By BRIAN FALLOW economics editor

The Vietnamese Government's intention to put tariff quotas on a range of imports including dairy products is disappointing, says Malcolm McGoun, New Zealand's ambassador to Vietnam.

Dairy products accounted for 70 per cent of New Zealand's $129 million merchandise export trade with Vietnam last year.

No detail has been given on what the tariffs will be within and out of quota or what quota will be given to whom, "so we have no idea how it will affect our trade".

He said he was hopeful Hanoi would reconsider and it had backed off over a similar proposal on cotton, when local textile firms pointed out how reliant they are on imported cotton.

Representations from Vietnamese dairy processors using New Zealand milkpowder could have a similar effect.

The proposal is surprising because New Zealand and Vietnam are engaged in bilateral negotiations as part of its desire to join the World Trade Organisation by 2005.

The larger picture is of a developing market that should be taken seriously by New Zealand exporters.

"I was in Korea in the late 1970s and I remember how difficult it was to get New Zealanders interested," he said.

Now it's our fifth largest market, there are direct flights and so on."

Vietnam has 80 million people whose incomes are rising, albeit from a low base; it has 20 times New Zealand's population, but less than half its GDP.

Some 80 per cent of the population is still in rural areas but Ho Chi Minh City has 8 million people and Hanoi about 3 million.

New Zealand is also finding a market in food processing and seafood packaging technology. Services exports include education, with 888 Vietnamese students in New Zealand this year, and engineering consultancy.

But Vietnam is not for the faint-hearted, McGoun says.

The Vietnamese were tough negotiators and a local agent or partner who spoke the language and knew local practices was vital.

Although the Vietnamese had embarked on a programme of deep and broad reform it was still work in progress.

The process of recreating a legal system was under way but government by decree was still going on.

"There has been palpable improvement in terms of enforceable contracts and dispute resolution, but it's still in its infancy."

The bureaucracy is "creaky", McGoun says, and Vietnam ranks poorly in international league tables for corruption.

But in a survey of enterprises most did not see it as a problem so much as a cost of doing business. Only 8 per cent thought it a major barrier to trade.