authorities. In 1988, the government's monopoly of foreign trade was abolished and the decentralization of trade has subsequently progressed. In 1988, the government eased restrictions on the establishment of trading companies to bring competition into the trade sector, and as a consequence the number of trading companies increased from 80 in 1987 to 600 in 1990. At the same time, direct trade (not through trading companies) was permitted of the state-owned firms, albeit with certain conditions. $ ^{12} $ In 1990 those conditions were removed, and all firms including private firms could trade directly. $ ^{13} $

Consolidation of the restrictions on exports and imports was carried out in 1989, and the number of trade regulations or quotas was drastically reduced. In August 1993, the number of commodities under regulation was only ten.

The exchange rete reform of 1989 rationalized prices of trade goods and, accordingly, export subsidies were abolished. Prices applied to trade with the CMEA countries, which still remained irrational even after the exchange reform, were also rationalized as the CMEA collapsed in 1991.

As export promotion measures and import substitution measures, the Vietnamese government is offering preferential tax treatment to firms producing export goods or import substitution goods. $ ^{14} $

## (2) Structure and Balance of Trade

As for the composition of the trading partners of Vietnam, until the late 1980s the CMEA countries occupied a large part. They accounted for about one third of exports and two thirds of imports. Since late 1980s, as the Vietnamese economy shifted to an open economy, the share of the CMEA countries has fallen, while that of the Western countries has risen rapidly (see Chart 2-V-14). In particular, the trade relationship with Asian countries has been strengthening. They now account for 79.4 percent of total exports and 77.5 percent of imports. $ ^{15} $

Looking at the structure of the commodities, Vietnam depends on imports for capital goods, intermediate goods and raw materials. This implies the acquisition of foreign currency as a precondition for investment. Increase of FDI will also enhance the import of capital goods. Regarding the export items, agricultural products and light industrial products occupy a good part. The increase in the export of rice and crude oil is remarkable.

The amount of trade, both imports and exports, has expanded rapidly since the economic opening in the late 1980s. With slightly faster increases in exports, the trade balance of Vietnam gradually improved (see Appendix 5,6,7).

## (3) Informal Trade

As the liberalization of the economy progressed, contraband trade has been emerging. It is believed to have grown to equal official trade in recent years. $ ^{16} $

It may be true that such informal trade brought about an increase in the supply of goods -- consumer goods in particular -- and thus contributed to the stabilization of the economy, easing the shock of the tightening policy and the cessation of assistance and subsidiary imports from the CMEA countries. However, it also has brought negative effects to the economy such as the omission of tariff revenues and the discouragement of domestic production.