Door Into Vietnam : U.S. Companies Test Limits of Trade Embargo

Eugene Matthews knows an opportunity when he smells one. The Harvard Law School graduate learned some Japanese and turned several years’ experience working for an electronics component manufacturer in Tokyo into a lucrative contract to handle exports to the United States.

Now he’s on the trail of fortune in Vietnam.

Matthews packed up and moved to Hanoi at the end of 1990 and enrolled in Vietnamese language classes at a university. Soon he became knowledgeable about how to talk business with the Vietnamese, and American companies started seeking him out for consulting services.

But one big problem separates Matthews and his eager clients from cashing in on the rich natural resources, the hungry consumers and the diligent, highly educated and low-wage work force of Vietnam: the U.S. economic embargo remains in force.

No one can predict exactly when the trade ban will be lifted, and U.S. business is in a quandary. While companies from Japan, Taiwan, France and other countries are increasingly ignoring the embargo and getting a head start snaring business deals, the Americans must sit on the sidelines, gnashing their teeth.

“Given the importance of trans-Pacific trade to the U.S. economy and the stiff competition the U.S. already faces in the Asia-Pacific region, we believe that maintaining the embargo is economically shortsighted,” the San Francisco-based California-Southeast Asia Business Council wrote in an Aug. 18 letter to President Bush, urging him to lift the ban.

Since the Cambodia peace settlement in Paris last October, U.S.-Vietnam relations have been gradually warming. Hanoi is beginning to satisfy the Bush Administration with improved cooperation in the effort to resolve pending cases of U.S. servicemen reported missing in action in the Vietnam War.

Washington responded in April with limited concessions, allowing direct telecommunication links, exports of goods that meet humanitarian needs such as food and clothing, and transfer of funds to support charitable organizations on the ground in Vietnam.

Yet because the MIA issue remains a political hot potato--particularly after Ross Perot’s brief career as an active presidential candidate--most analysts believe the prohibition on trade won’t be fully rescinded until well after the presidential election in November.

Meantime, big American corporations as well as small entrepreneurs like Matthews are testing the limits on how far they can go in exploring business opportunities without violating U.S. law. Since opening offices in Vietnam is forbidden, Matthews obtained a student visa and he is indeed legitimately studying Vietnamese while in the country. He also runs his trading and consulting firm, Ashta International, a Delaware corporation, out of Bangkok and New York.

“If you look at a map of Asia it’s pretty easy to see where the opportunities are going to be in the future,” said Matthews, reached by telephone in Hanoi. “Vietnam is the hottest market to anyone who knows anything. And when the U.S. trade embargo comes off, there’s going to be a real catharsis in development.”

As things stand now, a U.S. company wishing to bid on an oil exploration contract, invest funds in a manufacturing joint venture or stake a claim in the nascent financial services sector can do a lot of preliminary work, but only by walking on eggshells with the Feds.

The Treasury Department’s Office of Foreign Assets Control (OFAC), which administers the arcane Trading With the Enemy Act of 1917, says it’s OK to negotiate the substance of a deal without signing a contract. A vague letter of intent can be inked, but only if it doesn’t explicitly state that a binding agreement is contingent on the lifting of the trade ban.

A “tacit understanding” of that contingency is allowed, but it can’t be put in writing. An American businessman can put his foot in the door, but his hands are tied behind his back.

“They can discuss business, sign a letter of intent and step up to the brink, but they can’t do a deal without a license from OFAC,” said Bob Levine, spokesman for the Treasury Department.

A few windows of opportunity, however, are cracking open. When the Bush Administration announced it would grant licenses for telecommunications services, the major long-distance carriers jumped at the chance, and so did little players like Gary Goforth and his partner Son H. (Sonny) Luu, entrepreneurs in Costa Mesa.

Goforth and Luu declared in May they would challenge the giants of the phone world by selling long distance calls to Vietnam at reduced rates. Their start-up company, Trans Pacific Telecommunications Management, can offer consumers a better deal because of its low overhead, said Goforth. The company has 25 employees.

