The Vietnam-U.S. Bilateral Trade Agreement
CRS Report for Congress
The Vietnam-U.S. Bilateral Trade Agreement
Updated September 9, 2002
Mark E. Manyin
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
The Vietnam-U.S. Bilateral Trade Agreement
On July 13, 2000, U.S. and Vietnamese negotiators signed a sweeping bilateral
trade agreement (BTA). Following affirmative votes in Congress and the Vietnamese
National Assembly, the BTA entered in into force on December 10, 2001, when the
two countries formally exchanged letters implementing the agreement. Under the
deal, the U.S. will extend temporary most-favored nation (MFN, also known as
normal trade relations [NTR] status) status to Vietnam, a step that will significantly
reduce U.S. tariffs on most imports from Vietnam. The World Bank has estimated
that Vietnam’s exports to the U.S. will rise to $1.3 billion – 60% higher than 2000
levels – in the first year of MFN status, as U.S. tariff rates on Vietnamese exports
will fall from their non-MFN average of 40% to less than 3%. In particular,
Vietnamese garment exports are expected to record a tenfold increase in the first year
after receiving MFN treatment.
In return, Hanoi agreed to undertake a wide range of market-liberalization
measures, including extending MFN treatment to U.S. exports, reducing tariffs on
goods, easing barriers to U.S. services (such as banking and telecommunications),
committing to protect certain intellectual property rights, and providing additional
inducements and protections for inward foreign direct investment. Vietnam is the
world’s 13th most populous country, with 78 million inhabitants, roughly equal to the
population of Germany. The U.S. and Vietnam reached an agreement in principle in
July 1999, but for nearly a year Vietnam delayed finalizing the deal because of
intense divisions among the Vietnamese Communist Party (VCP) leadership.
Under the requirements of Title IV of the Trade Act of 1974 – Section 402 of
which is commonly referred to as the “Jackson-Vanik amendment” – signing a
bilateral trade agreement is a necessary step for the U.S. to restore MFN treatment
to certain socialist countries, including Vietnam. Congressional approval of the BTA
will allow the President to extend MFN treatment to Vietnam. Such MFN status will
be conditional because – as with all Title IV BTAs – it will require annual
Presidential extensions, which Congress could disapprove.
This report outlines the terms of the BTA, identifies U.S. and Vietnamese
motivations for entering into the deal, analyzes the reasons for Vietnam’s delay in
signing the agreement, and explains Congress’ role in the process of restoring normal
trade relations treatment to Vietnam. This report will be updated periodically.
Further information on U.S.-Vietnam relations is available in CRS Issue Brief
IB98033, Vietnam-U.S. Relations. Further information on the legislative and legal
procedures for handling the BTA is available in CRS Report RS20717, Vietnam
Trade Agreement: Approval and Implementing Procedure.
Congress’ Role in the Normalization of U.S.-Vietnam Trade Relations........2
Restoration of Temporary MFN Status to Vietnam................3
Congressional Procedures for Considering a U.S.-Vietnam BTA.....4
After the BTA: Extending Permanent MFN Treatment to Vietnam...4
Vietnam and the World Trade Organization (WTO)...............4
U.S. and Vietnamese Interests in a Bilateral Trade Agreement...............6
U.S. Interests in a Bilateral BTA..............................6
Arguments Against the BTA.................................8
Vietnam’s Interests in a BTA.................................8
Vietnam’s Clothing Exports.................................9
Overview of the Vietnam-U.S. Bilateral Trade Agreement.................13
1) Market Access.............................................13
2) Intellectual Property Rights...................................13
3) Trade in Services...........................................14
Vietnam’s Implementation of the BTA............................15
Comparison with the 1999 “Agreement in Principle”.................16
Comparison with Past BTAs....................................17
Vietnam’s Ambivalence toward Economic Integration ...................17
Internal Factors ..............................................18
Questions from Vietnamese Conservatives.....................18
Opposition from Vested Interests............................18
External Factors – Balancing China and the U.S. ....................19
Table 1. Vietnam’s Path to Commercial Normalization with the United States..5
Table 2. U.S.-Vietnam Trade, 1994-2002 ..............................7
List of Figures
Figure 1. House Votes on Vietnam’s Jackson-Vanik Waiver, 1998-2002......2
Figure 2. Imports from Vietnam, Selected Countries & Products, 1999......10
The Vietnam-U.S. Bilateral Trade
On July 13, 2000, after nearly five years of bargaining, the U.S. and Vietnam
announced they had signed a bilateral trade agreement (BTA).1 On June 8, 2001,
President Bush submitted the agreement, which requires congressional approval, to
Congress. Following President Bush’s transmission, joint resolutions (H.J.Res. 51
and S.J.Res. 16) were introduced in both chambers, and referred to the House Ways
and Means Committee and the Senate Finance Committee. On September 6, 2001,
the House approved the agreement by voice vote. The Senate passed the agreement,
by a vote of 88-12, on October 3, 2001 (Roll Call 291). On October 16, 2001,
President Bush signed the agreement into law (P.L. 107-52). Vietnam’s National
Assembly ratified the BTA on November 28, 2001, by a vote of 278-85, and
Vietnamese President Tran Duc Luong signed the agreement into law on December
7. It entered into force on December 10, 2001 when the two countries formally
exchanged notices of acceptance.
