Vietnam WTO process delayed--SE Asia still good buy

November 21, 2006

While President Bush attended the Asia Pacific Economic Cooperation (APEC) summit in Hanoi, the U.S. Congress delayed granting Permanent Normal Trade Relationship (PNTR) status to Vietnam, thus delaying the Vietnam WTO (World Trade Organization) membership process. Congress put off the vote until December. Meanwhile, the WTO National Assembly is expected to ratify Vietnam’s WTO membership this week. However, all the benefits of WTO membership will not accrue to Vietnam until the PNTR status is approved.

The Congressional delay was embarrassing for President Bush, who was hoping to have the PNTR approval in hand when he met privately with Vietnam President Nguyen Minh Triet. As a result, Bush had to to simultaneously congratulate Triet on Vietnam's gaining WTO approval, while promising to gain PNTR status as soon as possible.

What Vietnam WTO membership means:

To gain WTO accession, Vietnam agreed to open telecommunications and other service industries to foreign direct investment (FDI), and to slash agricultural export duties. While opening industries to FDI will help modernize the economy, competition from U.S. agribusiness may put pressure on the agricultural sector, which contributes 20% of Vietnam’s GDP.

The wrench in the machinery of Vietnam WTO membership is refusal by Congressmen from textile producing states to approve PNTR unless an antidumping review is imposed on clothing imports from Vietnam every six months. This effectively prohibits entry of these imports, since any price that is lower than the U.S. clothing manufacturers’ will be considered dumping.

Despite its Communist political system, Vietnam has vigorously embraced capitalistic market reforms, and its GDP is growing 6-7% annually as a result. Postponement of Vietnam’s WTO membership will only slow growth marginally.

Action Steps:
Maintain current emerging market allocations in your financial holdings. With the U.S. GDP growth projected at around 2.5%, the 6-7% growth Vietnam will experience--with or without WTO membership--will provide the stimulus your portfolio needs to outpace inflation.

Source: U.S. Vietnam WTO Coalition web site; White House web site

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