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Vietnam Faces Challenge of  WTO Entry - 2004-07-08

Vietnam's economy is one of the fastest growing in Asia, powered by international trade. But the government still must push economic reforms, if it is to join the World Trade Organization.

After a decade of reforms, Vietnam's economy is growing more than seven percent a year, lifting incomes and reducing poverty.

The biggest changes were in the banking system and in selling state-owned companies to private businesses. The result has been a surge in exports.

Vivek Suri, the World Bank economist in Hanoi says the reforms have paid off. "Vietnam's per capita income in the last 10 years or so has more than doubled. It's grown over six percent per annum. Poverty has been halved from around 60 percent to under 30 percent," he said.

With the industrial and construction sectors providing good jobs for thousands of Vietnamese are now aspiring to a middle-class lifestyle and all its trappings.

Tim Gauci, an Australian trade commissioner in Vietnam, says, not only are people making more money, they are spending it too, adding more fuel to the economy.

"Real estate is going crazy and then with the money people are making on real estate, they want cars; they want small or four-wheel drive, as well as a couple of motorcycles," he said.

The Ministry of Trade reports that exports grew 17 percent in the first half of this year, compared with a year ago. Vietnam exports shrimp, textiles and commodities such as oil, rice, coffee and rubber.

Economists say the biggest boost came when Vietnam signed a bilateral trade agreement with the United States in 2001. The agreement triggered a rapid rise in textile and shrimp exports to the United States.

Mr. Suri says the pact was a milestone for Vietnam, raising its global export profile, while at the same time forcing needed internal reforms. The U.S. market now buys 20 percent of Vietnam's exports. "The U.S. BTA [bilateral trade agreement] showed how a reduction of trade barriers can lead to an increased amount of trade, as Vietnam's exports have shown in the U.S. market," he said.

Recently, however, the trade outlook has clouded. This week, the U.S. Commerce Department imposed tariffs on Vietnamese shrimp exporters, saying they were selling shrimp at below market prices in a practice known as "dumping."

Another setback was the recent decision by the World Trade Organization to delay Vietnam's entry to the world trade body, saying the country needs more time to meet the requirements of membership. WTO membership reduces trade barriers and tariffs for countries, and is seen as a way to increase exports.

Vietnam's foreign minister, Nguyen Dy Nien, pledged to fulfill those requirements, saying the country will institute structural reforms and improve investment and trade. The WTO wants Vietnam to further reduce trade barriers, continue reforming the corporate legal system, and improve the government's financial operations and budgeting process.

Hafiz Pasha, the U.N. Development Program's Asia director, says Vietnam has three hurdles to overcome in the near future: competition with China's massive pool of cheap labor, joining the WTO and closing the growing income gap between rich and poor.

"We are beginning to see the emergence of some disparities, and the gap may have actually increased over time. The other is the challenge of globalization," he said.

Despite the delayed entry into the WTO, experts such as Australian Trade Commissioner Tim Gauci believe Vietnam's trade will continue to grow.

"Vietnam has signed these trade agreements with the U.S. and it's revised agreements with the EU," he said.

Despite rapid growth and rising trade, Vietnam still grapples with high levels of unemployment, which can top 30 percent in rural areas. Many economists are optimistic about Vietnam's future, but warn economic reforms and WTO membership will be crucial in helping find jobs and maintain growth.