Vietnam trade changes spark some cautious optimism; loosening of trade barriers is good news for local firms.

The reaction of Southland businesses to the U.S. Treasury Department's formal loosening of its embargo on Vietnam in late December was conditionally upbeat.

The Dec. 23 announcement implemented President Clinton's decision last September to let people and corporations domiciled in the U.S. provide goods and services to Vietnam as part of qualified projects. A trade embargo had been in effect against North Vietnam since 1964; it was extended to the southern part of the country in 1975.

To qualify under the new provisions, U.S. parties hoping to do business in Vietnam must be approved by one of 24 institutions sanctioned by the U.S. government. They include the International Bank for Reconstruction and Development, the Asian Development Bank, the United Nations Development Program, the World Health Organization and the International Finance Corp.

Equity participation in joint ventures specifically related to an approved Vietnamese project is also permitted.

Two examples of allowable projects cited by the Treasury Department included the construction of a cement plant financed by Asian Development Bank-approved funds, and equity participation in an International Finance Corporation-sponsored Vietnamese company set up to finance environmental safeguards for offshore oil drilling operations.

Ed Gilbert, partner and point man for Seattle-based law firm Perkins Coie and its West Coast affiliates, said the announcement makes it clear that persons looking at certain Vietnam projects can go forward.

"This is one additional way to do business in Vietnam," Gilbert noted. "They (U.S. business interests) can already do humanitarian projects (like sell medical devices or books to Vietnam) or set up representative offices in Vietnam to pursue contracts which will be effective once the embargo is finally lifted in total."

As it stands now, persons and companies domiciled in the U.S. cannot participate in any project in Vietnam that is not specifically approved by one of the qualified agencies. In addition, they still cannot import Vietnamese goods or participate in trading Vietnamese goods to other countries.

Now that the Treasury Department has given the green light to qualified projects, he said, interested parties can also build roads, power plants, telecommunications networks, airports and shipping terminals if these projects are agency approved.

Fairfax, Va.-based Mobil Corp. has already won the right to explore for oil off Vietnam's coast.

Locally, the oil companies' interest in Vietnam seems more subdued. "We have extensive oil operations off the coast of Thailand," said Unocal Corp. spokesman Barry Lane, "and so we are pretty familiar with the geology of the region there. We have had talks with Vietnamese officials, but I'm not prepared to really discuss the specifics right now."

Downtown L.A.-based Atlantic Richfield Co. also acknowledged interest in Vietnam -- but was reluctant to comment further.

Paul Tosetti, a partner in downtown L.A.'s Latham & Watkins law firm, told the Business Journal that a number of electronics firms and other high-technology companies have contacted his firm to inquire about pursuing joint ventures or other forms of direct investment.

Regarding the Treasury Department's Dec. 23 announcement, he said, "It's clearly a step in the right direction if you believe, as I do, that this is the world's most promising area, and the United States, to remain competitive, really should be open toward development and joint ventures in that region."

"But," he added, "the limitations that the administration has imposed, I think, suggest that, as of yet, this is just the first step. The liberalization is yet incomplete."

According to Tosetti, some of his clients were roadblocked by remaining U.S. restrictions, others continue to pursue the transactions they originally proposed.

"The way I see it," said Julia Bonafede, a senior associate at the Santa Monica investment firm of Wilshire Associates Inc., "there are two types of investors -- the large corporations looking to set up operations or joint ventures, and the type that we work with, the capital market investor."

The big problem for both, said Bonafede, is that there is no system to accommodate investment in Vietnam.

There are no securities exchanges or capital markets. Joint ventures are at a minimum and, according to what one investor told her, "foreign investors need good local contacts to facilitate these efforts."

But that, too, may be changing. Last October, Bonafede and two of her associates took a dozen investment and pension portfolio managers from the U.S. and Europe to Vietnam to get a first-hand look at these changes.

Representatives from the Vietnamese government's Financial and Monetary State Council talked about efforts to establish credit with the World Bank, plans to reorganize the country's banking system, and plans to set up a viable convertibility policy for their currency. Right now, said Bonafede, the dollar is the most notable currency in circulation. "On the whole, you pay hotel bills and other transactions in U.S. dollars, not Vietnam dong," she said.

Although government representatives expounded on the economy's high industrial and export-driven growth rates, Bonafede also learned that the country has a desperate need for foreign assistance beyond the $200 million a year remitted by Vietnamese expatriates. Foreign investment is a priority.

Most foreign capital investment flowing into Vietnam, said Bonafede, currently goes through one of two Dublin, Ireland headquartered funds that operate out of Hong Kong: the Vietnam Management Fund or the Beta Vietnam Fund. She noted that both funds were oversubscribed immediately after inception.

Unfortunately, even though the funds have money to invest, they have had very little to invest in, in terms of bona fide, allowable, up-and-running concerns. Bonafede related that a Beta fund agent told her that, even though the fund had $65 million in capital, only about $250,000 was invested as of October.

"That's not the way we would invest in Vietnam," said David Fisher, chairman of Capital Group Inc., downtown L.A.'s largest group of mutual funds, which has also shown an interest in investment opportunities in Vietnam.

Fisher, who manages his firm's Emerging Markets Growth Fund portfolio, among others, said opportunities for investment companies "should be a ways off." However, he conceded, Vietnam is "going to be an exciting economic environment."

Like other Southland firms, he said, Capital Group has been sending representatives to Vietnam for years "to see what they're doing and understand the government's (changing) policies."

But for now, said Fisher, the best Vietnam-related opportunities are not in Vietnam itself, but rather with U.S. and other foreign companies that will do business in Vietnam.