The US Trade Representative Office has announced part of the results of the bilateral talks over Vietnam’s entry to the World Trade Organization.

This information reveals that membership means Vietnamese enterprises will encounter plenty of difficulties.

Automobile enterprises invested with foreign capital are considering importing completely-built cars, especially the more expensive cars, instead of assembling them locally.

At present, the law of Vietnam does not yet permit this but it will not be for long since Vietnam will soon become a member of the WTO.

This future is likely not only for the automobile industry but for all industries whose production cost is higher than the world average.

At present, producers have benefited from government protection by way of a tariff barrier. This switch to imports may be the greatest effect on industrial enterprises in the post-WTO era.

Completely-built cars are one of the import items subject to highest taxes, 90 percent for cars of seven seats or less. Vietnam has pledged to reduce by half the import duty of some American car types like SUVs (sport-utility vehicles) when the bilateral agreements with the US are fully effective.

In addition, the import tax on automobile spare parts and accessories will be cut by 19 percent to reduce the tax rate to 13 percent on average.

The government will also lift the ban on imports of high-capacity motorcycles (175cc or more) and cut by 56 percent the tax on imports of completely-built units and by 32 percent the tax on spare parts and accessories.

There will also be big changes in tariffs for chemicals, cosmetics and pharmaceuticals as Vietnam has pledged to cut taxes on imports of 80 percent of products of this group. For instance, the import duty of cosmetics will be cut from 44 percent now to 17.9 percent. For pharmaceuticals, import taxes will be reduced to 2.5 percent in five years.

Imports of a series of items such as medical equipment, scientific instruments, wood products, agricultural and construction machinery and equipment, will be subject to a tax rate of nil to 5 percent.

Some of these items, wood products, agricultural and construction machinery and equipment, will have tax cuts on imports immediately after WTO entry while others will occur in one to five years.

Under the agreement with the US, signed in Hanoi on May 31, Vietnam will open to American investors its wholesale and retail markets and the business of leasing brand names franchising.

In the first stage, from the day of WTO admission till 2008, American enterprises will have to cooperate with local partners to run this kind of business, but as from 2009 American investors will be able to set up fully foreign-invested enterprises.

Trade Minister Truong Dinh Tuyen says Vietnam pledges that no WTO member country will be discriminated against. Therefore, the trade agreements reached with the US will apply with business enterprises from other countries as well.

No more advantage on imports

This magazine and other parts of the local press have discussed the possibility of domestic retailers rapidly losing their market share to foreign operators, especially supermarket chains.

Yet, this possibility may occur only in the long term since foreign retail groups, in spite of their great financial capacity, will not be able to immediately expand their chains in Vietnam, particularly because of finding suitable area of land near big cities.

Most ominous is the fate of commercial agencies of foreign companies. Vietnams pledge to open its services market will directly and immediately affect these enterprises.

Foreign direct investment (FDI) enterprises are not permitted to directly import goods for sale on the domestic market. Therefore, they have to rely on domestic enterprises to import goods into Vietnam.

Soon, the middle-man role will be unnecessary, particularly for the foreign companies that have invested in Vietnam under the joint venture form. Also, they will not have to wait till 2009 to import goods their Vietnam factories have not produced.

Commercial companies that have set up a solid distribution system are less affected by the fact foreign companies are now authorized to directly import and retail their products, since these companies are more or less dependent to their distribution network.

But, this possibility will most likely happen to the companies that have no factory or branch in Vietnam. Most FDI enterprises in Vietnam have set up a retail network after some years of operations.

Ready, set, go

Many foreign investors are concerned about the agreements reached with the US over the service sector.

Vietnam has pledged to open most services including those until now closed to foreign investment: non-life insurance, telecommunications, transport, commodity distribution, and the advertising.

For domestic service enterprises, the time to be prepared for world integration has almost gone, though foreign investors in some service sectors must follow a certain itinerary, from three to five years. But this itinerary is solely for them to determine the time to invest 100 percent capital in the service business.

In telecommunications, foreign companies are authorized to own large assets in the joint ventures providing services of fixed line and mobile phones through a Vietnamese company’s transmission line, internal database services to multinational investors and Internet-based applications, and satellite and undersea cable services.

In the energy sector, American investors are permitted in various periods to compete in the services relating to the exploitation of oil and gas, mining, management consultancy, technical analysis and control, and equipment maintenance and repair.

In addition, foreign energy enterprises can join in some ventures with Vietnamese partners in the first three to five years; thereafter, they can set up their own companies with 100 percent foreign-invested capital.

Transport and express delivery enterprises can offer services through a Vietnamese partner in the first five years post-WTO. Thereafter, they can set up their own companies.

In addition, most support services like consultancy, accounting, architectural designing, construction, advertising, market analysis, computer-related and environment services are available to American investors to establish firms with 100 percent foreign-owned capital.

Only a few services are restricted to joint ventures with Vietnamese partners, but this restriction will be over very soon.

Because the US in particular, and other developed economies in general, are strong in the service sector, Vietnamese enterprises see the flood of well-endowed foreign operations as posing perhaps the biggest challenge to business survival in the post-WTO era.