Immediately after Vietnam officially announces its entry to the WTO, the country will have to abolish many kinds of subsidies such as export bonuses, preferential interest rate policies, debt clearance and a series of incentive policies to call for foreign investment in industrial and export processing zones within five years from Vietnam’s admission to the organisation.

According to the Ministry of Planning and Investment, by the end of the first quarter of 2006, Vietnam had 130 open economic zones, IPs and EPZs. In 2004, 31 provinces removed legal barriers by implementing incentive policies comprising lower business income tax and land tax rates than the common incentive tax rates set by the State in a bid to call for more investment from enterprises.

The State has asked for early removal of these policies while the US has also demanded that Vietnam abolish its incentive policies and tax preferences for enterprises operating in the 130 IPs and EPZs.

Economic experts said that this will pose huge challenges for businesses operating in the 130 IPs and EPZs as there will no longer be State subsidies for enterprises to help them dominate export markets and run joint-ventures with foreign partners to produce products on a large scale.

Deputy head of the Foreign Investment Department under the Ministry of Planning and Investment Nguyen Anh Tuan said businesses in IPs and EPZs benefit greatly from available facilities and subsidies. They will encounter a lot of difficulties if they are no longer provided with any incentives

When joining the WTO, business and production management systems and operation forms will differ from previous ones while the command structure will no long exist. Enterprises’ operations will have to abide by the law and their self-control will make it possible to go bankrupt. Dr Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry said post-WTO competition will result in the dissolution of a segment of businesses because of their failure to compete. Enterprises vulnerable to this outcome are small and medium-sized ones due to their weak financial capacity, late establishment and limited advantages in production materials compared to State-owned enterprises. According to economic experts, an issue of great concern is that State-owned enterprises will have to try their best to recoup capital. Despite being protected by the State, State-owned enterprises are considered the ones causing the most losses for the country.

To improve the sector’s competitive capacity, the State has carried out the equitisation process and strictly controlled project management, however, only nine percent of the total capital has been equitised. Regarding international trade relations, despite high export value, Vietnam has an import surplus, as the country has to import a lot of materials and machines. Garments, footwear and woodwork products have high export value, but they are likely to face difficulties competing with those from other WTO members.

Enterprises to face international risks
According to the Ministry of Trade, during the ASEAN integration process, Vietnam has not gained any benefits from cutting tariffs under the AFTA roadmap. Minister of Trade Truong Dinh Tuyen explained that Vietnamese products such as vegetables, fruits, rice and poultry meat are similar to others from regional countries. In addition, economic experts affirmed that this is due to the low capacity of Vietnamese enterprises.

At a recent scientific and technological conference, Minister of Industry Hoang Trung Hai said the industrial sector’s growth rate is high but its quality is low. In the modern competition process, if enterprises want to develop they must have advanced technology and qualified employees, but the technology levels of many Vietnamese enterprises are low. Regarding human resources, Mr Hai said when the country built the North-South 500KV electricity transmission line, the electricity sector employed all the outstanding students of the Polytechnic University and sent them abroad to take post-graduated training courses. However, when the students returned home, it took them another two years to undertake this work. This is a major stumbling block to enterprises in the course of international integration.

In addition, some policy analysts said some enterprises are weak due to subsidy policies. The current import policy of used cars is a typical example. The policy should be focused on helping enterprises strengthen trade with foreign partners in order to gain experience before Vietnam joins the WTO, but enterprises barely trade in the field due to the current tax rates. Private enterprises also cannot access the car trading market. The current tax policy is not good for enterprises as most domestic automobile manufacturers are subsidised while importing enterprises cannot trade at the current tax rates. This is far from being a precedent but, in fact, only isolates enterprises in the open door period.