U.S.-Vietnam Economic and Trade Relations: Issues in 2020

U.S.-Vietnam Economic and Trade Relations: Issues in 2020

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Updated February 13, 2020
U.S.-Vietnam Economic and Trade Relations: Issues in 2020
This year marks the 25th anniversary of the United States
World Trade Organization (WTO) in December 2006,
and Vietnam reestablishing diplomatic relations. Over the
under which the United States was obligated to grant
last 25 years, U.S.-Vietnam economic and trade relations
Vietnam permanent NTR status. Bilateral trade jumped in
have expanded rapidly (see Figure 1). The United States
2019, in part due to the trade tensions between the People’s
was Vietnam’s 2nd largest trading partner in 2019; Vietnam
Republic of China and the United States.
was the United States’ 13th largest trading partner. Bilateral
trade increased by nearly 32% in 2019, and the U.S. trade
Figure 1. Growth in U.S.-Vietnam Merchandise Trade
deficit with Vietnam rose to nearly $56 billion, an increase
in bil ions of U.S. dol ars
of 42% over 2018. Economic issues likely to arise in 2020
include the rising U.S. trade deficit with Vietnam; recent
shifts in merchandise trade flows; Vietnam’s membership
in regional trade agreements; trade in catfish; and possible
U.S. arms sales to Vietnam.
The main vehicle at which these and other trade issues may
be discussed is the Trade and Investment Council (TIC),
established by the 2007 bilateral Trade and Investment
Framework Agreement (TIFA). The two nations held the
first TIC meeting since 2011 on March 27-28, 2017, in
Hanoi. During the meeting, the United States reportedly
urged Vietnam to address certain trade issues, such as
agriculture and food safety, intellectual property, digital
trade, and financial services. Vietnam has asked that the
United States recognize Vietnam as a market economy and