The BTA is a major step toward fully normalizing U.S.-Vietnam commercial
relations, as it restores reciprocal most-favored-nation (MFN, also known as normal
trade relations [NTR]) treatment between the two countries, and commits Vietnam
to undertake a wide range of market-oriented economic reforms.2 Extending MFN
treatment to Vietnam will significantly reduce U.S. tariffs on most imports from
1 The text of the agreement – along with a separate Annex on Services and two separate
letters on investment – may be found on the home page of the United States Trade
Representative [http://www.ustr.gov] and on the home page of the United States-Vietnam
Trade Council [http://www.usvtc.org].
2 In 1998, legislation was enacted to replace the term “most-favored-nation” treatment in
existing and future legislation with the term “normal trade relations” (NTR). The former
term is used in this report for reasons of historical continuity and because of its continued
use in international trade relations, including in U.S. bilateral trade agreements. See CRS
Report RL31558, Most-Favored-Nation (Normal-Trade-Relations) Policy of the United
States, by Vladimir N. Pregelj.
Congress’ Role in the Normalization of U.S.-
Vietnam Trade Relations3
Following the victory of communist North Vietnam over U.S.-backed South
Vietnam in 1975, the United States ended virtually all economic interchange with
unified Vietnam. The commercial restrictions included not only those that previously
had been imposed only on North Vietnam (see the following section), but also a halt
to bilateral humanitarian aid, opposition to financial aid from international financial
institutions (such as the World Bank), a ban on U.S. travel to Vietnam, and an
embargo on bilateral trade.
Washington and Hanoi gradually began to normalize relations in the early
1990s, following improvements on the issues of Vietnam’s activities in Cambodia
and American prisoners of war (POWs) and missing-in-action (MIA) personnel in
Vietnam.4 In 1994, President Clinton ordered the lifting of the trade embargo against
Vietnam. The following year, the two countries established ambassadorial-level
diplomatic relations. In 1998, President Clinton granted Vietnam its first waiver
from the requirements of the so-called Jackson-Vanik amendment (contained in the
Trade Act of 1974, Title IV, section 402), which prohibit the President from
normalizing commercial relations with selected socialist and formerly socialist
countries if they do not meet certain requirements regarding freedom of emigration.
Presidential waivers were also granted to Vietnam in 1999, 2000, 2001, and 2002.
Figure 1. House Votes on Vietnam’s Jackson-Congress may reject theannual waiver by passing a
Vanik Waiver, 1998-2002joint disapproval
resolution. Each time
waivers have been granted
to Vietnam, the House has
resolutions. (See Figure
1), most recently on July
91 (roll call #329). As
explained below, after the
BTA went into effect in
December 2001, the
granted Vietnam MFN
status and allowed the U.S.
(OPIC) and the U.S.
3 Vladimir Pregelj, CRS Specialist in International Trade and Finance, provided extensive
assistance with this section.
4 For a more detailed account of the history of U.S.-Vietnam normalization, see CRS Issue
Brief IB98033, The Vietnam-U.S. Normalization Process, by Mark Manyin.
Export-Import Bank to support U.S. businesses exporting to and/or operating in
Restoration of Temporary MFN Status to Vietnam. The U.S. denied
MFN treatment to communist-controlled areas of Vietnam in August of 1951. At
that time, under Section 5 of the Trade Agreements Extension Act of 1951, MFN5
tariff rates were suspended for all countries of the Sino-Soviet bloc. When
communist North Vietnamese forces unified the country in 1975, MFN status was
suspended for the entire country.
In 1974, the U.S. issued strict conditions for restoring MFN status to those
non-market economies (NMEs) subject to Section 5 suspension (in practice, the new
conditions applied to all countries of the former Sino-Soviet bloc). Under Title IV
of the Trade Act of 1974, MFN treatment may be restored to NME countries after
two requirements have been met:
a)The President issues a determination that the country is not in
violation of the freedom-of-emigration requirements of the6
Jackson-Vanik amendment. To date, Vietnam has not been
found to be in full compliance with Jackson-Vanik
requirements. Alternatively, subject to certain conditions, the
President may waive full compliance with these requirements,
as Presidents Clinton and Bush have done since 1998.
Jackson-Vanik waivers must be renewed annually, and Congress
may reject them by passing a joint disapproval resolution.
b)The completion of a bilateral trade agreement that contains
certain required provisions, including a reciprocal MFN clause.7
Such an agreement requires approval by the Congress (and by
the Vietnamese National Assembly). The approval of the BTA
allows the President to extend temporary MFN tariff treatment
to Vietnam. The MFN treatment is temporary because it is
contingent upon Vietnam meeting the requirements described in
5 Section 5 of the Trade Agreements Extension Act of 1951 (65 Stat. 73), which Congress
passed in response to the outbreak of the Korean War, required the President to suspend the
application of MFN tariff rates to the Soviet Union and all countries or areas under the
control of international communism. Yugoslavia, a non-Soviet bloc country, was the one
exception. For more on the history of the U.S.’s MFN policy, see CRS Issue Brief IB93107,
Normal-Trade-Relations (Most-Favored-Nation) Policy of the United States, by Vladimir
Pregelj. Currently, the U.S. denies MFN treatment to only six countries – Afghanistan,
Cuba, Laos, North Korea, Vietnam, and Yugoslavia (Serbia and Montenegro).
6 After the issuance of a determination of full compliance with the Jackson-Vanik
amendment’s freedom-of-emigration requirements, the President must issue semiannual
reports to Congress arguing that the relevant country is not in violation of the freedom-of-
emigration requirements. The President’s end-of-year report is subject to congressional
disapproval by joint resolution.