They found a solid market niche in the Vietnamese-American community. But while working on their business plan and exploring market potential, Goforth said they quickly discovered a fundamental roadblock: “There aren’t that many people to make calls to in Vietnam.”

Ho Chi Minh City (formerly Saigon), with a population of about 4.5 million, has only 45,000 phone lines with a backlog of orders exceeding 200,000, Goforth said. Recently returned from a negotiating trip to Vietnam, Goforth said he and Luu now plan to put together bids to supply hardware such as switching systems.

Luu, a native of Vietnam who runs an accounting firm, has cultivated a wide range of contacts in frequent trips to the old country, which Goforth believes will give Trans Pacific a strategic advantage--despite rapid inroads made by telecommunications vendors from Australia and other countries.

“There’s a lot of work to be done building the infrastructure, and this is a good time to be looking into feasibility,” Goforth said. “We’re learning about the opportunities, but by the time we start playing it may be a little too late.”

Other Americans are anxious to similarly go forth, but are frustrated by the risks and constraints caused by the embargo.

“Preparing to do business in Vietnam takes an awful long time, and we’re seriously disadvantaged because the Japanese, the French and the Australians are already in place, building their networks and gathering intelligence,” said attorney David Drabkin, partner in charge of O’Melveny & Myers’ Tokyo office, which represents clients hoping to make inroads into Vietnam.

“We’re a year or two behind in the process,” Drabkin said, “and dragging out the embargo is like shooting ourselves in the foot.”

Ironically, despite the tragedy of the war with the Americans, Vietnamese in both the north and the south have a peculiar fondness for things American, a brand loyalty that perhaps hearkens back to the quality standards of an earlier era. U.S. consumer products are seeping in already, sent by parcel from relatives in America or smuggled in over the old Ho Chi Minh trail.

Businessmen, lawyers and scholars returning from visits to Vietnam carry a common message, that people actually like Americans.

“You get the impression when you’re in Vietnam that they’d prefer to do business with the Americans over the Japanese,” said Hugh Simon, the British managing director of East Asia Hamon Asset Management, a portfolio management firm based in Hong Kong.

Simon’s company, which is not constrained by the U.S. embargo, has a subsidiary in Hanoi that operates a business service center and invests in real estate development.

“Saigon is especially hot right now with people from Hong Kong, Taiwan and Singapore looking for the right deal,” Simon said in a telephone interview. “I don’t think it will be too late for the Americans if the ban is lifted in the next nine months or so.”

Following market-oriented economic reforms and the enactment of a foreign investment law that is one of the most liberal in the developing world, many analysts think Vietnam is primed for a dynamic spurt of growth that will make it Asia’s next “tiger” economy.

With a population of 67.5 million, the nation is rich in latent human resources. Already, agrarian reform showed rapid results in the late 1980s, when the country went from importing rice to bountiful exports of the grain.

A similar turnaround is possible in manufacturing and resource development if the necessary infrastructure gets built. Until now, however, the U.S. embargo has blocked multilateral agencies such as the International Monetary Fund and the World Bank from financing roads, power plants and ports.

“Vietnam has been frozen in time since 1975” when the Saigon government fell, said Hieu Nguyen, economist and marketing manager in Los Angeles for Bank Niaga, one of Indonesia’s largest commercial banks. “On my last trip to Saigon I went into a disco and they were playing the same music they did 20 years ago when I left Vietnam as a young man.”

“But if you want to see that Vietnam, you’d better go quickly,” Nguyen added. “Because things are going to start changing very soon.”

The prognosis for lifting of the embargo is unclear. Some observers expect further step-by-step concessions later this year before a final conciliation, in keeping with the Administration’s so-called road map for normalizing diplomatic relations. A State Department official, who requested anonymity, said “further steps will be linked to progress on the part of the Vietnamese” in opening archives and cooperating with MIA and POW investigations.

