Infrastructure Improvements in Ho Chi Minh City

In end 2002, while Vietnam was review­ing its economic performance and one year of implementing the trade agree­ment with the United States , there were news reports that American catfish farmers were in an advantageous position in the anti­dumping lawsuit against Vietnamese basa and tra fish processors. After a fact-finding tour in Vietnam, which took several weeks, a U.S. Department of Commerce (DOC) mission concluded in November last year that "Vietnam is a non-market economy." This is just an academic conclusion, but it will have a tremendous impact on Vietnam­ese exports to America in the future. Ameri­can law firms might use it as a pretext to file a lawsuit against any Vietnamese companies that sell goods at prices lower than U.S. mar­ket levels, especially items whose production is supported by the Government and whose prices are not decided by market forces. The issue has also sparked debates over the "success" of Vietnam 's economic reform pro­grams strongly supported by international fi­nancial institutions that often say in their re­ports or formal statements that Vietnam "rep­resents a successful transition to a market economy." Apart from the fundamental view that prices in a market economy are decided by supply and demand and are not influenced by administrative decisions, there are cur­rently neither international laws nor criteria for deciding whether a country is a market or non-market economy. The DOC conclusion on the status of the Vietnamese economy was based on the fol­lowing "specific factors" under Section 771(18)(B) of the U.S. Tariff Act of 1930 : -

1. The level of government intervention in the economy is still such that prices and costs are not a meaningful measure of value;

2. There are significant restrictions on the Dong's exchange rate;

3. Foreign direct investment is encour­aged, but the government still seeks to direct and control it through regulation;

4. The equitization of State-owned enter­prises and commercial banks has been slow, thereby excluding the private sector from ac­cess to resources and insulating the State sector from competition.

5. Private land ownership is not allowed and the government is not initiating a program for land ownership changes in this re­gard.

Criterion (1) is a basic factor to decide whether or not a country is a market economy. The other factors depend heavily on the defi­nitions provided in the Tariff Act of 1930. However, criteria (2) and (5) do not have good grounds . Vietnam can, in theory, be seen as a market economy as it meets the basic require­ments; for example, the prices of most prod­ucts are based on the law of supply and de­mand. Finding it necessary to switch to a market economy and ensure financial stability to re­store macro-economic balances, Vietnam be­gan economic reforms in 1989. The reform program has paid off. The key components of a market economy have taken shape, such as a free pricing system, a more dynamic pri­vate sector (responsible for 60% of all eco­nomic activities), an open foreign trade mechanism, and integrating big informal eco­nomic activity in formal market channels based on law. One of the special features showing the shift to a market economy in Vietnam is that infla­tion fell while economic growth was sus­tained. This experience is quite different from those in other economies in transition, such as Eastern European countries and the former Soviet Union , where economic activity slid and inflation rose. A major difference is that Vietnam avoided a big change in economic activity and massive layoffs. The measures for gradually spurring the private sector are characterized by the fact that dynamic com­panies were oriented toward profit while the country was seeking ways to reform most State-owned enterprises in key sectors (which had registered poor performance for years). In particular, the removal of restrictions on trade and the measures to liberalize the pric­ing system resulted in monetary incentives, which were almost absent in the centrally planned economy. This helped enhance the use of human resources, especially in the ag­ricultural sector. In the period, Vietnam in an effort to open its door to the outside world made a shift in foreign trade from Eastern Europe to regions with convertible currencies. The improvement in foreign trade caused a boom in foreign di­rect investment (in 1992-1996) and foreign aid. As a result, Vietnam is now able to main­tain foreign reserves at necessary levels while there were almost no foreign reserves before the introduction of the reform policy.

Conclusion : Regarding criteria (1) and (4) in the DOC report, Vietnam has made sig­nificant efforts to do these, but more time will be needed to complete them. Vietnam cannot satisfy criterion (5) although in reality, land and houses have been freely sold and trans­ferred and the property market has seen fast price hikes in recent years. In theory, Viet­nam can be seen as a market economy given that the prices of most products are based on the law of supply and demand, but it is still in transition toward a more advanced market economy and needs further restructuring . Meanwhile, the fixing of prices through regulatory measures or subsidies for a number of items are still seen in developed market econo­mies like the U.S. (steel and farm produce prices). Even China would be seen as a non-mar­ket economy if the five above criteria were applied to it . Therefore, there would be many anti dumping lawsuits against China filed by companies in the U.S. and other countries having trade relations with China . But no one has carefully considered the case of China although it has dominated trade in East Asia for years. Another noteworthy issue is that the de­lays in economic restructuring have resulted in the poor performance of the economy, which has in turn made economic growth lower than expected for years. Vietnam needs to speed up reform. However, for trade issues, Vietnam has sufficient evidence to reject the DOC conclusion that Vietnam is a non-market economy. SGTW 24 th January 2003.