7 As explained below, the U.S.-Vietnam BTA, like other BTAs before it, is much more
comprehensive than required by Title IV.
the previous paragraphs – i.e. either obtaining a Presidential
determination or a Presidential waiver, both of which are subject
to annual congressional review and disapproval.8
Congressional Procedures for Considering a U.S.-Vietnam BTA.9
To go into effect, Title IV bilateral trade agreements must be approved by a joint
resolution of Congress. Once the President transmits the agreement to Congress, a
joint resolution must be introduced in both Houses. The resolutions are subject to
special expedited procedures, under which amendments are not permitted in either
Additionally, there are deadlines of 45 session-days for committee consideration
(by the House Ways and Means and the Senate Finance Committees), and 15
session-days for floor debate in both chambers. Because the approval resolutions are
revenue measures, the Senate must vote on a House-passed resolution, and Congress
would have a maximum of 90 session-days to act on the resolution: 45 days for
consideration by the House Ways and Means Committee; followed by 15 days for
floor debate in the House; followed by 15 days for consideration of the House-passed
resolution in the Senate Finance Committee; followed by 15 days for floor debate in
As with most trade agreements with non-market economies, the U.S.-Vietnam
BTA will remain in effect for a 3-year period and will be extended automatically
unless renounced by either party. Additionally, each extension will require a
presidential determination that Vietnam is satisfactorily extending reciprocal MFN
treatment to U.S. exports.
After the BTA: Extending Permanent MFN Treatment to Vietnam.
Following the BTA, the next step toward normalizing U.S.-Vietnam commercial ties
is restoring permanent MFN status (also known as permanent NTR or PNTR status)
to Vietnam. This process that will require Congress to terminate the application of
the relevant Title IV provisions to Vietnam, as has been done for several countries,
including China, Albania, and Georgia.
Vietnam and the World Trade Organization (WTO). Vietnam applied to
join the WTO in 1995. Many observers believe that Vietnam is a number of years
away from meeting the requirements for WTO membership. In March 2001,
Vietnam’s Trade Minister expressed his government’s goal of acceding to the WTO
by 2004. Countries seeking to enter the WTO must negotiate bilateral agreements
with current WTO members. Provisions of such agreements are then consolidated
into the acceding country’s protocol of accession and, because of the WTO’s
8 Note that Vietnam’s MFN treatment would be temporary regardless of whether it received
a Jackson-Vanik waiver or a Presidential report that Vietnam is in full compliance with the
Jackson-Vanik amendment. In the case of the latter, the President’s annual year-end report
would be subject to congressional review, and therefore could be rejected by a joint
9 For more on this topic, see CRS Report RS20717, Vietnam Trade Agreement: Approval
and Implementing Procedure, by Vladimir Pregelj.
mandatory MFN requirement, apply to all WTO members. In other words, any
concessions obtained by one country in a bilateral accession agreement would be
enjoyed by all WTO members. Typically, the bilateral accession negotiations focus
on tariff concessions and other market access issues that will govern bilateral trade
relations after the applicant becomes a member. Thus, at some point in the future,
Vietnam and the U.S. are likely to engage in another set of negotiations about the
changes Vietnam must make to its trade regime before the U.S. will support
Vietnam’s application for WTO membership. Upon completion of this agreement,
it is likely that the U.S. president will ask Congress to extend permanent MFN
treatment to Vietnam, much as President Clinton did after completing WTO
accession negotiations with China in November 1999.10
Table 1. Vietnam’s Path to Commercial Normalization with the
Step 1.Removing the U.S. tradeIn February 1994, President Clinton
embargo.ordered the embargo on Vietnam
Step 2. Granting an annual waiverPresident Clinton issued waivers for
of Jackson-VanikVietnam in 1998, 1999, and 2000, as
restrictions on OPIC anddid President Bush in 2001. Each
Ex-Im Bank operations intime, disapproval resolutions were
the country.11 defeated in the House.
Step 3. Signing a bilateral tradeAn agreement was signed in July
agreement, subject to2000. In 2001, following approval by
Congressional approval, thatCongress and Vietnam’s National
includes an extension ofAssembly, the agreement entered into
temporary MFN treatment. force.
10 If Vietnam acceded to the WTO before the U.S. extended to it permanent MFN status,
its WTO membership could place the U.S. in violation of the WTO requirement that
unconditional MFN treatment be applied to all WTO members. The U.S. could avoid this
by invoking the WTO’s non-application article (Article XIII) prior to Vietnam’s accession
to the WTO. Thus, if Vietnam were to join the WTO, Hanoi’s accession would not in and
of itself alter the status of U.S.-Vietnam trade relations, which would continue to be
governed by Title IV of the Trade Act of 1974, as well as the U.S.-Vietnam BTA. However,
the U.S. would not have any claim on Vietnam’s concessions to other WTO members, nor
could it use the WTO’s dispute resolution mechanism to deal with U.S.-Vietnam trade
11 Alternatively, as described earlier, this step could be taken through a Presidential
determination that Vietnam is in full compliance with the Jackson-Vanik amendment’s
freedom-of-emigration requirements. Along with Belarus, Vietnam has not been determined
to be in full compliance with the Jackson-Vanik requirements.
Step 4. Restoring permanent MFNPresumably, this step will be taken if
status by passing a lawand when Vietnam joins the World
“graduating” Vietnam fromTrade Organization (WTO).
its status as a non-market
U.S. and Vietnamese Interests in a Bilateral Trade
U.S. Interests in a Bilateral BTA. U.S.-Vietnam trade and investment
flows are extremely low. Although Vietnam is the world’s 13th most populous
country, with nearly 80 million people, for the past several years annual U.S. exports
have hovered in the $200-$400 million range (see Table 2 below), a figure roughly
equivalent to three days’ worth of exports to Japan, and roughly one-fifth the amount
the U.S. exported to South Vietnam in 1970.12 Major U.S. exports to Vietnam
include aircraft, fertilizer, telecommunications equipment, and general machinery.
