least one
case, decided to exclude a provision deemed unsatisfactory and
confusing. The section, which dealt with leasing, was excluded because
the concepts and terminology were "too difficult and strange for them
to deal with," the Vietnam News reported.

Do Quoc Sam, former head of the State Committee for Cooperation and
Investment, called for stricter supervison of the bidding process,
Vietnam News said.

Contract fixing and kickbacks are widespread in Vietnam, and the
government is determined to crack down on corruption.

Vietnam is equally anxious to move ahead on a bilateral trade
agreement with the United States that would pave the way for most
favoured nation status giving Vietnam access to the huge US market.

But observers say the country faces a herculean task to prepare itself
for WTO membership which the Ministry of Trade has targeted for 2000.

A western diplomat who wished not to be identified said Vietnam had
already fallen seriously behind on committments to the ASEAN Free
Trade Area which requires it dismantle its protective tariffs and
trade barriers by 2006.

ASEAN comprises Brunei, Indonesia, Malaysia, the Philippines,
Singapore, Thailand and Vietnam.

Vietnamese officials are "coming under pressure from international
agencies to open up their economy and especially to speed state
enterprise reform," the western diplomat said.

According to UN Development Program economist Jean-Luc Bernasconi,
joining WTO will require a sea-change in the country's institutions,
legal structure and economic orientation.

He noted a Geneva-based working group issued a list of 1,500 questions
in response to a memorandum on Vietnam's trade regime which the
Ministry of Trade submitted to the WTO secretariat last year.
                 ___________________________________


Foreign Lenders Ask if They Can Still Bank on Vietnam 

Ho Chi Minh City (WSJ) -- What's a Vietnamese bank's word worth these
days?

Foreign investors and bankers are beginning to wonder. In recent
months, several private and state banks have refused to honor loan
guarantees they made to foreign banks and companies, saying they won't
do so until their own debtors pay them. That's at odds with normal
international practice. And one private bank says it's lost the
documentation on $1.8 million in loans it took from a foreign bank.

This combination of events is sending chills through the foreign
business community -- and those fears could have grave implications
for the Vietnamese financial system.

"What's the point of backing a loan if you're not going to honor it?"
asks David Hutcheson, Hongkong & Shanghai Banking Corp.'s chief
executive for Vietnam. "A bank is only as good as its word."

But sometimes it can be difficult to figure out exactly what its word
is.

Consider the Viet Hoa Joint Stock Commercial Bank, one of this
southern city's more prominent private banks. On Wednesday, Viet Hoa
missed a payment on an interbank loan from Shinhan Bank of South Korea
-- at least Shinhan Bank says so.

Waiting Game

Figuring out what Viet Hoa thinks is a little more complex. According
to Shinhan, Viet Hoa says it has record of the loan. A senior Viet Hoa
official says in an interview, however, that while the bank is aware
of the loan, "the foreigner" -- Shinhan Bank -- will have to wait to
be paid. "Our customer has to pay us back first," says Truong Van
Sanh, assistant general manager of Viet Hoa. Until then, the $1.8
million that Viet Hoa owes to Shinhan in three outstanding placement
loans -- a sum equal to about 25% of Viet Hoa's estimated $7 million
in paid-up capital -- is the Korean bank's problem, he says.

But problems of "the foreigner" could well spill over into Vietnam's
domestic banking sector. If crumbling credibility means no one trusts
Vietnam's banks, credit lines from overseas may dry up, exacerbating
an already severe liquidity problem. With less cash, local banks will
likely slow repayment rates even further, creating a vicious cycle.

There certainly will be plenty of opportunity to test credibility in
the months to come. Western economists estimate that more than $1
billion in deferred letters of credit is coming due this year -- a
huge sum in a country with foreign-exchange reserves of just $1.6
billion. A letter of credit, generally used to facilitate foreign
trade, is a bank's promise that a shipment of goods will be paid for
on arrival. While it isn't known how many loans are coming due for
Vietnam's four main state-owned banks, the country's 54 private banks
owe 5.13% of Vietnam's total foreign debt, or $255 million, accord ing
to the State Bank of Vietnam.

Overdue Payments

So far, the track record has foreign bankers worried. In February, a
prominent private bank, the Vietnam Joint Stock Commercial Bank for
Private Enterprise, better known as VP Bank, had trouble honoring a
letter of credit for a $2.9 million steel shipment.

Even the Bank of Foreign Trade of Vietnam -- the country's leading
state-owned commercial bank, known as Vietcombank -- is now two weeks
overdue on a $400,000 bill of exchange (a sort of interbank IOU) to
Shinhan Bank, Shinhan says.

