VZCZCXRO5444
RR RUEHHM
DE RUEHHI #1057/01 1560936
ZNR UUUUU ZZH
R 050936Z JUN 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5561
INFO RUEHHM/AMCONSUL HO CHI MINH 3175
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 04 HANOI 001057 
 
SIPDIS 
 
STATE FOR EAP/MLS 
STATE PASS USTR FOR DBISBEE 
TREASURY FOR OASIA 
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STATE PASS FEDERAL RESERVE SAN FRANCISCO FOR DFINEMAN 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KTEX VM
SUBJECT: VIETNAM'S TRADE IN 2006: RAPID GROWTH IN LEAD UP TO WTO 
ACCESSION 
 
(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET. 
 
¶1. (SBU) Summary: According to recently-released figures from the 
Government of Vietnam's General Statistics Office (GSO), Vietnam's 
2006 trade increased 21.6 percent from 2005, reaching USD 84.02 
billion.  This growth reflects Vietnam's increasingly international 
economic policy orientation and economic reforms undertaken as part 
of its WTO accession process.  Led by crude oil, textiles and 
garments, footwear and fishery products, exports grew 22.1 percent 
to USD 39.6 billion.  Total imports were USD 44.41 billion, a 20.1 
percent rise over 2005.  Total trade in services exceeded USD 10 
billion in 2006, driven by increases in tourism, transportation, 
financial services and insurance services.  According to GSO, 
bilateral trade with the United States was USD 8.81 billion, a 29.7 
percent increase over 2005 - moving the United States from fifth to 
third place in total two-way trade with Vietnam.  Following 
Vietnam's January 2007 WTO accession, these trends in growth should 
continue, though the country faces a number of challenges to 
maintain this growth over the longer term.  (Note: Unless otherwise 
stated, all figures are from official Vietnamese statistical 
sources.)  End Summary. 
 
THE OVERALL TRADE PICTURE 
------------------------- 
 
¶2. (U) In 2006, Vietnam's policy orientation towards integration 
into the global market, coupled with economic reforms and 
liberalization, resulted in trade playing an increasingly 
significant role in Vietnam's continued economic development. 
Recently released figures from Vietnam's General Statistics Office 
(GSO) show that in the year leading up to Vietnam's World Trade 
Organization (WTO) accession, its trade grew 21.6 percent to reach 
USD 84.02 billion.  Total exports rose 22.1 percent to USD 39.6 
billion, while total imports were USD 44.41 billion, up 20.1 
percent.  Vietnam's trade deficit remained relatively stable in 
2006, growing 3 percent from USD 4.65 billion in 2005 to 4.81 
billion.  In a further sign of the increasingly global nature of 
Vietnam's economy, total export turnover was equal to about 65 
percent of 2006 GDP. 
 
¶3. (U) China continued to be Vietnam's largest single trading 
partner.  Vietnamese exports to China were USD 3.03 billion, a 
moderate 2.3 percent increase, while it imported USD 7.39 billion in 
¶2006.  Vietnam's USD 4.33 billion trade deficit with China was its 
second largest in 2006, behind only its USD 4.64 billion trade 
deficit with Singapore.  Japan ranked as Vietnam's second largest 
trading partner at USD 9.93 billion in total trade, with USD 5.2 
billion in exports and USD 4.73 billion in imports.  The United 
States, at USD 8.81 billion, ranked third in total trade with 
Vietnam, up from fifth place in 2005, due in large part to a 32 
percent increase in Vietnamese exports during 2006.  For the fourth 
straight year, the United States was the largest export market for 
Vietnamese products.  Exports to Vietnam's other primary markets, 
the EU and Japan, also increased by 27.8 percent, and 18.6 
respectively.  Behind China and Singapore, Vietnam's largest sources 
of imports were Taiwan (USD 4.8 billion), Korea (USD 3.9 billion) 
and Thailand (USD 3 billion). 
 
