By Dean Yates
HANOI, April 14 (Reuters) - Vietnam won widespread international praise for releasing numerous political and religious dissidents last year in two mass prison amnesties.
But that goodwill has begun to fade.
In recent months Hanoi has made clear it will not tolerate political dissent, bristled at criticism of its human rights record and said human rights investigators were unwelcome.
For foreign investors, most worrying is that this hardened stance might jeopardise U.S. Congressional approval of a crucial bilateral trade agreement that is still being negotiated and stunt commercial ties with the European Union.
The seventh round of Vietnam-U.S. trade talks concluded last month with differences remaining on various issues. Hanoi needs the deal to have Normal Trade Relations (NTR), or Most Favored Nation status, with Washington and to enter the World Trade Organisation.
Hanoi also began three days of talks with the European Union on Tuesday focused on market access for exporters from both sides, but human rights were not expected to be raised.
Roger Barlow, chairman of the British Business Group (BBG) in Vietnam, said if the U.S. trade deal was derailed by Congress over concerns such as human rights it would send a negative message for future investment in the country.
``The BBG is looking forward to increased U.S. investment and normal trade relations between the U.S. and Vietnam. Any delay on WTO status would not be good for business confidence,'' Barlow told Reuters.
That confidence is now at a low as decade-old economic reforms stall, with an opaque Communist Party leadership offering little beyond promises of a better business climate.
In response, many firms have sent expatriate staff home or shut altogether, although complete details are not available.
U.S. businessmen acknowledge Vietnam's human rights problems but argue a trade deal and more global commercial contact would bring about greater respect for civil liberties and the rule of law -- a key issue for companies navigating a the country's legal minefield.
Vietnam has said it would pursue trade and investment links with the United States and Europe while Asia, Hanoi's main commercial partner this decade, flounders in economic crisis.
Political analysts have said it was this goal that prompted the authorities to release the high-profile dissidents in September and October last year.
Since then rights groups and Western nations have berated Hanoi over the March arrest of renowned geophysicist Nguyen Thanh Giang for allegedly possessing anti-communist documents.
Some European nations have expanded lists of prisoners of conscience while rights groups have accused the authorities of harassing some of the dissidents freed last year.
Other sore points have been the January expulsion from the Communist Party of General Tran Do, a leading revolutionary who publicly called for political reform and abuses against Hmong protestant Christians in northern Vietnam.
Hanoi denies it detains and imprisons people for peaceful expression of religious or political beliefs. But it has warned party members not to air views that contradict party policy.
``Recent events have had a chilling effect on political and religious freedoms and human rights,'' Sidney Jones, Asia director for Human Rights Watch, told Reuters.
Jones argued that foreign businesses should be concerned about human rights in Vietnam.
``As Indonesia's experience has shown, failure to allow people to voice grievances can lead to a build-up of anger and frustration that can explode, threatening the stability that is so vital to foreign investment,'' Jones said from New York.
``A government that exerts tight controls on freedom of expression and a thoroughly politicised legal system is one where there will be no sanctity of contracts or transparency in government operations,'' she said.
Demelza Stubbings, Southeast Asia researcher at Amnesty International in London, added:
``A legal framework that upholds and protects the basic rights of all people makes sense for companies, just as it makes sense for individuals. A poor human rights climate has a negative impact on business operations.''