U.S.-Vietnam Economic and Trade Relations: Issues in 2018

U.S.-Vietnam Economic and Trade Relations: Issues in 2018

Updated March 12, 2018
U.S.-Vietnam Economic and Trade Relations: Issues in 2018
Over the past decade, U.S.-Vietnam economic relations
“normal trade relations” (NTR) in 2001. Bilateral trade
have expanded rapidly, and Vietnam has become a
growth—and the U.S. trade deficit with Vietnam—
significant U.S. trade partner. In 2017, the Trump
accelerated following Vietnam’s accession to the World
Administration focused on the nearly $32 billion U.S.
Trade Organization (WTO) in December 2006, under which
merchandise trade deficit in 2016 with Vietnam, while the
the United States was obligated to grant Vietnam permanent
Vietnamese government emphasized its desire to further
NTR status.
“normalize” bilateral trade relations as part of the two
nation’s “comprehensive partnership.” In addition to the
Table 1. Vietnam’s Top 5 Exports to the United
bilateral trade balance, other issues likely to arise in 2018
States (by HTS Chapter) in 2017
include market economy status for Vietnam; U.S. arms
in bil ions of U.S. dol ars
sales to Vietnam; trade in catfish; a possible bilateral
investment treaty; and Vietnam’s potential membership in
Type of Product
Value
two regional trade agreements.
Electrical Machinery (85)
10.940
The main vehicle at which these and other trade issues may
Knitted or Crocheted Clothing (61)
6.759
be discussed is the Trade and Investment Council (TIC),
established by the 2007 bilateral Trade and Investment
Footwear (65)
5.526
Framework Agreement (TIFA). The two nations held the
Non-knitted and Non-crocheted Clothing (62)
4.706
first TIC meeting since 2011 on March 27-28, 2017, in
Hanoi. During the meeting, the United States reportedly
Furniture (94)
4.692
urged Vietnam to address certain trade issues, such as
Total Exports
46.483
agriculture and food safety, intellectual property, digital
trade, and financial services. Vietnam has asked that the
Source: U.S. International Trade Commission.
United States recognize Vietnam as a market economy and
Note: HTS = U.S. Harmonized Tariff Schedule.
lift the new catfish inspection regulations.
Following the granting of conditional NTR, clothing was
Bilateral Trade Balance
Vietnam’s largest export to the United States, accounting
According to U.S. trade statistics, total merchandise trade
for over half of its exports in 2003. Subsequently, footwear
between the United States and Vietnam has grown from
and furniture became major exports to the United States,
$1.5 billion in 2001 to $54.6 billion in 2017, transforming
each topping $1 billion in 2007. More recently, Vietnam
Vietnam into the 12th-largest source of U.S. imports and
has become a major exporter of electrical machinery,
32nd-largest destination for U.S. exports. In addition, the
machinery, and leather goods to the United States. In 2017,
U.S. merchandise trade deficit with Vietnam rose from
the top five goods constituted more than 70% of Vietnam’s
$592 million in 2001 to more than $38 billion in 2017, the
exports to the United States. In 2017, the leading U.S.
5th largest U.S. bilateral trade deficit (after China, Mexico,
exports to Vietnam were electrical machinery, cotton, fruit
Japan, and Germany). The United States had a $1.0 billion
and nuts, machinery, and oil seeds.
surplus in services trade with Vietnam in 2016.
U.S. Arms Sales
The U.S. trade deficit with Vietnam was a topic of
In 1975, U.S. military sales to all of Vietnam were banned
conversation when President Trump hosted Prime Minister
as part of the U.S. trade embargo. In April 2007, the
Nguyen Xuan Phuc in May 2017, and again when President
Department of State began to grant, on a case by case basis,
Tran Dai Quang met with President Trump in Hanoi in
licenses for bilateral trade in defense articles and services.
November 2017. In the joint statements issued following
In May 2016, President Obama announced the removal of
those meetings both nations pledged to make efforts to
remaining U.S. restrictions on sales of lethal weapons and
expand trade relations, as well as take measures to address
related services to Vietnam. Thus far, the United States has
some of their bilateral trade issues. While the Trump
transferred few, if any, lethal defense articles to Vietnam. In
Administration’s focus is currently on renegotiating trade
May 2017, the United States delivered a refurbished
agreements with Canada, Mexico, and South Korea, the
Hamilton-class cutter to Vietnam through the Excess
Administration may increase its attention to trade relations
Defense Article (EDA) program, as well as the first tranche
with Vietnam in 2018, given the merchandise trade deficit.
of six coast guard patrol boats, financed via the Foreign
Military Financing (FMF) program.
Trends in Bilateral Trade
Although the Vietnam War-era U.S. trade embargo on
Congress may exercise oversight of some exports of
Vietnam ended in 1994, bilateral trade only started to grow
military items to Vietnam pursuant to Section 36(b) of the
after the United States granted Vietnam conditional
Arms Export Control Act (AECA, P.L. 90-629). The AECA
requires the President to notify the Speaker of the House,
https://crsreports.congress.gov