FOREIGN INVESTED ENTERPRISES DRIVING EXPORT GROWTH 
--------------------------------------------- ----- 
 
¶4. (U) Of the USD 39.6 billion in export revenue, foreign invested 
enterprises contributed USD 22.9 billion (57.7 percent of total 
exports), an increase of 23.2 percent.  Domestic enterprises 
contributed USD 16.7 billion (42.3 percent of total exports), up 
20.5 percent over 2005.  Increased investment and new technologies 
helped domestic industries expand production and enhance export 
quality and value with an aim to narrowing the export margin with 
foreign invested enterprises. 
 
HIGHER PRICES CONTINUE TO DRIVE COMMODITY EXPORT GROWTH 
--------------------------------------------- ---------- 
 
¶5. (U) Many of Vietnam's strategic commodity exports benefited from 
rising global prices in 2006.  Crude oil remained Vietnam's top 
export earner, growing 12.1 percent to USD 8.26 billion as a result 
of the continued rise in world oil prices.  Vietnam was able to 
achieve these gains because its average oil export price increased 
by 22 percent, which offset a 7.5 percent decrease in export volume. 
 Vietnam's main crude oil export markets were the United States, 
Japan, Australia, Indonesia, and Malaysia.  Other natural mineral 
 
HANOI 00001057  002 OF 004 
 
 
resources also enjoyed healthy growth in 2006.  Coal exports, for 
example, grew 65.6 percent in volume and reached a total value of 
USD 914 million. 
 
¶6. (U) Many other traditional agricultural and commodity products 
(other than rice, which fell 9.5 percent in quantity and 7.2 percent 
in value) achieved equally solid growth in 2006.  The value of 
rubber and coffee exports grew 58.3 percent and 49.9 percent, 
respectively.  These significant increases are attributable to 
growing world prices for these goods, as the export quantities of 
both products remained relatively stable.  Total export revenues of 
rubber and coffee exceeded USD 1 billion for the first time, growing 
the list of export products earning USD 1 billion or more per year 
to nine.  Tea export revenues grew 13.9 percent and cashew revenues 
grew 4 percent.  Fishery products, another key commodity export, 
also achieved solid growth of 23.1 percent over 2005, earning a 
total of USD 3.4 billion. 
 
MANUFACTURING EXPORTS ENJOY DOUBLE-DIGIT GROWTH RATES 
--------------------------------------------- -------- 
 
¶7. (U) Increased investment, use of new technologies, 
diversification of product lines and accelerated marketing and trade 
promotion activities contributed to the rapid growth of 
manufacturing exports.  Key products such as footwear, wood products 
and electronics all achieved solid growth, earning USD 3.6 billion 
(16.9 percent increase), USD 1.9 billion (23.1 percent increase) and 
USD 1.8 billion (24 percent increase), respectively.  Vietnam also 
increased exports in some new categories such as steel and cast 
iron, which grew 68 percent to USD 370 million in 2006. 
 
¶8. (U) Despite facing intense competition from other countries no 
longer subject to quotas because of the expiration of the WTO 
Agreement on Textile and Cotton (ATC) in 2005, Vietnamese textile 
and garment exports grew 19.9 percent in 2006 - nearly double the 
2005 growth rate of 10.3 percent - which equated to USD 5.8 million 
in export value.  (Note: Following its January 11, 2007 accession to 
the WTO, Vietnam too is now no longer subject to quotas.  End note.) 
 Textile and garment exports to Vietnam's three primary markets 
achieved high growth rates in 2006.  Exports to the United States 
grew 21 percent to USD 3.04 billion, equivalent to 53.8 percent of 
Vietnam's total apparel export revenue; exports to the European 
Union grew 43 percent to USD 1.2 million,; and exports to Japan, a 
country which has never imposed quotas on Vietnam, grew 20.2 
percent. 
 
EXPORT DESTINATIONS CHANGING 
---------------------------- 
 
¶9. (U) Vietnamese exports increasingly went to larger, 
industrialized and more distant markets in 2006.  Export volume to 
Asia decreased from 50 percent to 47.3 percent.  Notably, within 
this category exports to other ASEAN countries fell from 16.8 
percent to 16.1 percent, despite favorable tariff policies between 
members.  Although starting from a minimal baseline, exports to 
Africa also fell from 2.1 percent of overall volume to 1.6 percent. 
To offset these decreases, exports to Europe grew from 18.6 percent 
to 19.2 percent of total volume, export turnover to the Americas 
grew from 21.3 percent to 22.9 percent (of which the United States 
alone accounted for 19.6 percent) and exports to Australia and New 
Zealand grew from 8.1 percent to 8.9 percent. 
 
