State by State: Vietnam and Texas Trade

By Chris Devonshire-Ellis, Andrew Salzman, and Edward Barbour-Lacey, Dezan Shira & Associates

Known as the “Lone Star State”, Texas is the second largest American state and the second most populous. The state also has the country’s second largest GSP (gross state product), amounting to US$1.6 trillion. If Texas were its own country, it would have the 12^th largest economy in the world. Major industries in Texas include: agriculture, aeronautics, defense, computer technology, energy, tourism, entertainment, and healthcare.

The ten nations that make up the Association of Southeast Asian Nations (ASEAN) are becoming increasingly important trade partners for Texas. Vietnam, in particular, is playing a growing role in Texan trade. Below, we take an in-depth look at this blossoming trade relationship between Texas and Vietnam.

Texas Spotlight on Vietnam

Vietnam is a growing export market for Texas; in 2014 the state exported US$573.96 million worth of goods to the Southeast Asian country. Vietnam has seen its import trade with Texas substantially grow over recent years, with a 42.9 percent increase from 2013 to 2014, making the country the 22^nd largest import partner for the state. Over the past few years, Texas has increased its imports with all of its ASEAN trading partners.

RELATED: State by State: China and Texas Trade

Investment Opportunities in Vietnam

Vietnam is not only an export market; it is also one to invest in. In particular, the Vietnamese market presents an excellent opportunity for Texas-based retailers. Texas retailers such as Kimberly-Clark have already met with success in Vietnam.

By the end of 2012, approximately 40 percent of the 700 supermarkets in Vietnam were a part of a foreign group. Considering Vietnam only began opening its doors to companies including Metro Cash & Carry and Lotte Mart in 2009, this represents a big jump. Under World Trade Organization obligations, Vietnam has been required to allow the establishment of wholly foreign owned retailers since January 2015.

Local competition in Vietnam is far from a barrier to entry. According to the CEO of leading local retailer Phu Thai Group, Pham Quoc Manh, no Vietnamese retailer has capital of over US$100 million. Manh believes that revenues from foreign retailers are typically 20-30 times that of such local companies. Vietnam’s Ministry of Industry and Trade Domestic Market Department deputy head Tran Nguyen Nam has contrasted the advantages foreign retailers have to local companies, saying that local companies cannot match foreign ones in drawing on international expertise and financial resources. In short, Vietnam acknowledges the strength of American retailers and also recognizes the benefits such investors can bring – and especially improvements in the domestic supply chain such as cold storage and field to market time frames.

RELATED: Dezan Shira & Associates’ Pre-Investment and Entry Strategy Advisory

Texas’ oil and oil services companies have also met with success in Vietnam. Texan companies with ongoing operations in Vietnam include ExxonMobil, Halliburton, and Baker Hughes.

Vietnam trade status

Vietnam remains a key player for import-export minded businesses in Texas, in addition to a welcoming destination for companies looking to establish an active presence in the region. In particular, the country has Most-Favored Nation (MFN) status with the United States. This is given to certain nations globally by the United States and is recognized by the World Trade Organization.  The US typically grants this clause to another nation if it is interested in increasing trade with that country. Countries, such as Vietnam, who are granted MFN status are given specific trade advantages, such as reduced tariffs on imported goods.

Vietnam also looks set to benefit from the implementation of the ASEAN Economic Community, slated for the end of 2015, as well as its involvement in negotiations for the regional trade zones of the Trans-Pacific Partnership and the Regional Comprehensive Economic Framework.

RELATED: State by State: ASEAN and Texas Trade

The Trans-Pacific Partnership (TPP) agreement, in particular, could be a big deal for Texas-Vietnam trade. The TPP has the potential to increase Texan exports substantially due to the drastically reduced, or eliminated, trade tariffs in member countries such as Vietnam, which, for example, will reduce tariffs on man-made fibers (among other things).

American companies can also take advantage of ASEAN’s free trade agreements with both China and India. Signed in 2010, these FTA have reduced tariffs on 97 percent of all traded products between ASEAN and China, and ASEAN and India, to zero. As Vietnam is a member of ASEAN, this means that American companies, via establishing a subsidiary in Vietnam can have that local entity, purely by its geographical location, qualify as an ASEAN company and accordingly access these FTA benefits. Rules of Origin apply, and generally require 40 percent ASEAN components in the mix, allowing US parts to also be included prior to duty free export either across ASEAN or to China and India. Using Vietnam as a base to further penetrate the Asian markets and reduce China manufacturing costs is now becoming a trend.

RELATED: State by State: India and Texas Trade

Vietnam in Texas

Texas is home to a large population of Asian-Americans and Asian immigrants, currently numbering over one million. The biggest gathering of Asians in Texas can be found in Austin, the state capital. Those of Vietnamese descent make up one of the largest subsections of Asians.

The Greater Austin Asian Chamber of Commerce is “the leading partner for driving local economic growth for businesses with ties to Asia and Asian Americans” and is a key resource to learn more about ASEAN businesses in Texas. The Asia Society Texas Center, located in Houston, is another key resource that is aimed at building partnerships between the US and Asia.

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Texas-based companies that are looking to further develop their operation in Vietnam. The firm can help companies establish a direct office in the country and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at usa@dezshira.com.

Import and Export: A Guide to Trade in Vietnam
In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.

Using Vietnam’s Free Trade & Double Tax Agreements
In this issue of Vietnam Briefing we explore how Vietnam’s Free Trade Agreements – and especially those via its membership in ASEAN – will affect foreign investment into Vietnam. We also go a step further and examine the specific, bilateral Double Tax Agreements that Vietnam has enacted, and how these can be further used to minimize profits and withholding taxes that would otherwise be levied upon foreign investors.

Developing Your Sourcing Strategy for Vietnam In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.

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