And Vietcombank officials have told at least one foreign banker that
the bank won't honor some of the $40 million in guarantees it made to
foreign banks on behalf of Minh Phung Co. and Export Processing Co.
until the two Vietnamese trading companies pay it. That may take some
time, since Minh Phung and Export Processing are the latest private
enterprises to become embroiled in a corruption scandal. Vu Viet
Ngoan, deputy director-general of Vietcombank, says "it's not true"
that the bank won't honor the guarantees, and blames a conflicting
"legal environment" for the delay in repayment. The State Bank, he
says, is resolving the problem, and "we will be able to pay the
foreign banks soon," he adds.

Investment Could Slow

But perhaps not soon enough. Once-aggressive foreign banks already are
beginning to freeze lines of credit to local institutions, foreign
bankers say. Some of Vietnam's largest trading partners also are
getting nervous. Since March, "there's been a drastic reduction in
supplying goods on deferred [letters of credit]," notes Park Chan
Shin, director of the Korean Consulate's commercial section here. As
credit lines are reeled in and trade financing becomes more difficult
to obtain, foreign direct investment could slow, warns Mr. Park.

Korean traders were concerned enough to hold urgent talks three weeks
ago to discuss what to do about credit risk in Vietnam, says Mr. Park,
who estimates that Korean traders carry about 60% of the
letter-of-credit burden. In response to the bad-loan crisis, Korean
and Taiwanese trade officials have even begun advising suppliers not
to accept letters of credit from any of Vietnam's private banks.

And while foreign businessmen obviously worry about being paid -- or
repaid -- money they've been promised, it's the attitude of some local
banks toward the debts that really scares them.

Records Disappeared

Ask Choi Sung Ho, assistant general manager of Shinhan's Vietnam
branch. For weeks, Viet Hoa has refused to even acknowledge receipt of
the funds loaned to it. Officials at the bank say that all records of
the transaction had disappeared with the recent death of the bank's
chairman, Tran Tuan Tai.

"This situation is ridiculous," says Mr. Choi, who notes that
international banking practices don't require collateral for interbank
loans and guarantees; just confirmation by telephone, facsimile
machine or telex. Mr. Choi has copies of a fax, telex and a letter
with an authorized signature from Viet Hoa, requesting the loan.

Shinhan Bank has now advised its customers not to accept letters of
credit from Vietnam's private banks, has stopped lending to small,
private Vietnamese banks altogether, and is increasingly reluctant to
lend to state commercial banks, says Mr. Choi.

Conservative Lending

Other banks seem to be taking a similar tack. Taiwan's International
Commercial Bank of China has adopted a similar policy, though it
accepts the credit risk of state banks. "At least they have the
backing of the government when they default," an ICBC official says.
Hongkong Bank offers only conservative lines of credit to a select
number of banks here. So far, it has managed to collect on loans.
While he has no plans to cut lines, Mr. Hutcheson says he will
continue to be conservative when lending to Vietnamese banks.

To be sure, missed payments on guarantees or letters of credit don't
necessarily point to willfulness on the part of Vietnamese banks. An
inability to pay often stems from pure financial mismanagement,
international accountants say. Bad risk management, poor ability to
track cash flow, corruption and lack of experienced staff plague
Vietnamese banks as much as liquidity problems, they say.

Soured Property Deals

Banks also are bearing the brunt of soured property deals following a
wave of speculation over the past two years. Indeed, sources close to
Viet Hoa say that the bank's deceased chairman mixed bank business
with that of his own property and construction company. Asked about
the rumors, Viet Hoa's Mr. Sanh says, "I'm not sure." He blames a
state trading company for the bank's current inability to repay
Shinhan, saying that the firm owes Viet Hoa more than $1.8 million on
a deferred letter of credit for a supply of fertilizer.

Meanwhile, the Vietnamese government seems to be trying to contain the
problem. While the State Bank won't comment other than to say it is
looking into the matter, Shinhan officials say the prime minister's
office is now dealing directly with the matter of the unpaid and
disputed unacknowledged interbank loans.

The government also recently ordered two state-owned banks to buy
shares in VP Bank, to help oversee operations and provide financial
backing. Two draft banking laws introducing tighter credit regulations
are expected to be passed in the autumn session of Vietnam's
legislature. Foreign businessmen are hoping the new rules will go far
enough.

Indeed, an unstable banking system is emerging as one of the biggest
obstacles to foreign trade, next to "red tape," reckons William Wong
Ping, head of the commercial section of the Taiwan consulate.
                 ___________________________________


Vietnam-Trade Law Vietnam adopts law on trade 

HANOI (AP) -- Legislators have voted to adopt Vietnam's first trade
law to help provide a legal framework for the country's expanding
overseas business links.