lift new catfish inspection regulations.
Source: CRS, using U.S. International Trade Commission statistics.
Bilateral Trade Balance
Initially, clothing was Vietnam’s largest export to the
According to U.S. trade statistics, total merchandise trade
United States. Subsequently, footwear and furniture became
between the United States and Vietnam has grown from
major exports to the United States, each topping $1 billion
$1.5 billion in 2001 to $77.6 billion in 2019, transforming
in 2007. More recently, Vietnam has become a major
Vietnam into the 7th-largest source of U.S. imports and 27th-
exporter of electrical machinery, and machinery to the
largest destination for U.S. exports. In addition, the U.S.
United States. In 2019, the top five goods constituted nearly
merchandise trade deficit with Vietnam rose from $592
74% of Vietnam’s exports to the United States (see Table
million in 2001 to more than $39 billion in 2018, the 5th
1). In 2019, the leading U.S. exports to Vietnam were (in
largest U.S. bilateral trade deficit (after China, Mexico,
order) electrical machinery, cotton, aircraft, plastic articles,
Japan, and Germany). According to Vietnam’s trade
and oil seeds.
statistics, bilateral trade in 2019 totaled $75.7 billion, with a
bilateral trade surplus of $47.0 billion.
Table 1. Vietnam’s Top Five Exports to the United
States (by HTS Chapter) in 2019
The U.S. trade deficit with Vietnam was a topic of
conversation when President Trump hosted Prime Minister
in bil ions of U.S. dol ars
Nguyen Xuan Phuc in May 2017, and again when President
Type of Product
Value
Tran Dai Quang met with President Trump in Hanoi in
November 2017. President Trump and Prime Minister Phuc
Electrical Machinery (85)
21.507
noted the growth in bilateral trade when they met in Hanoi
in February 2019.
Knitted or Crocheted Clothing (61)
7.714
Trends in Bilateral Trade
Furniture (94)
7.191
Although the Vietnam War-era U.S. trade embargo on
Footwear (64)
6.991
Vietnam ended in 1994, bilateral trade only started to grow
Non-knitted and Non-crocheted Clothing (62)
5.764
significantly after the United States granted Vietnam
conditional “normal trade relations” (NTR) in 2001.
Total Exports
66.680
Bilateral trade growth—and the U.S. trade deficit with
Source: U.S. International Trade Commission.
Vietnam—accelerated following Vietnam’s accession to the
Note: HTS = U.S. Harmonized Tariff Schedule.
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U.S.-Vietnam Economic and Trade Relations: Issues in 2020
Regional Trade Agreements
tra) from the Food and Drug Administration (FDA) to the
In January 2019, the Comprehensive and Progressive
U.S. Department of Agriculture (USDA). USDA inspection
Agreement for Trans-Pacific Partnership (CPTPP) went
procedures are generally considered more stringent than
into effect for Vietnam, one month after it did for six other
those of the FDA. The transfer was confirmed in the
members of the regional trade agreement (RTA). The
Agriculture Act of 2014 (P.L. 113-79). The USDA
CPTPP is the world’s 3rd largest RTA (in terms of GDP)
published final regulations for imported catfish inspection
and is expected to result in a modest increase in trade and
in the Federal Register on December 2, 2015.
investment among CPTPP members, and a slight decline in
trade with non-members, including the United States.
Vietnam maintains the new regulations constitute a non-
tariff trade barrier, harming the livelihood of Vietnamese
Vietnam is also a potential party to another proposed
catfish farmers. On January 12, 2018, Vietnam filed a
RTA—the Regional Comprehensive Economic Partnership
request for consultations with the WTO’s Dispute
(RCEP) involving up to 16 Asian nations, but not the
Settlement Body (DSB) regarding the imposition of anti-
United States—that would have similar indirect effects on
dumping duties and cash deposit requirements by the U.S.
U.S.-Vietnam trade as the CPTPP. Projections of RCEP’s
Department of Commerce on “Certain Frozen Fish Fillets”
trade effects show a slight increase in Vietnamese exports
from Vietnam. A final report by a DSB review panel was
to the United States, and a small decrease in U.S. exports to
scheduled for release in early December 2019. On February
Vietnam. Vietnam also has negotiated a trade agreement
22, 2018, Vietnam filed a WTO complaint that the U.S.
with the European Union that is awaiting ratification.
inspection program for catfish imports violates the WTO
Sanitary and Phytosanitary Agreement. On March 22, 2018,
Market Economy Recognition
China asked to be part of the inspection complaint
Vietnamese leaders would like the United States to change
consultations. The cases are still pending.
Vietnam’s official designation under U.S. law from
“nonmarket economy” (NME) to “market economy,” and
U.S. Arms Sales
may increase their efforts to obtain market economy status.
In 1975, U.S. military sales to all of Vietnam were banned
NME status is particularly significant for antidumping (AD)
as part of the U.S. trade embargo. In May 2016, President
and countervailing duty (CVD) cases because it often
Obama removed the remaining U.S. restrictions on sales of
results in higher tariffs being imposed. For the Vietnamese
lethal weapons and related services to Vietnam. Thus far,
government, being granted “market economy” status also
the United States has transferred few, if any, lethal defense
would symbolize that relations have become “normalized.”
articles to Vietnam. The United States has delivered a
refurbished Hamilton-class cutter to Vietnam through the
Under the terms of its WTO accession agreement with the
Excess Defense Article (EDA) program, as well as several
United States, Vietnam is to remain a NME under U.S. law
new coast guard patrol boats, financed via the Foreign
for up to 12 years after its January 2007 accession or until it
Military Financing (FMF) program.
meets U.S. criteria for a “market economy” designation.
Under 19 U.S.C. 1677, NME means “any foreign country
Congress may exercise oversight of some exports of
that the administering authority determines does not operate
military items to Vietnam pursuant to Section 36(b) of the
on market principles of cost or pricing structures, so that
Arms Export Control Act (AECA, P.L. 90-629). The AECA
sales of merchandise in such country do not reflect the fair
requires the President to notify the Speaker of the House,
value of the merchandise.” A number of nations—including
the Senate Foreign Relations Committee, and the House
Australia, India, and Japan—have designated Vietnam a
Foreign Affairs Committee before the Administration can
market economy for purposes of international trade.
take the final steps to conclude either a government-to-
government or commercially licensed arms sale over a
Since it launched its “doi moi” (renovation) reforms in
certain monetary threshold.
1986, Vietnam has been shifting from a centrally planned
economy to a market economy. Vietnam has allowed the
Pending Legislation
development and growth of private enterprise and
Bilateral relations have grown strong since the
competitive market allocation of most goods and services.
establishment of a comprehensive partnership in 2013.
However, the Vietnamese government still retains some
Legislation introduced in the 116th Congress generally
formal and informal mechanisms to manage the economy.
reflect a desire by some to further develop the partnership.
The Vietnam Human Rights Act of 2019 (H.R. 1383)
Catfish
would include the sense of Congress that “the United
Vietnam is a major exporter of certain varieties of fish—
States should pursue trade policies with Vietnam that
known as basa, swai, and tra in Vietnamese—that are
expand the information economy in Vietnam,” as well as
commonly referred to as catfish. Since 1999, Vietnamese
opposition to the sale of “lethal defense articles or defense
exports of frozen catfish fillets have secured a growing
services” unless such sales ensure U.S. interests “in the free
share of the U.S. market, generating trade friction between
and open navigation of the South China Sea,” or Vietnam
the United States and Vietnam. In 2019, the United States
has made “additional, significant, and sustained steps to
imported over $327 million in catfish from Vietnam.
advance internationally recognized human rights.”
Existing tensions around catfish trade were heightened by
Michael F. Martin, Specialist in Asian Affairs
the passage of the 2008 Farm Bill (P.L. 110-246), which
transferred catfish inspection (including basa, swai, and
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U.S.-Vietnam Economic and Trade Relations: Issues in 2020

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