Friday, November 10, 2006

Vietnam Joins WTO; Intel Invests $1bn

Somewhat overshadowed by the latest steps by Russia to join the World Trade Organization, tiny but fast-growing Vietnam has joined the international trade club after coughing up about 900 pages’ worth of concessions.

This is a significant development for Vietnam (pop. 84M), whose textile- and agriculture-driven economy has resembled ours about a century ago and whose population is still shaking off the ill effects of “The American War” and life under communist government and all its attendant corruption.

But it’s a milestone in US history as well. The “domino theory” that cost us 58,000 lives (and that cost Vietnam 1.5M lives) on the premise that military force was the only way to turn back the Red Tide has been further debunked. A chapter has ended.

It may also be a milestone for a global economy that is increasingly beholden to intellectual property and copyright, which have been speed bumps in the path of China’s booming economy. While I believe concerns about the impact of globalization of the U.S. economy and the American worker are valid, I recognize that the toothpaste is already out of the tube. Going forward, efforts should coalesce around protecting the underlying value of companies that participate in Asia’s growth.

Currently or recently communist states like China, Vietnam and Russia have poor track records of protecting any kind of property rights, much less the intellectual variety. When China acceded to the WTO, a bevy of IP laws were passed but rarely enforced.

As Sherman Katz, senior associate at the Carnegie Endowment think tank, told the Financial Times: “The experience with China was that although 3,000 laws were passed, we didn’t get the enforcement we hoped we would. It was doubly disappointing because during the accession process there were pretty specific statements from China about enforcement.”

With each new member, joining the WTO entails higher hurdles. While China was allowed to join by promising to change its laws in the future, Vietnam had to make massive legal reforms in advance. It also had to swallow nearly 900 pages of documents obligating it to slash trade barriers, end many subsidies, allow foreign companies to buy Vietnamese ones and protect intellectual property rights. Additionally, in labeling Vietnam a “non-market economy” for up to 12 years, it will be easier for the WTO to impose emergency tariffs to block Vietnamese imports they deem to be subsidized or sold below cost.

A little over 18 months ago, I was traveling in Southeast Asia with a team of fellow MBA candidates, consulting for an American textile marketer that was looking for a manufacturer in the region. After sizing up opportunities in Malaysia and Singapore, we recommended a partner in Vietnam. Along with our recommendation, we included the caveat that our client wait until Vietnam joined the WTO, as it would be difficult for them to summon the legal resources necessary to enforce a contract in Vietnamese courts, where the chances of getting an unbiased incorruptible judge were dubious at best.

Yet with new laws come new means for corruption. A perfunctory part of daily life in cities like Ho Chi Minh is “tea money,” an expression used for payoffs demanded by chronically underpaid police. But it’s also a proxy for the economic lubricant that determines which laws get enforced in whose favor and which deals get approved. The WTO must still rely on Vietnam to enforce its own laws fairly.

Still, the big win for Vietnam and the rest of the world is the increased confidence in doing business with the country and the prospect of Vietnam joining its neighbors in the Information Economy. Foreign firms committed almost US$6.5bn in new investment in the country in the year to October, a year-on-year increase of 41.4%, according to Vietnam’s Ministry of Planning and Investment.

Notable among those firms investing in Vietnam is my former employer, Intel Corp., which today announced it would deploy $1bn to expand its assembly and test facility area now under construction in the Saigon High-Tech Park to 500,000 square feet from 150,000 square feet. That would make it the largest single factory within the firm’s assembly and test network.

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