Category Archives: Vietnam

WTO Members Grilled On Import Licensing

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The Import Licensing Committee of the World Trade Organization (WTO) met last week to watch member countries trade barbed questions about import licensing requirements. Licensing, while it can be used for legitimate consumer protection, can also be employed to keep foreign competition out in favor of local producers. The Import Licensing Committee tries to resolve disputes before they become official cases in Geneva, but there have been 39 often raucous dispute settlement cases since 1995.

The WTO Import Licensing Agreement aims not only to prevent licensing requirements from being used to discriminate against foreign products, but also – realizing that uncertainty stops trade – to encourage countries to be transparent about their licensing practices. Member countries are often reluctant to give information about import licensing to each other or to the WTO secretariat. The WTO conducts an annual licensing survey that all of its 159 members are supposedly required to fill out. I haven’t seen the results for 2012 yet, but only 43 of the members bothered to complete the 2011 survey. Hardly a strong vote for transparency, is it? One has to assume that the 116 non-responding countries are up to something sneaky.

Russia only joined the WTO last year, but Moscow has already missed its first deadline for the import licensing survey and many countries want to hear what the Russians have to say. Canada, the European Union, Japan and the United States all asked questions about Russia’s practices, and were joined by Norway, Switzerland and Australia in expressing concern about the missing questionnaire. The Russian delegation answered some specific questions – describing its licensing rules as mostly applying to alcoholic beverages, drugs and drug precursors, toxics, medicines and radio-electronics – but gave the excuse of a re-organization of its trade agencies as the reason for its non-response to the annual questionnaire. Wonder if we will see a response to the 2013 questionnaire?

Vietnam was congratulated by the United States and the European Union for its decision to temporarily waive some of its import license requirements. That done, Washington complained that Vietnam has been a WTO member for six years now and still hasn’t presented – as required – a list of what products are actually subject to import licenses. The new waiver would have been more impressive if we had been sure of what was covered in the first place.

The United States, the European Union, Japan and South Korea are all worried about import licensing requirements in Indonesia. Seems Jakarta has imposed new rules requiring licenses for food and beverages, traditional medicine and food supplements, cosmetics, ready-to-wear clothes, electronics, footwear, children’s toys, mobile phones and other information technology products – but hasn’t bothered to tell anybody about it. The Indonesian delegation to the WTO must have been embarrassed when forced to admit that their bosses in Jakarta hadn’t filled them in either. The Indonesia delegates admitted that the new rules had caused “delays” in processing imports, but – in a CYA moment – tried to justify the regs as complying with technical regulations and human health and food safety requirements. Without knowing what the new regs are. Diplomacy has its humorous moments.

Perhaps not the right "ghost company"?

Perhaps not the right “ghost company”?

Switzerland raised a question about Brazil‘s RADAR import authorization requirements that are said to combat fraud by “ghost companies“. Brazil said we’ll get back to you, perhaps an admission that these rules had been off their radar. (Anybody out there know what these rules are or what a “ghost company” does?)

That wasn’t all, but you get the drift. Australia had questions for the European Union about licensing for motor vehicles and animals (not together). The United States jumped on St. Lucia about poultry and pork licenses. Washington and Brussels asked questions about coke and coal licenses in the Ukraine. India got questions from Turkey about marble, and from the United States about boric acid. The Turks raised the same question about marble with Thailand, and the EU pressed the Thais on nitrocellulose.

This is the sort of stuff that rarely makes headlines, but can kill or slow trade.

The Rest Of The Story

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The mainstream American press is often fascinated with trade disputes, especially if they are between the United States and some other perceived big power. There was a time that any little disagreement between the United States and Japan was worthy of the front page (or at least high up in the business section). Today, you are likely to see reporting on any kind of trade fight between Washington and Beijing, and most tiffs between the European Union and the United States. Maybe not a disagreement, say, between Washington and Kuala Lumpur or Nairobi. What you will almost never see is a report on a trade dispute that has been successfully and amicably resolved. That’s good news – and modern journalism abhors good news.

