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Vietnam faces possible U.S. tariffs in China-U.S. trade tensions: experts
By Minh Tam
Tuesday,  Jun 25, 2019,20:30 (GMT+7)

Vietnam faces possible U.S. tariffs in China-U.S. trade tensions: experts

By Minh Tam

Lawyer Ken Dat Duong (R), founding partner of U.S.-based TDL International Law Firm, and other experts at a workshop on the impact of escalating trade frictions between China and the United States on Vietnamese firms – PHOTO: MINH TAM

HCMC – Chinese and U.S. investments are increasing in Vietnam due to escalating trade frictions between the two largest economies. However, this is likely to prompt the United States to impose tariffs on Vietnamese goods if shipments from Vietnam are found to be actually transferred from China, said experts at a workshop in HCMC today, June 25.

Held by the Vietnam International Arbitration Center, in coordination with the HCMC International Integration Support Center, the workshop was aimed at giving participants insights into opportunities and challenges for local firms amid the trade war.

Lawyer Ken Dat Duong, founding partner of U.S.-based TDL International Law Firm, said his company has offered its services to some 20 U.S. corporate clients to complete procedures for investment, mergers and acquisitions and joint ventures in Vietnam over the past two years.

American firms, especially large ones, have long invested in Singapore, Hong Kong and Taiwan, and their legal entities later have established a presence in Vietnam. According to Duong, this is their usual way of doing business.

However, U.S. firms are planning to make direct investments in Vietnam, he said.

For example, one company was founded in China to purchase flowers for export, but it launched its office in Vietnam some three months ago.

Another client of his firm, which imported materials from China to Vietnam for processing and exported the finished products to the United States, has purchased shares of a processing company in Vietnam. In another case, an LED screen manufacturer intends to start a joint venture with a Vietnamese partner.

U.S. firms typically pursue mergers and acquisitions and joint ventures. This is a good time for Vietnamese firms to call for investment and sell shares, Duong said.

Vietnam will face risks from this flow of investments, he said.

Aside from labor competition and shortages of production materials, there remain many legal risks. For instance, companies may make their products in Vietnam but use materials from China. This might attract tariffs from the United States.

“Take the import of Chinese material for local production, for example. Laws regulate that if 51% of the raw material comes from a certain country, the finished product originates from that country. However, different products use different materials. If U.S. firms use up to 49% of Chinese material, China actually gains benefits,” he said.

In Duong’s experience, the United States will likely impose tariffs on Vietnamese products every seven years. Previous products that have suffered this fate are tra fish and shrimp, and wood is currently under scrutiny.

Duong claimed that if Vietnamese firms continue to produce wood at low costs, they can still compete with Chinese products but will find it challenging to face U.S. firms entering the country.

Lawyer Bui Van Thanh, head of Mat Troi Moi Law Office, told the participants that Chinese firms have made investments in Vietnam in various ways.

For instance, Vietnamese individuals are listed as legal representatives, but their investments actually come from Chinese firms. Some locals have suffered heavy consequences when issues arise.

An executive of a logistics firm said that Chinese firms have invested heavily in the wood processing industry. Though export revenue has risen, the number of orders from Vietnamese firms is declining. Consequently, they are at risk of losing their markets.

Nguyen Xuan Thanh, a senior lecturer on public policy, pointed out that export turnover of certain commodities is growing, but imports from China are also increasing. Vietnamese firms are unable to seize opportunities, while Chinese firms are changing their practices.

He cited statistics for the first five months of this year as saying that for the first time, China's newly registered investments in Vietnam had taken the lead though they have yet to be disbursed.

“Vietnam is now strengthening its controls to prevent transfers, but it cannot create new barriers for China. Therefore, many other businesses will penetrate the market. Our businesses should not expect supporting policies. Instead, they need to increase their capacity,” he said.

Pham Sy Thanh, director of the Chinese Economic Studies Program at the Vietnam Institute for Economic and Policy Research, forecast that U.S.-China trade tensions will likely escalate following the new developments and the threats may be realized.

Also, an expected meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping on the sidelines of the G20 leaders summit later this month may see no deal being clinched and higher tariffs are forecast.

The intensifying trade conflict, in addition to the rise of protectionism in recent years, may pull the global economy down and will definitely have an impact on the economy of Vietnam.

Meanwhile, Nguyen Xuan Thanh suggested that the world economy has shown signs of slowing down, regardless of the trade tensions. However, the escalating trade war will cause it to nosedive, leading to multiple effects in terms of the monetary policies of central banks.

In addition, the U.S. Federal Reserve did not raise or lower interest rates. As such, the pressure on currency devaluation faced by China and other Asian countries, including Vietnam, will be eased.

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