“We don’t know if the next step is going to come next week, several months from now or in a year,” said Virginia Foote, director of the U.S.-Vietnam Trade Council in Washington.

Foote, whose nonprofit organization provides information and manages seminars on Vietnam, expressed the frustration felt by many of the council’s members.

“We are the only country complying with the embargo at this point. Everyone else is in there with both feet and are finding the Vietnamese market to be very interesting,” Foote said. “Vietnam is not getting the attention on an economic level that it deserves by our policy-makers.”

Although the ban on U.S. economic activity in neighboring Cambodia was lifted with the signing of the peace accord last year, political uncertainty there has limited enthusiasm, as well as the relatively small market.

Laos, the third communist domino of the Cold War in Southeast Asia, didn’t lose its diplomatic ties with Washington. Relations were restored to the ambassador level earlier this month, and although the population of 4.1 million makes for a tiny market, it has some potential for mineral and energy development.

“It’s a small economy . . . You’re not going to get rich doing business in Laos,” said Bruce W. Burns, a San Jose immigration lawyer who recently held a symposium on trading with Laos. “But it could be a steppingstone to Vietnam, which is obviously the big banana over there.”

Yet as the wheel of U.S.-Vietnam diplomacy turns ever so slowly, a lot of business people are becoming impatient.

Frank Jao, an Orange County real estate investor who has made several recent trips to his native Vietnam in search of investment opportunities, says the United States is only hurting itself.

“We are doing something that’s impractical to ourselves, as we often do in foreign policy,” Jao said. “I totally agree that Vietnam should cooperate with a more open policy, but so should the rest of the world.”

NEXT STEP:

At the time of the Cambodian peace settlement in Paris in October, 1991, the United States submitted to Vietnam an action plan for restoration of diplomatic relations, informally called the “road map.” Steps outlined in the plan are contingent on Hanoi’s compliance with agreements to cooperate in MIA investigations and the Cambodian peace process. To date, Washington has made a few incremental modifications to the trade ban, such as allowing organized tours, direct telecommunications links, exports of humanitarian goods and fund transfers for non-governmental relief organizations. Analysts don’t expect the government to make further concessions or lift the trade embargo completely until after the presidential election in November because of the emotional--and political--overtones of the MIA issue. Full diplomatic recognition may be pegged to successful elections in Cambodia now scheduled for June of next year. Meanwhile, Cambodia is open for trade, as well as Laos, which recently had its diplomatic status upgraded to the ambassadorial level.

Who to Call

Businesses interested in exploring trade and investment with Vietnam should be aware of legal restrictions on their activities. The following agencies can be contacted for clarification:

* Office of Foreign Assets Control, Treasury Department. Contact: (202) 622-2480 or (202) 622-2500. OFAC administers the Trading with the Enemy Act and can explain legal guidelines on the kinds of business activities allowed under the trade embargo against Vietnam.

* Bureau of Export Administration, Office of Technology and Policy Analysis, Commerce Department. Contact: Nancy Crowe, (202) 377-4479. This agency screens applications for commercial exports to Vietnam of “goods that meet basic human needs,” such as medical supplies, food, clothing and educational material.

* U.S.-Vietnam Trade Council. Contact: Virginia Foote, director, (202) 547-3800. A nonprofit organization that provides basic information on Vietnam to the public and has additional services for members.

Opportunity in Indochina

An embargo has virtually frozen trade between the United States and Indochina. However, analysts see great potential for growth in densely populated Vietnam.

LAOS Population: 4.1 million Gross Domestic Product*: $871 million Real Growth Rate: 9.1% Rate of Inflation: 18.6% CAMBODIA Population: 7.2 million Gross Domestic Product*: $890 million Real Growth Rate: 0% Rate of Inflation: 10% VIETNAM Population: 67.5 million Gross Domestic Product*: $15.4 billion Real Growth Rate: 3.8% Rate of Inflation: 100% * Gross domestic product is the total value of goods and services produced domestically. Source: Heritage Foundation Asia Studies Center.