At the other extreme are the annual reports of U.S. Government agencies to the Congress on what they have accomplished in the past year. The good news is all there, but a reporter under deadline isn’t likely to take the time to figure it out. Springtime, however, is the season of good news for U.S. trade policy, simply because many of the annual reports to Congress come due about now. Having odd tastes, I actually glance at such reports and am now in a position to report to you on trade problems that were actually resolved during the past year. I draw on reports recently filed by the Office of the U.S. Trade Representative on technical barriers to trade and on barriers to food and agriculture exports. Be warned, you are about to be exposed to good trade news:

Telecommunications equipment testing. Both the United States and Mexico have complex product standards for telecom equipment, but neither recognized the ability of labs on the other side of the border to test products to their national standard. Before the end of 2012 you will be able to take your product to a U.S. testing lab (the same one you might use for U.S. tests) and ask them to test it according to the Mexican standard – and Mexico will recognize the result. It works the other way, too.

Phthalates in toys. I’m not sure what a phthalate is, but it’s bad. Argentina thinks so, too, and established tough standards for the phthalate content of toys and other children’s products. Washington got upset when we discovered that all the testing of imports had to be done in one overworked Argentine lab – and that Argentine products weren’t being tested at all. Buenos Aires simply assumed that Argentine toymakers are morally superior and wouldn’t put those evil phthalates in the toys. Washington pointed these things out and Argentina has now decided that foreign labs can, indeed, test for phthalates. I don’t know what they are doing with their own manufacturers.

You can still drink bourbon here. (photo: Gryffindor)

Selling bourbon in Vietnam. Vietnam proposed last year to ban sales of distilled spirits that contained more than a certain amount of nasty things called aldehydes. That’s OK, except that the Vietnamese set the permitted aldehydes at such a low level that American whiskeys would have been excluded from the market. You see, aldehydes are a natural by-product of the distilling process and there is no scientific proof that they cause health problems in the concentrations found in your favorite bourbon. Washington talked it over with Hanoi, and Vietnam agreed that their proposed aldehyde standard was a little much and withdrew it. You can still get a bourbon and water at the Metropole Hotel bar in Hanoi.

Organic foods. Brussels and Washington actually agreed to recognize that a food deemed organic on one side of the Atlantic would be considered organic on the other side. Read all about it!.

Selling beef to Arabs. After several years of talking, Washington convinced the United Arab Emirates to remove the UAE’s restrictions on importing American beef products. This was one of the hangovers from the old scare about bovine spongiform encephalopathy (BSE).

Selling chickens to everybody. Washington convinced China to allow in chickens from Pennsylvania and Texas that had previously been banned during bird flu scares. Ghana decided that it could accept U.S. testing for polychlorinated biphenyl and dioxin in the poultry products they were buying from America. In another bird flu hangover, Kuwait decided it could again accept frozen and chilled U.S. poultry, and also lifted its ban on live fowl, hatching eggs, and one‐day old chicks from Missouri and Minnesota. And Taiwan decided that American poultry products no longer carry bird flu and could be allowed onto the island.

And, finally, fruits. South Korea and Japan both reached the conclusion that they could rely on U.S. testing for pesticide residues. Seoul is now allowing American cherries, blueberries and citrus fruits to enter the market. Japan has decided that its citizens can safely eat American citrus, strawberries, cherries and celery. Don’t know what happened to blueberries in Tokyo.

You generally only hear about disputes like these when they are getting started – when they are still “bad news”. It apparently isn’t news when they are resolved, but, as Paul Harvey used to say on American radio, that’s “the rest of the story“.

Can We Talk?

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Does it get any better?

You probably have not given much thought to the trade disputes that may determine whether or not you can read this post – or anything else on the Internet. We tend to think of the Net as some sort of low-cost appliance that depends on very expensive and complex technologies. We rarely run into the trade problems that can stop the Net in its tracks. There are occasional hints. For instance, I am told by friends in China that they sometimes cannot see this blog there – and I don’t think it is a technical issue. Yes, I am occasionally critical of China, but what’s a curmudgeon to do? (FYI, Business Beyond The Reef was visible in China this week.)