PRICES AND INCREASED DEMAND GROW IMPORTS 
---------------------------------------- 
 
¶10. (U) Total import turnover in 2006 was USD 44.41 billion, up 20.1 
percent from 2005.  The domestic sector imported USD 27.99 billion, 
representing 19.9 percent growth, nearly catching up with the 20.4 
percent growth rate in the foreign invested sector, which imported 
USD 16.42 billion.  The increase in total import value can be 
attributed to an 8.6 average growth in prices of imported goods and 
the increasing demand for imports needed to feed Vietnam's growing 
economy.  The prices of critical production inputs such as fuel and 
common metals experienced particularly high price increases of 21 
percent and 50.1 percent, respectively. 
 
¶11. (U) Vietnam's amended Commercial Law, which became effective 
January 1, 2006, and regulations to guide implementation of the 
Commercial Law helped to remove restrictive import measures and 
create more favorable conditions for enterprises to import goods to 
expand production.  Notably, consumer goods imports grew 24.4 
 
HANOI 00001057  003 OF 004 
 
 
percent to USD 1.24 billion - a sector which will likely continue to 
experience solid growth as the disposable income of Vietnamese 
citizens continues to grow. 
 
¶12. (U) Machinery, equipment and spare parts were Vietnam's leading 
import category.  The import value of these products increased 24.1 
percent to USD 6.6 billion, of which the foreign invested sector 
accounted for USD 2.3 billion, or 39.3 percent.  Gasoline and fuel 
price increases led to a 16.4 percent surge in import value to USD 
5.97 billion, despite a 3.8 percent drop in import volume.  Imports 
of several traditional production inputs were up, including yarn 
(60.3 percent growth), cotton (34.1 percent growth), fabric (23.1 
percent growth), plastic (26.8 percent growth) and wood and wood 
product accessories (16.8 percent growth).  On the other side, iron 
imports fell 0.9 percent in value to USD 2.9 billion (the fourth 
largest import category) while the volume increased by 1.8 percent. 
 
¶13. (U) Imports of garment and footwear accessories and automobiles 
were among the few categories that saw import volume reductions in 
¶2006.  Imports of garment and footwear accessories fell by 14.1 
percent because Vietnam was able to produce more of the products 
domestically.  Automobile imports (including completed and 
disassembled units) fell sharply by 34.7 percent. On the other hand, 
imports of assembled motorbikes soared 27.8 percent in volume, 
representing a 16 percent increase in value. 
 
¶14. (U) Imports from Asian countries grew by 21.7 percent and 
accounted for 80.7 percent of total import value.  Imports from 
Vietnam's top Asian trading partners, such as China, Japan, 
Singapore, Thailand and Taiwan soared 27.9 percent, 14.9 percent, 
36.5 percent, 26.8 percent, and 11.4 percent, respectively.  Total 
imports from ASEAN countries grew 32.7 percent, constituting a total 
of 28 percent of all imports.  The value of goods purchased from 
Europe and Africa fell slightly in 2006. 
 
TRADE IN SERVICES 
----------------- 
 
¶15. (U) Service exports reached USD 5.1 billion, 19.6 percent more 
than 2005.  The major service export sectors each achieved 
significant growth: tourism grew at 23.9 percent, air transportation 
at 35.5 percent, maritime transportation at 27.5 percent and 
financial services at 22.7 percent.  A total of 3.6 million visitors 
to Vietnam in 2006 contributed to tourism remaining Vietnam's top 
service export, accounting for 56 percent of service export revenue. 
 
 
¶16. (U) Imports of services reached USD 5.12 billion, 14.3 percent 
more than 2005.  International transport of imported goods accounted 
for USD 1.8 billion, or 35 percent of all service imports.  Outbound 
travel shared 20.1 percent of the total import value, increasing 
16.7 percent over 2005. Other major service imports were 
transportation, financial and banking services and insurance, which 
grew 20.1 percent. 
 