Cumulative foreign direct investment (FDI) by U.S. companies in Vietnam is also
low, valued at about $1 billion, making the United States the ninth-largest source of
investment in Vietnam.
To boost U.S. exports and investment, U.S. negotiators demanded that Vietnam
provide more comprehensive and detailed concessions in the areas of services,
investment, and market access than had been obtained in previous bilateral trade
pacts with other Jackson-Vanik countries. As discussed in the following section, it
appears the U.S. successfully obtained most of these negotiating objectives.
Following the signing of the agreement, Clinton Administration officials and
business representatives were careful not to argue that the BTA will significantly
boost U.S. exports and investment to Vietnam in the short term. Rather, they
stressed that U.S. exporters and investors will benefit most in the medium to
long-term, as Vietnam continues market-oriented reforms, becomes more developed
and integrated into the global economy, and as Vietnam phases in more and more of
the BTA’s requirements. Moreover, exports to and investment in Vietnam are
expected to increase as Hanoi and other members of the Association of Southeast
Asian Nations (ASEAN) – a 10-country, 500-million person market – follow through
on commitments to reduce trade barriers by 2006. Ultimately, U.S. trade and
investment opportunities in the future will depend on a) Hanoi’s implementation of
the BTA; b) Vietnam’s progress on moving toward a more market-oriented economy;
and c) Vietnam’s rate of economic growth.
12 In 1970, the United States exported $342 million to South Vietnam. Adjusted for
inflation, this amount equals approximately $1.5 billion today.
Table 2. U.S.-Vietnam Trade, 1994-2002
(millions of dollars)
U.S. ImportsU.S. ExportsTotalTrade Balance
from Vietnamto VietnamTrade
1994 50.5172.2222.7 121.7
1996 319.0616.1935.1 297.1
Jan-April 2002411.8144.0 555.8-267.8
Major Imports frozen shrimp, petroleum products, clothing, coffee, footwear
Major Exports industrial & electronic machinery, fertilizer, raw cotton
Source: U.S. International Trade Commission. Data are for merchandise trade on a customs basis.
In the short- to medium-term, the BTA will require Vietnam to improve the
climate for foreign investors. U.S. businesses in Vietnam will receive legal
protections that are unavailable today. More sectors will be open to U.S.
multinationals. Additionally, the BTA will help make the Vietnamese business
environment more predictable and transparent. Currently, a frequent complaint from
foreign executives in Vietnam is the lengthy delay in obtaining investment licenses
from the government. To make matters more difficult, foreign investors often are not
aware of all the regulatory requirements for obtaining licenses, leading to complaints
of arbitrary treatment by local and central government authorities.
Many of the agreement’s proponents also contended that the bilateral trade pact
will nudge Vietnam toward a more democratic society by committing the government
to enact market-oriented reforms, weakening the government’s tight political
controls, solidifying the rule of law, integrating Vietnamese enterprises more fully
into the global economy, and economically empowering individuals. BTA
proponents also pointed out that the agreement will help to bring Vietnam closer to
compliance with WTO rules, facilitating Hanoi’s eventual WTO accession. Once
Vietnam joins the WTO, its trade policies will be subject to even greater international
scrutiny and disciplines. Strategically, BTA backers argued that the U.S.-Vietnam
BTA, together with BTAs recently completed with Cambodia and Laos, will promote
regional stability by smoothing the integration of Indochina into the regional and13
13 Testimony of Ambassador Charlene Barshevsky before the Senate Foreign Relations
Subcommittees on International Economic Policy and Asia-Pacific Affairs, August 4, 1999.
Note that Congress has approved the U.S.-Cambodia BTA, which is now in force, but has
Arguments Against the BTA. The agreement’s critics argued that
Vietnam’s government is likely to fall short on implementing the agreement and/or
is likely to erect new, hidden barriers to imports and foreign investment, while
low-cost Vietnamese exports – particularly textiles – to the U.S. will increase. Some
U.S. trade unions criticized the pact’s lack of provisions on minimum labor standards
and environmental protection. Vowing to fight the agreement in Congress, AFL-CIO
President John Sweeney in July 2000 argued that “it [the BTA] is missing what
we’ve been championing – core labor standards, human rights and environmental
protection.” Textile manufacturers and other groups said they would lobby Congress
and the Administration for changes to safeguard their industries from low-priced14
Vietnamese imports. Many observers, including labor groups, also opposed the
pact on human rights grounds, arguing that human rights considerations should take
priority over trade ties and/or that Hanoi’s ruling elite would capture most of the
gains from increased globalization. Indeed, on the same day the House approved the
BTA, it also passed the Vietnam Human Rights Act, (H.R. 2833, by a vote of 410 -
1), which would ban increases (over FY2001 levels) in non-humanitarian aid to the
Vietnamese government if the President does not certify that Vietnam is making
“substantial progress” in human rights. The act allows the President to waive the cap
on aid increases. In its most recent annual review of Vietnam’s human rights
situation, the U.S. State Department reported that Hanoi continues “to repress basic
political and some religious freedoms and to commit numerous abuses,” notably “not
tolerating most types of public dissent.”15
Vietnam’s Interests in a BTA. After recording impressive growth for much
of the 1990s following Hanoi’s launch of the doi moi (economic renovation) reforms,
Vietnam’s economy has slowed since the 1997-99 Asian financial crisis, which
originated in nearby Thailand. Annual economic growth declined from a peak of
9.5% in 1995 to 4.8% in 1999 and 6% in 2000. Foreign direct investment – a major
stimulus for the country’s growth – dwindled from over $8 billion in 1996 to $600
million in 1999, the lowest level since 1992.16
It is likely that the deterioration in Vietnam’s economic fortunes played a major
role in jump-starting the BTA talks with the U.S. in the spring of 1999, as a
significant portion of Vietnam’s leadership came to see increased U.S. investment
and MFN access to the U.S. market as major ways for Vietnam to reverse its
declining growth rates. As of December 2000, the United States was only the ninth
largest source of foreign investment in Vietnam and absorbed less than 5% of
yet to approve the agreement with Laos.
