US - A Large and Promising Investor in Vietnam

A research on the impacts of the Vietnam-US Bilateral Trade Agreement (BTA) on foreign direct investment (FDI) and the US’s investment in Vietnam conducted by the Department of Foreign Investment, the Ministry of Planning and Investment, and Star Vietnam, a project which supports the implementation of the BTA, proved that the US’s investment capital in Vietnam from 1988 and 2004 was put at US$2.6 billion. In the meantime, the figure released by the Ministry of Planning and Investment was just US$730 million.

 

This shows a different panorama in the US’s investment in Vietnam with total investment capital much higher than the reported figure for many years. Also, the US’s investment in Vietnam saw a high increase of 27 per cent per annum on average since the BTA was signed (between 2002 and 2004). In 2004 alone, US total realised capital in Vietnam was put at US$531 million. "The US was considered the biggest investor in Vietnam in 2004, ahead of Japan, the Republic of Korea, Singapore and Taiwan," said Nguyen Anh Tuan, deputy director of the Department of Foreign Investment.

 

Tuan said from the point of view of industries which had great potential for export to the US, since the BTA took effect, total US investment had increased sharply in the textile and garment, woodwork, and seafood processing industries. The industries’ proportion in total registered foreign investment capital increased from three per cent in 1998 to 16 per cent in 2004. On the other hand, in terms of absolute figures, the increase of US FDI in Vietnam remains modest in comparison with the increase of the two countries’ trade exchange value. However, the US’s FDI in total realised capital in Vietnam in 2004 increased by 20 per cent, the same as the increase of Vietnam’s export turnover to the US.

 

Steve Parker, director of Star Vietnam, said that US firms had invested in Vietnam via their foreign affiliates. Regulations on tax in the US encourage US firms to invest via their overseas affiliates. At the same time, the Vietnamese market remains small. Therefore, some of US firms have invested in the market via their affiliates in Singapore and Hong Kong, or other countries, where the US offers them tax priorities. The results of the survey of the research group, more US firms have invested via their overseas affiliates than from their parent firms in the US.

 

Parker said that it was inadequate to calculate the US’s FDI in Vietnam without taking into account investments via US firms’ overseas offices or affiliates. Under the BTA, projects developed by US firms’ overseas affiliates and US-based parent firms are considered to have the same investment clauses. Therefore, he said to fully evaluate the impact of the BTA on US FDI in Vietnam, projects developed by US firms’ overseas affiliates should be taken into account.

 

According to the Department of Foreign Investment, this is the initial period of the project, so it is impossible to fully evaluate the impact of the BTA on FDI in Vietnam. Therefore, in the coming time, the research will concentrate on analysing the impact of the BTA on the fields, in which Vietnam is promoting its investment attraction, such as services and infrastructure.

A delegation, which visited Vietnam in mid-March, consisted of representatives from 21 leading firms led by the US-ASEAN Trade Council Matthew D. Daley. The firms include ACE Group, AIG, Alticor, Anheuser-Busch, Boeing, Cargill, Citigroup, Diageo, FedEx, Ford, GE, GlaxoSmithKline, JHPIEGO, J. Ray McDermott, J.P. Morgan Chase, Oracle Corporation, Phillip Morris, Time Warner, Unisys, UPS, and United Technologies.

 

During working sessions with the Vietnamese industrial sector, representatives of US firms said they hoped Vietnam would set up independent regulation agencies, simplifying administrative procedures in the energy, oil and gas sectors, and opening the market for downstream oil and gas products, as well as promoting the implementation of intellectual property rights.

David J. Ross, vice president in charge of South Pacific of FedEx, said that the company would co-operate with the Vietnamese Government to pilot a project on modernising the Vietnamese customs service. The project is expected to be approved in April and carried out in November 2006.

 

A representative from Time Warner in Hollywood said that it was good news that there had been a draft law on intellectual property in Vietnam. The company hopes that the law will help prevent copyright violations, which will open up possibilities for it to co-operate with Vietnamese partners to show foreign films in Vietnam.

 

In agriculture, Cargill said that the company had imported products from Vietnam, such as coconuts, fertiliser, animal feed and some other products. The company has operated five animal and fish fee plants in Vietnam. The company’s representative said that the company wished to receive licences for production expansion. It also wants to be licensed in the trade and distribution sector.

 

Many other firms, including GE, expressed their wishes to invest in Vietnam. They had working sessions with officials from the Vietnamese Ministry of Planning and Investment. One of the top priorities of the firms was whether they would be able to import goods which had not been manufactured in Vietnam to Vietnam for their production and business activities or not. Vietnamese officials said that they would welcome and consider the proposals.

 

Ford, after ten years’ operation in Vietnam, expressed its wish for changes to increase its competitiveness in the market. Ford wants changes in policies so the company will be able to import products. The Vietnamese side answered that the proposal would be considered and a concrete roadmap would be developed.

 

In other fields, such as express services, in which Vietnam has mainly licensed joint ventures, US firms made some important requests. For example, UPS said it wished to own all of its affiliates in Vietnam.

 

The results of the visit, as evaluated by experts, were very positive. Nguyen Anh Tuan, deputy head of the Department of Foreign Investment, said that the US’s investment in Vietnam would increase after improvements in the Vietnamese investment environment were reported. Also, so far, the US’s investment in Vietnam is equal to 28 per cent in Thailand and 20 per cent in Indonesia, so US firms still have opportunities to increase their investment in Vietnam.