Passed by nearly 87 percent of National Assembly delegates, the trade
law is the first comprehensive effort to streamline the legal aspects
of trade.

The law, with more than 260 articles, regulates a wide range of
activities, including advertising and marketing, taxation and conflict
resolution, the Communist Party newspaper, The People, reported
Thursday.

The law, however, does not supersede the government's tight regulation
of foreign companies operating in Vietnam. The central government in
Hanoi maintains the final say on what companies will be permitted to
set up operations in Vietnam.

The legislation puts down on paper for the first time a series of
rules and regulations that many companies said previously seemed to be
randomly imposed.

Government-mandated pricing controls, import limits and export quotas
all fall within the new legislation, The People reported.

The new law eliminates government meddling in communications between
local and overseas business partners. Previously communications by
fax, electronic mail or telex went through government officials.
                 ___________________________________


China opens ferry service to Vietnam to promote tourism 

HONG KONG (AFP) - China is to start ferry services with Vietnam in a
bid to boost tourism between the two countries, it was reported here
Thursday.

The Chinese communication ministry on Monday approved the opening of
services between Beihai in the southern province of Guangxi and Hon
Gai and Haiphong in northern Vietnam, the semi-official China News
Service said.

The new route could shorten journey times as it cuts out the need to
travel on hilly roads through Mong Cai on the Sino-Vietnamese border,
the agency said.

It said Beihai Shipping Co. was making preparations for the service
but gave no time for the opening.
                 ___________________________________


Slow boat to US-Vietnam trade agreement 

By Frederik Balfour

HANOI (AFP) - Hanoi has high hopes the arrival on Friday of ambassador
Douglas "Pete" Peterson will help hasten negotiations for a trade
accord, but observers say an agreement is still a long way off.

"The two sides are miles apart," said a Hanoi-based lawyer who has
seen a copy of the 80-page draft agreement which US negotiators
delivered to their Vietnamese counterparts last month.

Other observers say it could take up to two years for the former
wartime foes to hammer out an agreement acceptable to both sides.

For Vietnam, the trade off is exposing its domestic businesses --
especially coddled state owned enterprises (SOEs) -- to unfettered
competition from US companies versus gaining access to the biggest
market in the world.

For their part, US negotiators complain Vietnam's investment regime is
heavily biased in favour SOEs and are demanding Hanoi accord foreign
businesses equal treatment with domestic companies.

The US has also made clear Vietnam will need to improve its human
rights record before full economic normalization can occur.

Observers question Hanoi's willingness to let any country dictate
terms of trade, least of all the United States. But with a ballooning
trade deficit -- more than 4 billion last year, worth about 17 percent
of GDP -- Vietnam is desperate to boost exports. A trade agreement
would pave the way for reciprical most favoured nation status (MFN)
and access to the US market.

"The big carrot is the ability to export to the US. This is a seven
trillion-dollar market with average tariffs of just five percent,"
said Sesto Vecchi, an American lawyer based in Ho Chi Minh City.

Without MFN, Vietnamese exports to the United States are still
minuscule, with only 313 million dollars worth of goods shipped last
year. Coffee and petroleum products, which are not subject to the
current tariffs which MFN would eliminate, accounted for nearly 60
percent of the export bill.

Observers note the United States is holding Vietnam to a higher
standard to avoid creating a situation like that with China, with its
laborious annual MFN debate.

The proposed agreement covers trade, services, intellectual property
rights, investment and tariffs.

Another reason the United States is talking tough has to do with the
legacy of the war it lost. "US middle America wants to beat them on
the trade front," said the American lawyer.

The most ticklish issue is the United States' demand for national
treatment of its investments here, observers say, as it strikes at the
very heart of Vietnam's "socialist capitalist" model, and will stick
in the throats of communist hardliners.

"The idea of treating US companies like they were Vietnamese is really
tough for them," said one analyst.

But even without a US trade agreement, Vietnam's thicket of tariffs
and non tariff trade barriers must be harmonized to conform with the
Asean Free Trade Area by 2006, a process observers say is already way
behind schedule. Industries most protected include steel,
telecommunications and transportation, all of which are controlled by
the state and are most threatened by a more open economy.

"They have deep vested interests (in preserving the status quo). The
same guys who own the SOEs are the ones negotiating," said a US source
close to the trade talks.

However another US source said "Vietnam definitely wants to
negotiate," noting a landmark agreement reached on copyright
protection last month shows Vietnam's genuine desire to move forward.