14 “U.S. Labor Vows Fight Against Vietnam Trade Pact,” ABCnews.com, accessed July 17,
15 U.S. Department of State 2000 Report on Human Rights Practices in Vietnam, released
February 26, 2000, available at [http://www.state.gov/g/drl/rls/hrrpt/2000/].
16 For more on Vietnam’s economic situation, see CRS Report 98-551, Vietnam: Economic
Reforms and Commercial Relations with the United States, by Raymond J. Ahearn, and CRS
Issue Brief IB98033, Vietnam-U.S. Relations, by Mark Manyin.
Vietnam’s exports. The bilateral trade agreement presumably will increase these
levels considerably by conferring to Vietnamese exporters the same tariff rates that
are applied to other MFN-recipient countries. The World Bank has estimated that
Vietnam’s exports to the U.S. will rise to $1.3 billion – more than 60% over 2000
levels – in the first year of MFN status, as U.S. tariff rates on Vietnamese exports
would fall from their non-MFN average of 40% to less than 3%.17
Obtaining MFN status is likely to dramatically transform the product mix of
Vietnam’s exports to the U.S. Since the trade embargo was lifted in 1994, most of
Vietnam’s exports to the U.S. have been in items that either receive duty-free
treatment (zero tariffs) or that have identical tariffs for MFN and non-MFN countries.
In the short term, the BTA is likely to increase Vietnam’s exports of labor-intensive
manufacturing with large differences between the MFN and non-MFN tariff rates.
Judging by Vietnam’s leading exports to the European Union and Japan (see Figure
garments, leather products, footwear, household plastic products and processed
Vietnam’s Clothing Exports. In particular, Vietnam’s clothing exports are
expected to increase dramatically. Vietnam currently exports few apparel products
to the U.S. – less than $40 million in 1999 – because of the higher, non-MFN, tariff
rates it faces. In contrast, Vietnamese garment exports to Japan and the 15 countries
of the European Union in 1999 totaled more than $500 million and $640 million,
respectively (see Figure 2). Based on the experience of Cambodia, which was
granted MFN status by the United States in 1996, the World Bank estimates
Vietnamese apparel exports will increase nearly tenfold – to $384 million – in the
first year after receiving MFN status.19
The BTA agreement contains no provisions on Vietnamese textile exports to the
U.S., but the safeguard provision would allow the U.S. to impose quotas on textile
imports in the event of a surge of imports. In private, U.S. and Vietnamese officials
have said they expect to begin negotiating a bilateral textile agreement, which
presumably would set quotas for Vietnamese textile exports, soon after a
Congressional vote on the BTA. Some Members of Congress have called for the
Bush Administration to publicly commit to negotiating a textile agreement, and have
17 Fukase, Emiko, and Will Martin, The Effects of the United States Granting Most-Favored-
Nation (MFN) Status to Vietnam, (Washington, DC: World Bank Development and
Research Group, 1999). In a 1998 report, the World Bank estimated that half of the
projected increase in exports to the U.S. will consist of clothing items. The rest is likely to
consist of manufactures and processed agricultural goods. See World Bank Poverty
Reduction and Economic Management Sector Unit, East Asia and Pacific Region, Vietnam:
Rising to the Challenge. An Economic Report, Report No. 18632-VN, November 25, 1998.
18 EUROSTAT Internal and External Trade of the EU Database; 2000 Japan Statistical
Yearbook; AsiaPulse, [http://sg.dailynews.yahoo.com/headlines/asia/], accessed on August
19 Fukase and Martin, The Effects of the United States Granting Most-Favored-Nation
(MFN) Status to Vietnam, p.12.
pressed for a commitment that such an agreement would include provisions that
would link the size of Vietnam’s quotas to progress in its labor rights.20
Passing a trade agreement would also bring Vietnam one step closer to receiving
U.S. trade benefits under the generalized system of preferences (GSP), which allows
many imports from less-developed countries to enter the U.S. market duty-free.21
Furthermore, Vietnamese officials see the bilateral trade agreement as an important
stepping stone to joining the WTO, providing them with non-discriminatory access
to all WTO members. Not only do they regard the BTA as necessary to obtaining
U.S. support for Vietnam’s application for WTO membership, but they also see the
processes of negotiating and implementing the agreement as useful for raising
Vietnam’s legal, regulatory, and economic systems to the WTO’s standards.
Figure 2. Imports from Vietnam, Selected Countries &
20 Inside U.S. Trade, May 25, 2001.
21 Under Section 502 of the Trade Act of 1974, to be eligible for GSP treatment, Communist
countries, in addition to meeting other conditions required of recipient developing countries,
must receive MFN treatment, and belong to the WTO and the IMF. Paragraph I:3:8 of the
Vietnam-U.S. BTA states that “the United States shall consider Vietnam’s eligibility for the
Generalized System of Preferences.”