The Office of the U.S. Trade Representative (USTR) is required to file an annual report to the Congress called the Section 1377 Review, referring to a provision of the Omnibus Trade & Competitiveness Act of 1988. The 1377 review examines trade barriers faced by U.S. telecommunications service and equipment suppliers and, by its nature, does not look at comparable U.S. restrictions. It does provide comprehensive coverage of what is stopping or hindering telecom trade or services around the rest of the world. You can wade through the full report – or I can give you a quick overview stolen from a USTR press release (edited for readability):

Issues Affecting Telecommunications Equipment Trade: U.S. equipment manufacturers may be disadvantaged by … local content requirements in … Brazil, India, and Indonesia. The report also discusses … standards … that act as barriers to entry for U.S. telecommunications equipment … in … China (multi-level protection scheme), India (restrictions on use of strong encryption and onerous security requirements …), and Brazil, China, Costa Rica and India (mandatory certification requirements and requirements for local testing).

Cross-Border Data Flows and Internet Enabled Trade in Services: … restrictions on data access and transfers … in China and Vietnam and issues with Voice over Internet Protocol (“VoIP”) services generally.

Independent and Effective Regulator: … issues relating to licensing of Internet via satellite services in Costa Rica.

Foreign Investment: Foreign investment limits, typically in the form of limits on the percentage of equity a foreign firm can control … [in] Thailand, Canada and Mexico.

Issues with Access to Major Supplier Networks: The report highlights problems … in Germany and Mexico trying to access an incumbent operator’s network …

Fixed and Mobile Call Termination Rates: … concern that U.S trading partners are seeking ways to increase the rates U.S. telecommunications operators must pay in order to deliver long-distance calls into the foreign operators’ countries, resulting in higher costs for U.S. carriers and higher prices for U.S. consumers. This year’s report focuses on … El Salvador, Ghana and Jamaica.

Satellite and Submarine Cables: … problems regarding U.S. operators’ ability to offer satellite capacity to customers in China and India and in obtaining competitive access in a timely fashion to cable landing stations (CLS) located in India.

Enough? Many countries are mentioned, but note the omnipresence of complaints about China and India. Is there a pattern here? And, I have to stress that U.S. restrictions are NOT discussed in the report.

Doing Business In Vietnam

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Saigon has grown up (photo: Hanukikanker)

I’ll never forget my first impression of Hanoi: “This is like Taiwan, but thirty years earlier!” So much has changed since then – and so much has stayed the same. You see, my first visit to Hanoi was in 1995. President Clinton had ended the U.S. trade embargo on Vietnam, and I was dispatched by the Commerce Department to look into how the U.S. Commercial Service could start work in the market before we even had an embassy. I checked out office space in Hanoi, visited Saigon and Vungtau, and was the first American diplomat to meet with Vietnam’s economic and industrial ministries. (Scott Marciel was with me. He’s now the American ambassador in Indonesia.) I found a Vietnam that had moved on from our war, that revered the quality of American products, and that wanted American investment – but only wanted one of everything. Most of that still holds true.

We had a workshop recently in Honolulu that explored getting into the Vietnamese market in advance of next month’s APEC summit in Hawaii. Our speakers were videoconferenced in from Ho Chi Minh City (HCMC or, as the locals still call it, Saigon): Jim Mayfield, principal commercial officer at the American consulate, and David Day, a Honolulu lawyer on business in Vietnam. Jim did most of the presentation, with David providing color commentary. They painted a picture of a market with strong possibilities, but with some daunting challenges as well.

The challenges are familiar. Inflation is running at 20% a year. Physical infrastructure is a problem. While there are shuttle flights between HCMC and Hanoi, getting to second and third-tier cities, or into the countryside, can be a considerable issue. The education system has trouble keeping up with the demand for capable workers. A general lack of transparency and a profusion of red tape go hand-in-hand with rampant petty corruption. The legal system is still new and developing (David commented that contracts in Vietnam should only be considered a guideline for behavior, not the controlling documents that Americans are used to).

Getting paid is likely the single biggest issue for companies that simply want to sell to Vietnamese importers. Be cautious and check out the people you are thinking about doing business with. It is common for U.S. (and other) companies to begin by demanding cash-in-advance before shipping anything, gradually loosening their terms as relationships develop and confidence is gained. remember that Vietnam is largely a cash-driven economy, with perhaps only 20% of the people or their companies making use of banks. Your initial payments are likely to be by wire transfer.

