Order Code RL30416
CRS Report for Congress
Received through the CRS Web
The Vietnam-U.S. Bilateral Trade Agreement
Updated June 20, 2001
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
Summary
On July 13, 2000, U.S. and Vietnamese negotiators signed a sweeping bilateral
trade agreement (BTA). On June 8, 2001, the Bush Administration submitted the
BTA, which requires Congressional approval, to the 107th Congress. In Congress,
the agreement is subject to special expedited procedures, under which amendments
are not permitted and under which Congress must vote on the measure within 90
session-days.
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 would
significantly reduce U.S. tariffs on most imports from Vietnam. The World Bank has
estimated that Vietnam’s exports to the U.S. would 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 would 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. Should Congress approve the
agreement, the President would then be able to extend MFN treatment to Vietnam.
Such MFN status would be conditional because – as with all Title IV agreements –
it would 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 procedures
for handling the BTA’s legislative procedures is available in CRS Report RS20717,
Vietnam Trade Agreement: Approval and Implementing Procedure.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Congress’ Role in the Normalization of U.S.-Vietnam Trade Relations . . . . . . . 1
Restoration of Temporary MFN Status to Vietnam . . . . . . . . . . . . . . 2
Congressional Procedures for Considering a U.S.-Vietnam BTA . . . . 3
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 . . . . . . . . . . . . . . 5
U.S. Interests in a Bilateral BTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Arguments Against the BTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Vietnam’s Interests in a BTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Vietnam’s Clothing Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Overview of the Vietnam-U.S. Bilateral Trade Agreement . . . . . . . . . . . . . . . . 12
1) Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Tariff Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3) Trade in Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Banking Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4) Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5) Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Vietnam’s Implementation of the BTA . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Comparison with the 1999 “Agreement in Principle” . . . . . . . . . . . . . . . . 15
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Comparison with Past BTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Vietnam’s Ambivalence toward Economic Integration . . . . . . . . . . . . . . . . . . 17
Internal Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Consensus-Based Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . 17
Questions from Vietnamese Conservatives . . . . . . . . . . . . . . . . . . . . 17
Opposition from Vested Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
External Factors - Balancing China and the U.S. . . . . . . . . . . . . . . . . . . . 18
List of Tables
Table 1. Vietnam’s Path to Commercial Normalization with the United States . . 5
Table 2. U.S.-Vietnam Trade, 1994-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
List of Figures
Figure 1. House Votes on Vietnam’s Jackson-Vanik Waiver, 1998-2000 . . . . . 2
Figure 2. Imports from Vietnam, Selected Countries & Products, 1999 . . . . . . 10

The Vietnam-U.S. Bilateral Trade
Agreement
Background
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. If approved by Congress,
the agreement would be a major step toward normalizing U.S.-Vietnam commercial
relations, as it would restore reciprocal most-favored-nation (MFN, also known as
normal trade relations [NTR]) treatment between the two countries, and commit
Vietnam to undertake a wide range of market-oriented economic reforms.2 Extending
MFN treatment to Vietnam would significantly reduce U.S. tariffs on most imports
from Vietnam.
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 trade with Vietnam.
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]. The White House has prepared a “fact sheet” on the BTA. It may
be found at: [http://www.usinfo.state.gov/regional/ea/vietnam/whtrd713.htm].
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 Issue
Brief IB93107, Most-Favored-Nation (Normal-Trade-Relations) Policy of the United States,
by Vladimir N. Pregelj.
3 Vladimir Pregelj, CRS Specialist in International Trade and Finance, provided extensive
assistance with this section.





































































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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 a waiver from the
requirements of the so-called Jackson-Vanik amendment (contained in the Trade
Act of 1974, Title IV, section 402),
Figure 1. House Votes on Vietnam’s which prohibit the President from
Jackson-Vanik Waiver, 1998-2000
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, and 2001. Congress
may reject the annual waiver by
passing a joint disapproval resolution.
In 1998, 1999, and 2000, the House
defeated disapproval resolutions of
the Presidential waiver, with support
for the waiver broadening each year.
(See Figure 1) As explained below,
until the U.S.-Vietnam BTA goes
into effect the waiver does not change
Vietnam’s current, non-MFN, trade status with the United States. Instead, it allows
the U.S. Overseas Private Investment Corporation (OPIC) and the U.S.
Export-Import Bank to support U.S. businesses exporting to and/or operating in
Vietnam.
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, MFN tariff
rates were suspended for all countries of the Sino-Soviet bloc.5 When communist
North Vietnamese forces unified the country in 1975, MFN status was suspended for
the entire country.
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.
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).