(Source: U.S. International Trade Commission, EUROSTAT, and Japan Tariff Association)
Overview of the Vietnam-U.S. Bilateral Trade
The trade agreement consists of four parts: market access, trade in services,
intellectual property rights, and investment.
1) Market Access
Vietnam has agreed to take the following steps to open its markets:
!guarantee most-favored-nation (MFN) treatment to U.S. goods;
!treat imports the same as domestically produced products (also
known as “national treatment”);
!eliminate quotas on all imports over a period of 3 to 7 years;
!make its government procurement process more transparent;
!allow for the first time all Vietnamese enterprises to trade all
!allow for the first time U.S. companies and U.S.-invested companies
to import and export most products (to be phased in 3-6 years).
(Presently, foreign companies have to rely on licensed Vietnamese
importers, most of which are state-owned enterprises.)
!ensure that state enterprises comply with WTO rules;
!adhere to WTO rules in applying customs, import licensing,
technical standards, and sanitary and phytosanitary measures
Tariff Concessions. The U.S.-Vietnam BTA is unique in that, in contrast
to previously negotiated Title IV bilateral trade agreements between the U.S. and
Jackson-Vanik countries, it includes specific commitments by Vietnam to reduce
tariffs on approximately 250 products, about four-fifths of which are agricultural
goods. Typically, the cuts range from 33% to 50% and are to be phased in over a
three-year period. Vietnam’s tariffs are not considered to be extremely high for a
developing country (the U.S. Foreign Commercial Service estimates that Vietnam’s
average tariff line is 15%-20%).
Also in the area of market access, the agreement includes a safeguard provision
that will allow either side to raise tariffs temporarily if it encounters a surge of
2) Intellectual Property Rights
Vietnam has pledged to phase in the World Trade Organization Agreement on
Trade-Related Intellectual Property Rights (TRIPs) over 18 months. The bilateral
TRIPs agreement goes above and beyond the WTO’s TRIPs agreement by including
Vietnamese commitments to protect satellite signals within 30 months.
22 In addition to the text of the agreement itself, this section borrows from “Vietnam Trade
Agreement: Summary of Key Provisions,” Reuters, July 13, 2000.
3) Trade in Services
In the area of services, Vietnam has committed to uphold WTO rules such as
MFN, national treatment, and disciplines on domestic regulation. Additionally,
Vietnam has agreed to allow U.S. companies and individuals to invest in markets in
a wide range of service sectors, including accounting, advertising, banking,
computer, distribution, education, insurance, legal and telecommunications. Most
sector-specific commitments are phased in over three to five years. Vietnam’s
commitments in three of the largest U.S. service sectors – banking, insurance, and
telecommunications – are highlighted below.
Banking Services. Vietnam agreed to the following liberalization measures:
For the first nine years after the agreement goes into effect, U.S. banks may form
joint ventures with Vietnamese partners, with U.S. equity between 30% and 49%.
After nine years, 100% subsidiaries are permitted.
Insurance. Under the BTA, for “mandatory” insurance sectors (such as
automobile and construction-related insurance), after three years Vietnam will allow
U.S. companies to form joint ventures, with no limit on the U.S. equity share. After
six years, 100% subsidiaries are permitted. For life insurance and other
“non-mandatory” insurance sectors, after three years joint ventures are permitted,
with a limit of 50% U.S. equity. After five years, 100% subsidiaries are allowed.
Telecommunications. Under the BTA, for higher-end telecommunications
services (such as Internet, e-mail, and voice mail services), Vietnam will permit joint
ventures after two years, with a 50% cap on U.S. equity participation. Internet
services have a three-year phase in period. For basic telecommunications services
(such as facsimile, cellular mobile, and satellite services), joint ventures are permitted
after four years, with U.S. companies limited to a 49% stake. For local, long
distance, and international voice telephone services, joint ventures are permitted after
six years, with a 49% cap on U.S. ownership. Vietnam agreed that it will consider
increasing the U.S. equity limits when the agreement is reviewed in three years.
Regarding investment, the U.S.-Vietnam trade agreement includes guarantees
of MFN treatment, national treatment, transparency, and protection against
expropriation. Additionally, Vietnam pledged to implement the following changes
in its investment regime:
!Investment screening: Currently, foreign businesses must obtain
government approval to invest in Vietnam. Under the BTA,
investment screening will be phased out for most sectors within two,
six, or nine years, depending on the sector involved.
!Profit repatriation: Presently, Vietnamese enterprises have greater
freedom than foreign multinationals to convert their Vietnam-earned
profits into hard currency. The State Bank of Vietnam must approve
the conversion of currency on behalf of foreign businesses, and the
Bank does not give permission to convert currency to
foreign-invested companies.23 Under the BTA, foreign
multinationals will receive the same rights for profit repatriation as
Vietnamese firms; however, Vietnam’s currency is still not fully
!Capital contribution floors: Currently, the U.S. stake in a joint
venture must be at least 30%. This requirement will be eliminated in
!Personnel requirements for joint ventures: Presently, Vietnam
requires that certain board members of joint ventures be Vietnamese
and requires that certain types of decisions be made by consensus
(thereby granting veto power to the Vietnamese board members).
Under the BTA, within three years Vietnam will allow U.S.
multinationals to select top executives without regard to nationality.
!Trade-related investment measures (TRIMs): Vietnam has agreed to
eliminate within five years all TRIMs that are inconsistent with the
WTO, such as local content requirements.