All that said, Vietnam can be a delightful place to do business. There is a lot of good will for the United States and an enthusiasm for American products. Yeah, I know we fought a war with them, but that is ancient history. Seventy percent of the population was born after 1975 and they get taught about more recent wars with China and Cambodia. If anybody in Hanoi thinks about our war, they just assume that those silly Americans were duped by nefarious southerners. I have met American vets who have gone into business with Vietnamese partners after discovering that they had fought in opposing units in the Central Highlands. They bonded because they knew the conditions that the other had survived.

Per capita income is rising. While about US$1160 for the country as a whole, income in Hanoi is now about $2000 and zooms up to $2800 in Ho Chi Minh City. This will continue to rise and 40-50% of the population will be urban by 2020, so the consumer market is going to grow profoundly.

Some of the opportunities for U.S. companies are founded on Vietnam’s current infrastructure deficiencies. We can expect continuing opportunities for architectural and engineering services, urban planners, and for companies in energy projects and water resource management.

There are huge opportunities in education and training services. Vietnam is already the 9th largest source of foreign students coming to the United States, more than 13,000 students last year. They are especially attracted to 2-year college programs at which they can improve their command of English before moving on to a full university or grad school. And on-the-spot training in Vietnam is taking off, with U.S. companies and colleges offering training in business, management, information technology, engineering and for the hospitality industry. The University of Hawaii, by the way, is the only accredited U.S. MBA program presently in Vietnam.

Jim Mayfield sees room for U.S. retailers and franchises in Vietnam. Saigon has a newly opened Gap store, in addition to Carl’s Jr. outlets and a Hard Rock Cafe, but still no McDonalds or Starbucks. Most U.S. brands simply are not there yet.

The entire hospitality industry is open, not just training for the local industry. American companies are investing (I know of Hawaii investors busy at China Beach), but U.S. style marketing and amenities are needed if Vietnam is to attract foreign tourists in great numbers. Jim specifically mentioned opportunities for golf course developers.

I asked about Hawaii as a brand in Vietnam. Both Jim and David responded that, while Vietnamese are aware of Hawaii, it is not necessarily thought of as part of the United States and definitely needs work as a brand to help with marketing. It is more important to be seen as American in this market.

A Better Way To APEC

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We are paying extra attention to APEC this year in Honolulu, only natural since Hawaii plays host this November to the APEC leaders’ meeting with its thousands of attendant hangers-on from governments and private sector around the Pacific. This means that local companies are starting to think about how to do business in the APEC markets. But they almost always go about it the wrong way.

What’s the right way for small companies to do it, you ask? Look for the simplest and easiest markets in which to do business. Generally, that means starting out in your home market, the one you are most likely to fully understand and be comfortable with. Then move on to others that are easy to enter, gradually building up to the hard cases. Think about it – in anything else you might do, do you start out with the hardest opponent, going into the most inhospitable environment? No, you start training easily, gradually moving to tougher opposition until you can handle the very toughest.

But that is not how Hawaii’s companies tend to go about it. True, they begin with the Hawaii market and then move on to the U.S. mainland. But then they want to tackle China because China is in the headlines and thus is sexy. They used to want to go to Japan for the same reason. And most get their heads handed to them. There is a better way.

Let’s look at the APEC markets to see where it is easiest to move your product. Notice that I did not say the easiest places to sell your product, though they often go hand in hand – but the easiest markets to physically get your products in to.

The World Bank has already done the heavy lifting for you with its series of “Doing Business” publications – one of the newest of which is Doing Business in APEC 2011. The report looks at all sorts of factors in the ease of doing business in particular markets, but what catches my eye is the small section on the ease of trading across borders. It assesses how easy it is to move product into or out of a market, focusing on the red tape – numbers of documents to file, the number of days it takes to get it all done, and the cost per container of moving your goods in and out. The practical stuff that can make business profitable – or a pain in the okole (that’s a Hawaiian anatomy term). The World Bank ranks countries on the number of required documents (bank or customs clearance, port or warehousing, transport documents), the time it takes to move goods (documentation, customs clearance, inland transport and port/terminal handling), and the cost of all this per 20′ container. They don’t include ocean or air transport, or bribes. Both can be significant – and the latter is hard to measure.

data source: World Bank, 2011

What does this tell us? It can help you begin to narrow things down and decide to hold off on certain markets while you go after easier prey first. I have marked the easiest in each category with green, and the hardest with red, but that leaves the rest as a judgement call. It is pretty clear that you might want to try other APEC markets before you get your heart set on Russia. It is equally clear that Singapore and Hong Kong look pretty easy to enter. China? Documents and cost aren’t bad, but that’s an awful long time sitting on the dock waiting for clearance. And the United States? We’re fast, don’t require too many documents, but, lordy, are we expensive.

