U.S. Stake in Vietnam Rises a Year After Sanctions End : Investment: American firms pledged $220 million in 1994. But Vietnam needs MFN status.

A year after President Clinton lifted economic sanctions against Vietnam, U.S. companies have become major investors, but the economic and political relationship has a long way to go.

By the end of 1994, U.S. companies had pledged $220 million in 20 projects in Vietnam, making the United States the seventh biggest investor last year and the 14th biggest since Vietnam opened its doors to foreign investment in 1988.

More U.S. companies are expected to open offices during 1995, and U.S. investment is likely to rise.

With major Vietnamese infrastructure projects expected to go for tender during the year, U.S. construction and related companies, competing against Asian and European rivals, could score.

U.S. oil companies, already active offshore, are expected to bid for more exploration acreage.

“The weight of the U.S. economy is so big that it’s bound to increase its presence here,” a European businessman said.

The semi-official Vietnam Investment Review said U.S. interest so far was mainly in selling consumer products such as soft drinks and candy to Vietnam’s 72 million consumers, Southeast Asia’s second largest market after Indonesia.

“While not unleashing the floodgates of American investment as many had predicted, the event (lifting the embargo) stands as a milestone on Vietnam’s road toward a free market economy,” the review said.

Vietnam has sold beer, coffee, rice and other goods to the United States since Clinton scrapped the U.S. economic embargo, imposed on North Vietnam in 1964 and extended to the reunified country after U.S.-backed South Vietnam lost the war in 1975.

But export volumes remain small, and Vietnam needs Most Favored Nation status, which would reduce import tariffs to the lowest possible levels, to penetrate the U.S. market in a big way.

Main candidates for bulk U.S. sales would be textiles and clothing produced by local concerns and by factories run by investors from South Korea, Taiwan or Hong Kong in Ho Chi Minh City, formerly Saigon.

Without an exceptional decision by Washington to benefit Vietnam, MFN will not come until the political relationship, now on the mend nearly 20 years after the war, is finally shored up with full diplomatic ties.

The two governments opened diplomatic liaison offices in each other’s capitals last week, establishing formal relations for the first time since the war ended.

Work was expected to get under way in earnest today at the U.S. liaison office in Hanoi after Vietnam’s Tet New Year holiday last week.

“Today we’re sorting out the office and getting equipment hooked up,” said one of the eight officials at the office on Friday, which will eventually have 11 diplomats.

Diplomatic relations, which will permit conversion of the liaison office into an embassy, hinge on a judgment by Clinton that enough progress has been made in accounting for more than 2,200 U.S. servicemen missing from the war.

In addition to boosting U.S. business in Vietnam, lifting the U.S. embargo signaled to reticent third-country investors, notably in Japan, that Vietnam was a safe place in which to invest and to alert them to take the plunge now that U.S. competitors were free to do so.

Japanese companies pledged $327 million in 26 projects in Vietnam during 1994, compared to $363 million from 1988 to the end of 1993.

Japan ranks fifth on Vietnam’s foreign investor list, after Taiwan, Hong Kong, Singapore and South Korea.