Vietnam has agreed to adopt a fully transparent commercial regime by allowing
comment on draft laws and regulations by ensuring that advance public notice is
given for all such laws and regulations; by publishing these documents; and by
allowing U.S. citizens and corporations the right to appeal rulings.
Vietnam’s Implementation of the BTA
It is an open question whether the Vietnamese government has the will or the
wherewithal to implement the pervasive reforms required by the U.S.-Vietnam
bilateral trade agreement. Implementing the agreement will require cooperation at
the local government level, where central control often is weak and corruption is
rampant. An unprecedented level of cooperation among governmental ministries will
also be required. Powerful vested interests – particularly the state-owned enterprises
and the Vietnamese People’s Army – undoubtedly will put pressure on local and
central government officials to erect new barriers to foreign competition.
Most of Vietnam’s concessions in the BTA are due to be phased in within three
to five years. However, a number of reforms took effect upon the BTA’s entry into
force in December 2001. These include according national treatment (i.e. not
discriminating between foreign and domestic enterprises) business activities,
allowing all enterprises to import and export, eliminating most non-tariff barriers,
streamlining the process for foreign investors to obtain licenses and approval, and
publicizing laws, regulations and administrative procedures pertaining to any matter
23 United States Foreign Commercial Service, “Country Commercial Guide: Vietnam,” July
covered by the Trade Agreement. Thus far, according to one group monitoring the
situation, Hanoi appears to have taken steps to implement nearly all of these initial
commitments.24 In May 2002, senior officials from Washington and Hanoi launched
a Joint Committee on Development of Economic and Trade Relations, a consultative
body called for in the BTA.
Comparison with the 1999 “Agreement in Principle”
In July 1999 the U.S. and Vietnam announced an “agreement in principle” on
a BTA, but for nearly a year Vietnam delayed finalizing the deal because of intense
divisions among the Vietnamese Communist Party (VCP) leadership (see the
following section for an analysis of the reasons for Vietnam’s hesitation). The
Clinton Administration did not release the full terms of the July 1999 agreement in
principle. According to one negotiator, the only significant differences between the
final BTA and the 1999 agreement lie in the area of trade in services (Chapter III and
Annex G), specifically in the area of telecommunications.25
Telecommunications. In general, the 1999 agreement in principle would
have allowed U.S. companies the right to obtain a majority (51%) stake in certain
Vietnamese telecommunications sectors after a certain number of years (often
referred to as the “phase-in” period). Following the November 1999 U.S.-China
agreement on China’s WTO accession – which granted U.S. companies the right to
a 49% maximum stake in Chinese telecommunications enterprises – the Vietnamese
negotiators demanded that they receive similar equity caps. The U.S. agreed to this
concession, but in exchange received significantly shorter phase-in periods. Vietnam
also agreed to consider increasing the U.S. equity limits when the agreement is
reviewed in three years.
Two telecommunications sectors, wireless and basic voice services, illustrate
the differences between the 1999 and 2000 documents. In wireless
telecommunications, under the 1999 agreement Vietnam would have allowed U.S.
companies the right to set up joint ventures after three years, with a 51% maximum
stake for U.S. companies. Under the 2000 BTA, Vietnam is to grant U.S. companies
the right to set up wireless joint ventures after two years (three years for internet
services), with a 50% cap on U.S. equity participation.
In the area of basic voice telecommunication services (local, long distance and
international phone service), press reports indicate that the 1999 agreement would
have phased-in a right to invest after 11 years, with a 51% maximum stake for U.S.
companies. Under the 2000 BTA, Vietnam is to allow U.S. companies to set up joint
ventures after six years, with a 49% cap on U.S. ownership.
Insurance. According to press reports, under the 1999 agreement Vietnam
would have permitted U.S. companies to invest in its insurance sector in two to six
years. The phase-in period varied by insurance sector. Details are unavailable on
24 See the web site of the U.S.-Vietnam Trade Council, [http://www.usvtc.org], “Roadmaps
for BTA Implementation,” and “Catalog of Legal Updates.”
25 July 2000 interview with U.S. government official.
foreign equity caps.26 Under the July 2000 BTA, Vietnam is to grant U.S. companies
the right to set up 50-50 joint ventures in its insurance sector after three years, and
wholly owned (100% stake) ventures after five years.
Market Access. The final BTA includes commitments by Vietnam to reduce
tariffs on approximately 250 products, about four-fifths of which are agricultural
goods. 1999 press reports implied that the agreement in principle contained 330
tariff items scheduled for tariff reduction. A U.S. official involved in negotiating the
agreement, however, has argued that this number is incorrect, stating that the tariff
changes in Annex E of the final BTA are essentially the same as those agreed upon
Comparison with Past BTAs
In negotiating bilateral trade deals with Jackson-Vanik countries, U.S.
negotiators generally have tried to break new ground with each successive agreement.
As one indication of that policy, the 1979 agreement China was less than 10 pages,
while the far more comprehensive U.S.-Vietnam BTA is more than ten times that
length. The Vietnam-U.S. BTA goes beyond past agreements in its more detailed
commitments in the areas of services and investment. Furthermore, Vietnam’s tariff
concessions represent a new development. Previous Jackson-Vanik BTAs contained
few or no market access commitments because in those negotiations the U.S.
proposed to carry out tariff discussions at a future date, not as part of the final BTA27
Vietnam’s Ambivalence toward Economic
Though the U.S. and Vietnam reached an agreement in principle on the BTA in
July 1999, for nearly a year Vietnam delayed signing the deal. What were the
reasons for Vietnam’s hesitancy?