BILATERAL TRADE WITH THE UNITED STATES 
-------------------------------------- 
 
¶17. (U) GSO statistics show that total two-way trade with the United 
States in 2006 was USD 8.81 billion, up 29.7 percent from USD 6.80 
billion in 2005.  Vietnam exported USD 7.83 billion to the United 
States - a 32 percent increase over to 2005 - and imported USD 982 
million from the United States, representing an increase of 13.7 
percent over 2005 imports.  In 2006, the United States ranked third 
in total two-way trade with Vietnam, moving from fifth place in 
¶2005.  It remained the largest export market for Vietnamese 
products.  This contributed to Vietnam's USD 6.85 billion trade 
surplus with the United States, which grew from an already 
significant 2005 trade surplus of USD 5.07 billion. 
 
¶18. (U) Textile and garment products topped the list of exports to 
the United States with USD 3 billion in turnover, far exceeding the 
amount earned through other exports.  Textile and garment exports 
grew 17 percent, up from 5.2 percent the previous year, although 
Vietnam was still subject to textile and garment quotas as it was 
not yet a WTO member in 2006.  Exports of crude oil to the United 
States grew by a sizable 114.9 percent to USD 1 billion, replacing 
fishery products as the number two export.  Exports of footwear (USD 
803 million) and wood products (USD 744 million) both achieved solid 
growth rates of 31.4 percent and 31.2 percent, respectively, 
maintaining the third and the fourth ranking in 2006.  Despite 
 
HANOI 00001057  004 OF 004 
 
 
anti-dumping duties on certain goods, fishery products (USD 665 
million) ranked as the fifth top earning export, with a 5.3 percent 
increase over 2005. 
 
¶19. (U) Imports of machinery and equipment (USD 226 million) 
remained on top of Vietnam's imports from the United States and 
increased by 25 percent over 2005.  Plastic materials (USD 86 
million), the number two import from the United States, rose 43.2 
percent.  Imports of wood-product materials (USD 60 million) grew 
51.9 percent, moving it into the top five import categories from the 
United States.  Textile and garment-related imports, however, saw a 
reverse trend: while Vietnam's overall imports of cotton, yarn and 
fabric grew, imports of those items from the United States fell 4.3 
percent, 40.7 percent and 10.9 percent respectively. 
 
COMMENT 
------- 
 
¶20. (SBU) Vietnam's 21.6 percent increase in trade volume in large 
part reflects Vietnam's growing international engagement in tandem 
with the economic reforms undertaken to join the WTO.  Barring a 
major downturn in global prices in Vietnam's key export sectors, 
Vietnam aims to continue increase its exports, particularly as it 
benefits from being the WTO's newest member. 
 
¶21. (SBU) Notwithstanding overall optimism, for Vietnam to sustain 
its growth in trade, it still faces some critical challenges. 
First, continued diversification of its export products away from 
reliance on commodity goods such as crude oil, whose export growth 
is dependent upon global market prices, to higher value-added 
products will help.  Second, Vietnam needs to implement its WTO 
commitments fully, particularly with respect to trading rights for 
foreign invested enterprises, in order to establish a fair and 
transparent environment conducive to creating increased trade and 
investment opportunities.  Third, Vietnam has to improve human 
resource development, education and training to enhance its status 
as an attractive labor market.  The GVN is now seeking international 
assistance and know-how to help reform its education system to keep 
apace of changing demands on its labor force, its success in this 
endeavor will be paramount. 
 
¶22. (SBU) Fourth, given real infrastructure restraints, particularly 
its port capacity, Vietnam should accelerate efforts to expand its 
infrastructure capacity in order to continue to attract new 
investment and increase trade.  Fifth, strengthening 
anti-corruption, transparency and the rule of law would enhance 
Vietnam's competitiveness as a destination for foreign investment. 
How the GVN implements its equitization polices will have a major 
impact on this process.  Finally, over time additional financial and 
banking reforms, if implemented effectively, will help to attract 
more investment, and ensure that it is effectively and efficiently 
directed to high-return sectors.  End Comment. 
 
MARINE