Weekend Hits

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Things you might find interesting, but I haven’t had the time or inclination to blog about:

  • Anything involving counterfeiting, fraud, or commercial piracy gets me excited, so you can imagine my reaction to Monday’s reports of massive piracy of the hit film “Avatar“.  According to the London Times, Avatar set a new record for number of pirated copies in its initial days of release: 980,000 illegal copies in the first five days – half a million in the first two days!  The studio expected nothing like this, having convinced themselves that nobody would pirate a 3D film since they couldn’t copy it in 3D.  Wrong.  And it will get worse when Avatar comes out on DVD.
  • I’m glad their sales grew somewhere.  General Motors said Monday that its sales in China grew 67% in 2009 over 2008. I assumed this was from very low volume, but was blown away when I saw that GM sold 1.8 million vehicles in China last year.  Good on you, Detroit!
  • The Huffington Post carried an outstanding article January 5 by Michael T. Klare of Hampshire College, entitled “The Blowback Effect: 2020″, which examines likely trends over the next decade.  While I may not concur with all the details, Klare’s trends are spot on and should be the basis for many an international business plan in the next ten years.  Klare discusses the rise of China, the relative (but only relative) decline of the United States, the continued emergence of developing countries, and climate issues.  Well worth a read.
  • Another good read is an article at Asia Times by Brantley Womack of the University of Virginia.  Womack examines the good and the bad of the new China-ASEAN free trade agreement, with some especially interesting analysis of potential issues between China and Vietnam.  Look for “China-ASEAN Pact Offers More Than Win-Win.”
  • U.S. software firm Cybersitter, known for its award-winning parental filtering software, has filed suit in California against the government of China and two Chinese software firms for stealing code to block access to “politically undesirable” websites by Chinese Internet users.  The suit alleges that more than 3000 lines of code were copied into China’s control software, Green Dam.  Cybersitter says that more than 56 million copies of the pirated software were distributed after China required that Green Dam be bundled with new computers sold in China.  See the full story in the New York Times.
  • International Living has issued its 2010 Quality of Life Index of the best places to live, ranking a whopping 194 countries.  The top five are France, Australia, Switzerland, Germany and New Zealand.  The United States did well, coming in with a tie for 6th with Luxembourg and Belgium.  Then there is the other end of the scale.  The bottom five, predictably, are Somalia, Yemen, Sudan, Chad and Afghanistan.
  • It finally happened, but don’t get excited yet.  China is now the world’s largest exporter – at least for the first 11 months of 2009.  China sold $1.07 trillion during the period, while the long time title holder Germany slipped to second with a mere $1.05 trillion.  Germany’s exports were picking up toward the end, so adding December may reverse China’s title hopes.

Show Me The Money

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We knew that 2009 was bad for economies all over the world, but the foreign direct investment numbers posted by Vietnam on December 28 are an eye-opener.  FDI in Vietnam for 2009 plummeted by an astonishing 66% from 2008 – to $21.48 billion.  There were 839 new investment projects in 2009, a drop of 73% from 2008.  The hospitality industry was the most popular investment target, followed by real estate development.

Seychelles: Is This Where The Money Comes From?

The top foreign investor in the country remains the United States, followed by the tax havens of the Cayman Islands and Samoa – which looks a bit peculiar.  Vietnam Briefing carried an article last Thursday that details the top ten investment projects in Vietnam during 2009, which adds a bit more color to the sources of the investments.  The third largest project on the list, for example, is a housing development projected to provide 90,000 apartments, for whom the partners are Smart Dragon Development from Samoa and Tuster Development from the Seychelles.  It appears that neither of these companies has ever done another project anywhere.  When I Googled the names, all references came back to the apartment project at Binh Duong.  Nor was I able to confirm that they are actually incorporated in the Seychelles or Samoa, which doesn’t mean they aren’t.  Curious.  I wonder where the money really comes from.