Vietnam: The Current Legal Environment for U.S. Investors

By Taylor, James, Jr. | Law and Policy in International Business, Winter 1994 | Go to article overview

Vietnam: The Current Legal Environment for U.S. Investors


Taylor, James, Jr., Law and Policy in International Business


The economic development of the Pacific Rim, largely export driven, is pushing countries located there into the economic mainstream and creating new industrial "tigers." China, Thailand, Malaysia, and Indonesia come immediately to mind, but even underdeveloped countries such as Vietnam have enormous potential.

On February 3, 1994, President Clinton lifted the trade embargo imposed against Vietnam. Although the United States has not yet normalized relations with Vietnam, this executive action permits U.S. companies and citizens to engage fully in trade and investment activities with Vietnam.

I. Introduction

Until recently, little was written about Vietnam's potential for economic growth. The withdrawal of U.S. troops from South Vietnam in 1975 and Vietnam's embrace of the Soviet Bloc cast Vietnam into the backwaters of economic development for many years. With the dissolution of the Soviet Bloc, Vietnam has once again turned to the West and opened its doors to foreign investment.

In 1986, Vietnam initiated doi moi, an ambitious program of economic reform. The key features of this program were: (1) dismantling the collective farm system and returning the land to family farming, (2) removing price controls, (3) promoting the private sector, (4) devaluing the currency, (5) demobilizing the army and reducing subsidies to state enterprises, (6) revising interest rates to fight inflation, and (7) encouraging foreign investment.(1) As a result of these reforms, Vietnam has been successful in attracting foreign investment, despite the economic embargo imposed by the United States until this year. The reasons for the attractiveness of Vietnam to foreign investors are easy to understand. With a population of 71 million people, Vietnam is one of the larger markets in the Far East outside of China. In addition, it has a well educated labor force and the lowest wage rates of any country in the region. Vietnam has a literacy rate of eighty-eight percent compared with seventy-four percent in China and ninety-five percent in the United States.(2) For these reasons, Vietnam's potential has not been lost on foreign investors, and more than 150 U.S. companies have been licensed to open offices in Vietnam by the Vietnamese government. Vietnam is clearly poised for economic recovery as soon as sufficient investments are made in much needed infrastructure, such as roads, bridges, power systems, and telecommunications. Indeed many see Vietnam as the last remaining investment "frontier" in the world.

Until recently, the United States held the key to Vietnam's economic development by vetoing loans from the World Bank and other multilateral lenders. On July 2, 1993, however, President Clinton agreed to withdraw U.S. opposition to World Bank lending. Since then, then, World Bank and other multilateral lenders have embarked on an ambitious loan program to help Vietnam regain its economic footing.(3)

The current legal situation in Vietnam remains complicated for U.S. companies. First, trade and investment with Vietnam have only recently been forced of the embargo. Until relations with Vietnam are fully normalized and the United States grants Vietnam most-favored nation status, exports to the United States from Vietnam will be subject to high customs duties (in range of forty to fifty percent for most products). In addition, trade finance support programs provided by U.S. government agencies must also await normalization of diplomatic relations between the United States and Vietnam.

Second, the laws in Vietnam are in the developmental stage. Although foreign investment is clearly encouraged at every level of the government, the laws consist in large part of general legal principles that provide little specific guidance as to permissible and impermissible activities. Therefore, the economic risks are high, and potential investors in Vietnam are seeking economic rewards commensurate with these risks. …

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