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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 virtually 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 both of the following 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 the
Jackson-Vanik amendment.6 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 these requirements, as President Clinton did for Vietnam
in 1998, 1999, and 2000. 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.
Such an agreement would require approval by the Congress (and
by the Vietnamese National Assembly). If approved, the
President could extend temporary MFN tariff treatment to
Vietnam. The MFN treatment would be temporary because it is
contingent upon Vietnam meeting the requirements described in
the previous paragraphs – i.e. either obtaining a Presidential
determination or a Presidential waiver, both of which are valid
only for one year and are subject to congressional review.7 This
is the same process through which Congress has reviewed
China’s temporary MFN status.
Congressional Procedures for Considering a U.S.-Vietnam BTA.8
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
resolution must be introduced in both Houses. The resolutions are subject to special
expedited procedures, under which amendments are not permitted in either chamber.
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 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
disapproval resolution.
8 For more on this topic, see CRS Report RS20717, Vietnam Trade Agreement: Approval
and Implementing Procedure
, by Vladimir Pregelj.

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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
the Senate. According to the House and Senate’s legislative calendars, there are
fewer than 60 session-days between June 8 and the 1st session of the 107th Congress’
scheduled adjournment on October 5, 2001. If votes on the Vietnam-U.S. BTA are
not held before adjournment, the resolutions would be carried over – i.e. the
countdown of session-days would pick up where it left off – to the 2nd session of the
107th Congress. All Title IV BTAs previously considered by Congress were passed
well before the deadlines.
As with most trade agreements with non-market economies, the U.S.-Vietnam
BTA would remain in effect for a 3-year period and would be extended automatically
unless renounced by either party. Additionally, each extension would 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.
If Congress passes the BTA, the next step toward normalizing U.S.-Vietnam
commercial ties would be restoring permanent MFN status (also known as permanent
NTR or PNTR status) to Vietnam, a process that would require Congress to
“graduate” Vietnam from the group of non-market economies that are denied
unconditional MFN treatment. This would be done by terminating the application of
the relevant Title IV provisions to Vietnam, as has been done for several countries,
including Bulgaria, the Czech Republic, Slovakia, Hungary, and Romania. In May
2000, the House voted to give permanent MFN status to China.
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 publicly expressed his government’s goal of acceding to the
WTO by 2004. As a practical matter, countries seeking to enter the WTO must
obtain the consent of all WTO member countries. Typically, these bilateral
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 1999.9
9 If Vietnam acceded to the WTO before the U.S. extended to it permanent MFN status, its
(continued...)

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Table 1. Vietnam’s Path to Commercial Normalization with the
United States
Step
Action
Step 1.
Removing the U.S. trade
In February 1994, President Clinton
embargo.
ordered the embargo on Vietnam
lifted.
Step 2.
Granting an annual waiver
President Clinton issued waivers for
of Jackson-Vanik
Vietnam in 1998, 1999, and 2000.
restrictions on OPIC and
Each time, disapproval resolutions
Ex-Im Bank operations in
were defeated in the House.
the country.10
President Bush issued a waiver for
Vietnam in 2001.
Step 3.
Signing a bilateral trade
An agreement was signed in July 2000,
agreement, subject to
and transmitted to Congress in June
Congressional approval, that
2001.
includes an extension of
conditional MFN treatment.
Step 4.
Restoring permanent MFN
Presumably, this step will be taken if
status by passing a law
and when Vietnam joins the World
“graduating” Vietnam from
Trade Organization (WTO).
its status as a non-MFN
country.
U.S. and Vietnamese Interests in a Bilateral Trade
Agreement
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-$300 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.
9 (...continued)
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
be guaranteed all the benefits of Vietnam’s accession to the WTO, including the use of the
WTO’s dispute resolution mechanism to deal with U.S.-Vietnam trade disputes.
10 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 China and Belarus, Vietnam has not been
certified to be in full compliance with the Jackson-Vanik requirements.

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exported to South Vietnam in 1970.11 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.
Table 2. U.S.-Vietnam Trade, 1994-2000
(millions of dollars)
U.S. Imports
U.S. Exports to Trade Balance
from Vietnam
Vietnam
1994
50.45
172.22
121.77
1995
198.97
252.86
53.89
1996
319.04
616.05
297.01
1997
388.19
277.79
-110.40
1998
553.41
274.22
-279.19
1999
601.90
277.30
-324.60
2000
827.40
330.50
-496.90
Major Imports from Vietnam shrimp, footwear, coffee, petrol products, cashews
Major Exports to Vietnam industrial & office machinery, footwear parts,
telecommunications equipment, fertilizer
Source: U.S. Department of Commerce. Data are for merchandise trade on a
customs basis.
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.
11 In 1970, the United States exported $342 million to South Vietnam. Adjusted for inflation,
this amount equals approximately $1.5 billion today.

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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 contend 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
point 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 argue 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 and global
community.12
Arguments Against the BTA. The agreement’s critics argue 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 have 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 has 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 have said they will lobby Congress and the
Administration for changes to safeguard their industries from low-priced Vietnamese
imports.13 Many observers, including labor groups, also oppose 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. In its annual review of Vietnam’s human rights situation, the
U.S. State Department reported that Hanoi continues “to repress basic political and
12 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 yet
to approve the agreement with Laos.
13 “U.S. Labor Vows Fight Against Vietnam Trade Pact,” ABCnews.com, accessed July 17,
2000; see also “Clouds Part Over Vietnam’s Bumpy Road to Reform,” Reuters, July 18,
2000.

