1994-2019: Vietnam’s Development Pointers For North Korea.

Legal News & Analysis - Asia Pacific - Vietnam - Korea - FDI

19 March, 2019

 

Vietnam then (before 1994) and North Korea today are very different, but there’s one similarity: the relative absence of international business.

 

In the 25 years that I have lived in Hanoi, Vietnam has accomplished a feat worthy of Houdini by extricating itself from a web of sanctions and limitations.

 

It deserves an Oscar for becoming everyone’s best friend in the process.

 

Most people arriving in an unmarked, plain white Vietnam Airlines plane in 1994, clearing immigration and driving into Hanoi in a leaking Volga (on the old road via Gia Lam and the Chuong Duong bridge) were hard pressed to picture the potential; most were on postings of a few years, time-servers who often did not even try.

 

I had the good fortune to work for a law firm that was established in 1743 and whose attitudes to anywhere east of Suez in those days retained a residual colonial bent. So I was posted to Vietnam for life, which coincidentally was the term for which many criminals sent to penal colonies like Australia.

 

In such circumstances, one did not focus just on the short-term horizon. We had to believe in the long-term potential of the country.

 

There are but a handful of pre-1994 foreigners still living in Hanoi (more in HCMC); the uniting factor among us (we tend to know each other) is that we held, and indeed hold, that belief.

 

Pyongyang today is in many senses more developed than Hanoi in 1994. The transport infrastructure includes a metro that delights the odd tourist, and multiple lane boulevards have unsmiling policewomen at less than bustling intersections. Its serried ranks of high-rise residential buildings certainly had no equivalent in the Hanoi of 1994. Indeed, the Hanoi housing stock (at least that which was shown to foreigners like me) was largely of pre-1954 vintage, and struggled on the health and safety front.

 

But in a more fundamental political sense, Vietnam was more developed. The Vietnam of 1994 had already done three things that set solid foundations for the next decades.

 

Basic agrarian reform came first, with deregulation of food markets and autonomy for farmers to make production decisions. In Sa Pa in late 1994, we did not exactly find food for a Christmas feast, but there was plenty of rice and potatoes.

 

In 1986, the Party Congress had agreed on a policy of economic reform – doi moi – that has set the tone (with upgrades) ever since.

 

At the same time, Vietnam adopted a policy of international integration. Existing friendships with socialist bloc countries where maintained; new friendships with former enemies led, in February 1994, to the lifting of the US embargo on Vietnam; and new friendships with all countries in between materialized out of the desert.

 

All of these were remarkable feats, given that a collective political decision had to be made on change. The key to obtaining such a consensus was graduality. Change was to be a gradual, graded process that would be adjusted depending on its success or lack thereof.

 

North Korea in 2019 is of course in a different position. Even if the summit between Trump and Kim achieves a monumental breakthrough, North Korea would still need to put into place the basic policy underpinnings for a Vietnam-style evolution. Given current opacity, it is not this writer’s intention to guess whether this is possible or how long it might take.

 

Vietnam also provides an object lesson in the difficulties to be faced even after the top-level reform policy has been set. The history of Vietnam’s business relationship with the U.S. demonstrates the challenges.

 

1994 President Clinton lifted the U.S. trade embargo on Vietnam
1995 Agreement between Vietnam and the U.S. to settle governmental and private property claims left over from the war
1995 Vietnam and the U.S. normalized diplomatic relations and established liaison offices in each other’s country
1997 Pete Peterson arrived as the first U.S. Ambassador in Hanoi
1998 The Jackson-Vanik Amendment was waived, allowing U.S. Exim and OPIC to support U.S. businesses in Vietnam
2000 After years of negotiation, Vietnam and the U.S. signed a Bilateral Trade Agreement
2001 The Bilateral Trade Agreement was ratified and came into force. The deal lifted barriers to trade, including quotas, bans, and import restrictions; lowered tariffs from an average of 40 percent to 3 percent on a variety of goods; and granted Vietnam conditional most-favored-nation trade status
2001 Bill Clinton became the first U.S. president to visit Vietnam since the end of the Vietnam War
2002 U.S.-Vietnam trade doubled
2003 Bilateral textile agreement was signed, imposing quotas on Vietnam’s textile exports
2006 Vietnam achieved permanent normal trade relations (PNTR) status as part of its accession to the World Trade Organization (WTO)
2007 U.S. and Vietnam signed a Trade and Investment Framework and Agreement, under which a ministerial level council was established to discuss implementation of Vietnam’s WTO commitments.

 

In other words, it took Vietnam, working diligently (as the Vietnamese always do) a dozen years to get from the lifting of the trade embargo to a normal trading position in the world. In 1994, Vietnam had already spent 8 years honing its doi moi policy. If this is taken as a guide, and assuming Trump and Kim pop the (non-alcoholic) champagne this week, North Korea (working diligently and without shenanigans) may expect to be back in the normal trading world around 2040.

 

The road to success and the road to failure often look the same. Looking back over 25 years in Vietnam, one senses the wisdom of the Party Congress looking at the road in 1986: the gradual but consistent nature of the reform process has been critical to its success, underpinned as it has been by political stability.

 

I have often heard voices urging greater speed in one area or another; fortunately decisions have always been taken after deliberation, however dire the forecasts of trouble arising from delay.

 

Yet the voices of urgency (or of doom) were not shut out. There has always been a willingness to listen, an openness to different views. I recall the Ministry of Justice receiving me in 1994 very graciously and moving on quickly and professionally to questions of commercial law. Somewhat apologetically (unnecessarily), the minister explained at the end of our meeting that I would find out over the course of time that Vietnamese are always ready to learn, but do not always like being taught. A useful lesson for me.

 

The openness continues to this day. From 1998 (when the visionary Wolfgang Bertelsmeier of the IFC and his equally brilliant counterpart Tran Xuan Gia as MPI Minister set up the forerunner of the Vietnam Business Forum) until now, the Prime Minister and his cabinet have met twice a year in plenary session with members of the business community and foreign ambassadors to discuss problems faced by businesses. Working sessions are held with specific ministries beforehand on specific issues. The plenary session ensures a full airing of concerns.

 

The business climate has improved because of such openness. Vietnam has been a world leader here – numerous other countries have followed in its footsteps. Let’s hope North Korea sees the advantages, too.

 

The purely material benefits of Vietnam’s development over the last 25 years are obvious for all to see. One does not need to look at the numbers (example: U.S.-Vietnam bilateral trade has grown from $451 million in 1995 to nearly $60 billion in 2018) to know how far Vietnam has travelled. I used to say that a look out of the window in Hanoi is sufficient. But these days that assumes that you can see anything through the pollution.

 

Pollution clean-up is surely the challenge for Vietnam over the next 20 years. Just as North Korea may look to Vietnam as a development role model, so Vietnam may wish to find a worthy role model for balancing growth with protecting the environment.

 

*Tony Foster is managing partner of Freshfields Bruckhaus Deringer LLP. The opinions expressed are his own.

For further information, please contact:

 

Dang The Duc, Partner, Indochine Counsel

duc.dang@indochinecounsel.com