Vietnam and U S Economic Relations Term Paper

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Vietnam and U.S. Economic Relations

Vietnam's economy stagnated for 10 years after the war ended in 1975. In 1986, the Sixth Party Congress approved a broad economic reform package called 'Doi Moi' or renovation that was geared to dramatically alter and improve Vietnam's business climate, both at home and abroad.

Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual GDP growth from 1990 to 1997." (Bureau of Public Affairs)

Vietnam's inflation rate stood at an annual rate of more than 300% in 1987 and fell below 4% in 1997. Investments and domestic savings grew and agricultural production doubled which led to the country being the second largest exporter of rice in the world.

Throughout the 1990s, Vietnam began to recognize that global economic interdependence was key to growth and stability. The country stepped up its efforts to attract foreign capital from the West and normalize relations with the world financial system. In the mid-1990s, the United States lifted the veto on multilateral loans to Vietnam. Vietnam in turn, became a member of the World Bank, the International Monetary Fund and the Asian Development Bank.

Virginia Foote, president of the U.S.-Vietnam Trade Council which represents American companies trying to do business in Vietnam, spoke about the state of relations between the U.S. And Vietnam in 1997. At that time, Foote said American businesses were "looking for economic normalization and the support system of the U.S. government on full trade relations." (May 15, 1997) American companies had excellent reputations in Vietnam and the Vietnamese were looking to American management skills, capital and technology in order to bolster their own economic viability. The economic system the Vietnamese government had been following from 1975 to 1985 did not work. The country was not developing technologically and it was not getting richer. Production in the state-run manufacturing sector was down.

In the new process of doi moi, the economic reform policy was structured to build a free market society piece by piece. "The development of a private sector in Vietnam will be important for American companies. There are still restrictions on who can trade and how to invest. There is the problem of bureaucracy, which is very much there. But there's also the problem that they're in transition... Every country has made this transition in quite different ways and they are still seeking out what models, what transitions, and in what order should they and how they should proceed." (Foote 1997)

On July 11, 1995, President Bill Clinton announced the formal normalization of diplomatic relations with Vietnam, after 20 years of severed ties. This announcement came after several years of steady diplomatic talks between the two countries. In July 1993, the U.S. dropped its objections to bilateral and multilateral lending to Vietnam. Seven months later, Clinton removed the trade embargo on Vietnam.

By 1997, the United States was committed to full normalization of diplomatic, political and economic relations with Vietnam. Then Secretary of State Madeleine Albright visited Ho Chi Minh City and told business and political leaders that she was "encouraged by commitments from Vietnamese officials concerning the progress of the refugee resettlement program." (June 28, 1997)

The refugee resettlement program stemmed from the mass exodus of Vietnamese peoples due to the stagnant economy and the growing tensions between Cambodia, China and Vietnam. To offset the poor economic conditions in Vietnam, the Sixth Party Congress approved a new state constitution in April 1992 that reaffirmed the central role of the Communist Party in politics and society. The constitution also outlined government reorganization and increased economic freedom throughout the country. Economic development became the primary focus of the government.

Vietnam War veterans, Senator John McCain and U.S. Ambassador to Vietnam Douglas "Pete" Peterson led the efforts to reestablish normal relations between Washington and Hanoi. After the two countries signed their first trade agreement in 1995, American businesses flooded into Vietnam, opening offices in anticipation that the country would become the next "Asian tiger. Investors found a highly educated populace with a 91.9% literacy rate and a strong work ethic." (Dillon 2000)

For Vietnam, the agreement was a welcomed sign that would build on the economic reforms it had made during the 1980s. The consensus in the United States was that the establishment of normal trade relations with the world's twelfth largest country would offer American businesses greater access to 76 million consumers in Vietnam, while helping Vietnam eliminate a wall of trade protectionism.

But the economic revitalization in Vietnam did not occur and "new licensed foreign investment in Vietnam declined from a high of $8 billion in 1996 to $800 million in 1999." (Dillon 2000) Hanoi had shown its reluctance to opening the economy, which was dominated by state-owned businesses. Some Vietnamese leaders claimed Clinton aspired to win over the Communist-led government.

For three years, representatives from Vietnam and the United States negotiated for a comprehensive bilateral trade agreement. Despite the progress made in the negotiations, Hanoi leaders hesitated when it came time to sign the agreement. However, pressure to avoid a complete economic collapse and with China's negotiations with the United States on acceptance to the World Trade Organization, changed the minds of Hanoi's leaders. They signed the agreement, although it contained major concessions for Vietnam.

Hanoi's leaders agreed to lower tariffs on U.S. industrial, agricultural and service industry products. The agreement also provided free imports and exports between the two countries. "The World Bank has estimated that Vietnam could see exports grow by $800 million a year after the passage of a trade agreement with the United States." (Dillon 2000)

The Vietnam-U.S. Trade agreement was approved by Vietnam's National Assembly on Nov. 26, 2001. The growth rate of the annual bilateral trade had continued to maintain at 15 to 20%. About 90 export items of Vietnam began entering U.S. markets and "the United States now tops the list among Vietnamese sea product importers. Coffee, tea and spice are the second biggest export categories of Vietnam to the United States." (People's Daily 2001)

The agreement, which was approved by Congress and ratified by President George W. Bush on Oct. 17, 2001, includes four economic domains - commodity trade, service trade, intellectual property and investment relations.

Under the bilateral trade agreement, the two sides will open their markets and reduce the tariffs. This means that 'Most favored Nation Status' will exist between the United States and Vietnam." (People's Daily 2001) As a result, U.S. tariffs on products from Vietnam average 40% more than 10 times the level for most other nations.

Vietnamese goods sent to the States will only be taxed at about three percent.

When the United States lifted its embargo on Vietnam in 1994, the Asian country earned only $50.4 million U.S. dollars from markets in the States. Last year, Vietnam exporters earned between $900 million and $1 billion from U.S. markets. In 2000, Vietnam exporters earned $827 million in U.S. markets.

The trade agreement, however, posed severe challenges to Vietnamese businesses by opening up their markets to U.S. sellers and investors. Fierce competition from the U.S. And other overseas companies will have to be handled. Most Vietnamese businesses have several common weaknesses, including inexperience in marketing and lack of technical capabilities.

In the implementation of the agreement, Vietnam will also have to open up financial, insurance, banking and telecommunications sectors, in which the United States has the advantage.

A year before the trade agreement was formally ratified, private U.S. industries had committed more than $120 million to Vietnam, becoming the seventh largest foreign investor in the country.

Vietnam's principle exports are textiles, crude oil, footwear, rice, sea products, coffee, rubber and handicrafts. The country's principle imports are machinery, oil and gas, garment materials, iron and steel, and transport-related equipment.

The signing of the Bilateral Trade Agreement between Vietnam…

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