26 “USTR Lays Out Key Issues to be Resolved in U.S.-Vietnam Trade Deal,” Inside U.S.
Trade, July 30, 1999.
27 November 1999 interview by the author with trade policy expert Craig VanGrasstek,
President, VanGrasstek Communications.
Consensus-Based Decision-Making. Vietnam’s official reason for the
delay was that it needed time to vet the agreement among decision-makers in
Vietnam. Vietnam’s consensus-style of decision-making and the weakness of the
country’s current leadership probably extended this vetting process: The BTA is the
most extensive agreement Vietnam has ever negotiated, and the assent of virtually
all officials involved in implementing the deal was required before Hanoi would take
such a radical step. Furthermore, the weakness of the country’s current top leaders
– VCP General Secretary Le Kha Phieu, Prime Minister Phan Van Khai, and
President Tran Duc Luong – made it difficult for them to forge a consensus on such28
a controversial issue.
Questions from Vietnamese Conservatives. Ever since the Vietnamese
Communist Party’s (VCP) 8th Party Congress in 1996, disagreements between
reformers and conservatives in Vietnam’s 19-member Politburo – the country’s
supreme ruling body – have paralyzed economic decision-making. As the bilateral
trade agreement with the U.S. requires Vietnam to jump-start its reforms and deepen
its integration into the global economy, it is not surprising that the Politburo also has
been divided over whether to finalize the deal.
The conservatives fear that economic reform will undermine the “socialist
foundations” of the country’s economic and political systems, and thereby erode the
VCP’s legitimacy and monopoly on power. They also fear that Vietnam’s
sovereignty will be eroded by increasing Vietnam’s economic dependence on the
West and by increasing Vietnam’s vulnerability to regional economic downturns such
as the 1997-99 Asian financial crisis. Among their specific concerns, conservatives
worry that shifting to a more market-oriented economy will force the Politburo to
curtail subsidies to the country’s state-owned enterprises, the backbone of the
socialist economic system. Many conservatives are understandably worried that
further rationalization will raise unemployment rates, which already exceed 10%,
according to some estimates. Social and political pressures on the Party have already
been heightened in recent years by peasant uprisings and widespread accusations of
government corruption. High level U.S. pressure on Vietnam for its human rights
record, applied during Secretary of State Madeleine Albright’s September 1999 trip
to Vietnam, is said to have further rankled conservative forces opposed to the trade
In January 2000, a group of reform-minded leaders were transferred to key
economic and political posts. These moves, combined with the BTA signing, the
unveiling of a new Enterprise Law, the passage of new amendments to the Foreign
Investment Law, and the opening of Vietnam’s first stock market on July 20, 2000,
may be signs that Hanoi’s policy logjam is breaking up in the reformers’ favor.
Opposition from Vested Interests. Parochial interests also may have
played a role in Vietnam’s deliberations. According to many sources, Vietnam’s
28 Zachary Abuza, “Leadership Transition in Vietnam since the Eighth Party Congress: The
Unfinished Congress,” Asian Survey, (December 1998).
military leaders have been among the staunchest opponents of the BTA. Many argue
that the military – known as the People’s Army of Vietnam – is worried that the trade
deal will threaten its vast commercial interests. According to one estimate, the
business enterprises of the People’s Army of Vietnam generated over $600 million
in revenue in 1998, a figure equivalent to nearly 60% of the entire military budget.29
Evidence of the military’s influence can be seen in Vietnam’s bargaining position on
telecommunications liberalization during the BTA negotiations. Hanoi demanded
an eleven-year phase-in period for FDI liberalization in cable communications, a
sector in which the People’s Army has invested heavily since 1995. In contrast,
Vietnam’s negotiators were willing to accept a four-year phase in for cellular
communications, an area in which the Ministry of Defense has few investments.30
External Factors – Balancing China and the U.S.
Yet another hypothesis is that Hanoi was concerned that a trade deal with the
United States would antagonize China. Beijing and Hanoi recently have strengthened
their ties, and conservative elements in Hanoi may be wary of upsetting Beijing by
appearing too closely aligned with the U.S. In particular, the Vietnamese leadership
may have wished to avoid jeopardizing negotiations with China over a land-border
treaty, negotiations that were not concluded until December 1999. There are also
reports that Chinese leaders warned the Vietnamese not to conclude the BTA before
Beijing had finalized its own WTO accession negotiations with the U.S., talks that
were concluded in November 1999. However, some analysts and Administration
officials reject this reasoning as a stalling tactic by the Vietnamese, who are said to
often use the Chinese as an excuse for delaying foreign policy moves about which
they are uncertain. As one observer has pointed out, Chinese opposition did not
prevent Vietnam from joining the Association of Southeast Asian Nations (ASEAN)
Most observers agree that, apart from the issue of unsubstantiated Chinese
pressure, the China factor played a positive role in spurring the Vietnamese to move
forward, due to Hanoi’s fears of increased economic competition with Beijing
following China’s accession to the WTO.
29 Huw Watkin, “Proud Military Slips into Decline as Aid Dries Up,” South China Morning
Post, July 7, 1999, and Huw Watkin, “Military Puts Boot in as Treaty with US Seen
Growing Threat to Business Empire,” South China Morning Post, September 14, 1999.
30 Zachary Abuza, “The Politics of Globalization: Explaining Vietnam’s Rejection of the
U.S. Trade Deal,” (Boston, MA: Simmons College, 2000), p.20.
31 Abuza, “The Politics of Globalization,” p.21-22.