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some religious freedoms and to commit numerous abuses,” notably “not tolerating
most types of public dissent.”14
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 staggered 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 less than 5% in 1999. 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 1992.15
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. To date, the United States is only the ninth largest source of foreign
investment in Vietnam and absorbs less than 5% of Vietnam’s exports. The bilateral
trade agreement presumably would 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. would
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%.16
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
2
below), exports of the following items are likely to increase substantially: garments,
leather products, footwear, household plastic products and processed foods.17
14 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/].
15 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.
16 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, Rising to the Challenge,
1998, available at [http://www.worldbank.org.vn/rep1/rep001.htm].
17 EUROSTAT Internal and External Trade of the EU Database; 2000 Japan Statistical
Yearbook
; AsiaPulse, [http://sg.dailynews.yahoo.com/headlines/asia/], accessed on August
(continued...)

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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.18
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
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.19
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.20
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.
17 (...continued)
18, 2000.
18 Fukase and Martin, The Effects of the United States Granting Most-Favored-Nation
(MFN) Status to Vietnam,
p.12.
19 Inside U.S. Trade, May 25, 2001.
20 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.”






































































































































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Figure 2. Imports from Vietnam, Selected Countries &
Products, 1999






























































































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(Source: U.S. International Trade Commission, EUROSTAT, and Japan Tariff Association)
Overview of the Vietnam-U.S. Bilateral Trade
Agreement21
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
products;
! 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.)
21 In addition to the text of the agreement itself, this section borrows from “Vietnam Trade
Agreement: Summary of Key Provisions,” Reuters, July 13, 2000.

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! 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 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%).
The Clinton Administration considers Vietnam’s move to guarantee MFN-level
tariffs as particularly significant, as Vietnam since January 1999 has imposed a 50%
tariff surcharge on imports from countries with which it has not exchanged reciprocal
MFN treatment. While Hanoi and Washington were negotiating the BTA, Vietnam
did not levy the surcharge on U.S. imports.
Also in the area of market access, the agreement includes a safeguard provision
that would allow either side to raise tariffs temporarily if it encounters a surge of
imports.
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.
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

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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.
4) Investment
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.22 Under the BTA, foreign multinationals
will receive the same rights for profit repatriation as Vietnamese
firms; however, Vietnam’s currency is still not fully convertible.
! Capital contribution floors: Currently, the U.S. stake in a joint
venture must be at least 30%. This requirement will be eliminated in
three years.
! 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 would 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.
22 United States Foreign Commercial Service, “Country Commercial Guide: Vietnam,” July
15, 1999.

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5) Transparency
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.
In a sign that the government is determined to push ahead with market
liberalization despite the obstacles, Vietnam’s trade ministry has already begun
preparing draft laws and regulations on reshaping the country’s trade regime. In
January 2001, the Ministry of Trade issued a directive allowing foreign-invested
enterprises to directly export most items.23 The Trade Ministry also has finalized
regulations to cancel most import-export licensing requirements for virtually all
Vietnamese and foreign firms.24 Additionally, all ministries have been ordered to
identify all laws and regulations that must be changed in order to implement the trade
agreement.25
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.26
23 “Trade Amendments Set to Assist Foreign Companies,” Vietnam Investment Review,
January 8, 2001.
24 “With an Eye on WTO, Vietnam to Relax Trade,” Australian Financial Review, February
14, 2001. The Ministry reportedly is awaiting final governmental approval of these regulatory
changes.
25 Memo from the Office of the Vietnamese Prime Minister, “Re: Preparatory Tasks After
the U.S. and Vietnam Agreement,” November 21, 2000.
26 July 2000 interview with U.S. government official.

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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
foreign equity caps.27 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
in 1999.
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
27 “USTR Lays Out Key Issues to be Resolved in U.S.-Vietnam Trade Deal,” Inside U.S.
Trade
, July 30, 1999.

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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 BTA
itself.28
Vietnam’s Ambivalence toward Economic
Integration
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?
Internal Factors
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 such a controversial
issue.29
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
28 November 1999 interview by the author with trade policy expert Craig VanGrasstek,
President, VanGrasstek Communications.
29 Zachary Abuza, “Leadership Transition in Vietnam since the Eighth Party Congress: The
Unfinished Congress,” Asian Survey, (December 1998).

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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
agreement.
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
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 would 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.30
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.31
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
30 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.
31 Zachary Abuza, “The Politics of Globalization: Explaining Vietnam’s Rejection of the U.S.
Trade Deal,” (Boston, MA: Simmons College, 2000), p.20.

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are uncertain. As one observer has pointed out, Chinese opposition did not prevent
Vietnam from joining the Association of Southeast Asian Nations (ASEAN) in
1995.32
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 likely accession to the WTO in 2000 or 2001.
32 Abuza, “The Politics of Globalization,” p.21-22.