U.S.-Vietnam Economic and Trade Relations: Issues in 2018
and the Senate Foreign Relations and the House Foreign
Asian Nations (ASEAN), Australia, India, Japan, and New
Affairs Committees, before the Administration can take the
Zealand—have designated Vietnam a market economy for
final steps to conclude either a government-to-government
purposes of international trade.
or commercially licensed arms sale over a certain monetary
threshold.
For more than 20 years, Vietnam has been transitioning
from a centrally planned economy to a market economy.
Catfish
Under its doi moi policy, Vietnam has allowed the
Vietnam is a major exporter of certain varieties of fish—
development and growth of private enterprise and
known as basa, swai, and tra in Vietnamese—that are
competitive market allocation of most goods and services.
commonly referred to as catfish. Since 1999, Vietnamese
However, although most prices have been deregulated, the
exports of frozen catfish fillets have secured a growing
Vietnamese government still retains some formal and
share of the U.S. market, and catfish continue to be a
informal mechanisms to direct or manage the economy.
regular source of trade friction between the United States
and Vietnam. In 2017, the United States imported over
Under the terms of its WTO accession agreement with the
$345 million in catfish from Vietnam.
United States, Vietnam is to remain a NME under U.S. law
for up to 12 years after its January 2017 accession or until
In 2002, Congress passed legislation that prohibited the
it meets U.S. criteria for a “market economy” designation.
labeling of basa, swai, and tra as “catfish” in the United
Under 19 U.S.C. 1677, NME means “any foreign country
States. In August 2003, the U.S. government imposed
that the administering authority determines does not operate
antidumping duties on “certain frozen fish fillets from
on market principles of cost or pricing structures, so that
Vietnam,” including basa, swai, and tra. In June 2009, the
sales of merchandise in such country do not reflect the fair
ITC determined to keep the duties in place “for the
value of the merchandise.” In 2018, Vietnam may increase
foreseeable future.”
its efforts to obtain market economy status in or before
2019, and is likely to closely monitor how the United States
The ongoing tensions around catfish trade were heightened
handles China on the same issue.
by the passage of the 2008 Farm Bill (P.L. 110-246), which
transferred catfish inspection (including basa, swai, and
Bilateral Investment Treaty (BIT)
tra) from the Food and Drug Administration (FDA) to the
Negotiations
U.S. Department of Agriculture (USDA). USDA inspection
In June 2008, President Bush and Prime Minister Nguyen
procedures are generally considered more stringent than
Tan Dung announced the launch of talks to establish a
those of the FDA. The transfer was confirmed in the
bilateral investment treaty (BIT). A proposed fourth round
Agriculture Act of 2014 (P.L. 113-79). The USDA
of talks that was to be held in early 2010 did not happen,
published final regulations for imported catfish inspection
presumably because the two nations were focused on
in the Federal Register on December 2, 2015. Congress
negotiating the proposed Trans-Pacific Partnership (TPP)
will have another opportunity to examine catfish inspection
trade agreement. Given that President Trump in 2017
in the 2018 Farm Bill.
withdrew the United States from the proposed TPP, BIT
negotiations may resume. However, BIT negotiations were
After the final catfish inspection regulations were
not mentioned in either joint statement issued following
published, Vietnam’s Ministry of Foreign Affairs stated the
President Trump’s 2017 meetings with Vietnamese leaders.
new regulations could constitute a non-tariff trade barrier,
harming the livelihood of Vietnamese catfish farmers. On
Possible Regional Trade Agreements
January 12, 2018, Vietnam filed a request for consultations
Vietnam is a party to two potential regional trade
with the WTO’s Dispute Settlement Body (DSP) regarding
agreements (RTAs)—the Regional Comprehensive
the imposition of anti-dumping duties and cash deposit
Economic Partnership (RCEP) and the Comprehensive and
requirements by the U.S. Department of Commerce on
Progressive Agreement for Trans-Pacific Partnership
“Certain Frozen Fish Fillets” from Vietnam. On February
(CPTPP)—that could have indirect effects on U.S.-Vietnam
22, 2018, Vietnam filed a WTO complaint that the U.S.
trade. RCEP is a proposed RTA being negotiated by 16
inspection program for catfish imports violates the WTO
Asian nations. The CPTPP, which was signed in March
SPS Agreement. The United States has 60 days to respond
2018, is a separate RTA negotiated by the 11 remaining
to Vietnam’s requests.
TPP parties. Projections of the trade effects of both RTAs
show a slight increase in Vietnamese exports to the United
Market Economy Recognition
States, and a small decrease in U.S. exports to Vietnam,
Vietnamese leaders would like the United States to change
leading to an overall increase in the bilateral trade deficit.
Vietnam’s official designation under U.S. law from
“nonmarket economy” (NME) to “market economy.” NME
For more about U.S. trade relations with Vietnam, see CRS
status is particularly significant for antidumping (AD) and
Report R41550, U.S.-Vietnam Economic and Trade
countervailing duty (CVD) cases because it often results in
Relations: Issues for the 114th Congress.
higher tariffs being imposed. For the Vietnamese
government, being granted “market economy” status is also
Michael F. Martin, Specialist in Asian Affairs
part of “normalizing” bilateral relations. A number of
trading partners—including the Association of Southeast
IF10798

https://crsreports.congress.gov

U.S.-Vietnam Economic and Trade Relations: Issues in 2018

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10798 · VERSION 3 · UPDATED