Vietnam-U.S. Trade Accord Faces
Delays From Hard-Liners at Home

By SAMANTHA MARSHALL
Staff Reporter of THE WALL STREET JOURNAL

When Vietnam and the U.S. in July agreed in principle to normalize bilateral trade relations, U.S. diplomats and investors were jubilant. Perhaps they should have waited until the ink was dry.

Three months later, the deal still isn't signed. Last-minute divisions in Vietnam's top-level Politburo have held it up, according to Vietnam watchers and government officials. That may signal the resurgence of concerns among hard-liners that economic openness might lead the Communist Party to lose control of key industrial sectors or invite political instability.

"Conservatives are saying it's better to stay out [of the trade deal] and maintain their insulation for a bit," says Carlyle Thayer, professor of Southeast Asia Security Studies at the Asia-Pacific Center for Security Studies in Honolulu.

Missed Deadlines

Vietnam has already missed two key dates for signing the landmark agreement, which needs to be approved first by Vietnam's National Assembly, then by the U.S. Congress before Vietnam will get so-called normal trading relations with the U.S. (formerly known as most-favored-nation trading status, or MFN).

Vietnam failed to sign the deal during the mid-September Asia-Pacific Economic Cooperation forum meeting in New Zealand, which President Bill Clinton attended. It also missed the chance to sign at the end of last month to ensure passage in the next congressional session in Washington this November. Congress requires at least 60-day notice before it can take action on a document. So now the deal will likely have to wait for Congress to meet next year.

It won't be the best timing. National election campaigns in the U.S. will be in full swing and may sideline the deal. Meanwhile, Vietnam's allies in Washington, such as U.S. Sen. John McCain, may leave Congress soon, leaving Vietnam trade-relations issues without its usual defenders against politicians and lobbyists still chafing over old Vietnam War wounds.

Home Debate

In Vietnam, analysts say the holdup is partly due to the unprecedented complexity of the agreement. Officials who weren't in the loop from the beginning of the negotiations are having new and complicated terminology explained to them -- giving rise to much debate in the consensus-driven National Assembly. On a recent visit to Finland, Prime Minister Phan Van Khai alluded to differences of opinion in Vietnam on some of the technical points in the 100-page document.

"They want to make sure everyone is on board," says Tony Salzman, president of Caterpillar construction-equipment dealer V-Trac in Ho Chi Minh City. But on the other hand, last-minute balking at a deal that was all but signed "looks very bad to the international investment community," adds the U.S. investor, who has been following the trade talks closely.

At worst, Vietnam's foot-dragging could set back normal trade status for Vietnam by several years, analysts fear. As U.S. election campaigns heat up and candidates start talking about protectionism, fewer government officials will want to risk their necks for trade deals with Vietnam, which America's voting public may regard as "just another developing country," says Dr. Thayer.

Risking Export Benefits

Why Vietnam would want to put the agreement at risk after four years and nine rounds of painstaking negotiations is "unfathomable," says Frederick Burke, vice chairman of the American Chamber of Commerce in Ho Chi Minh City. By signing the deal, Vietnam would open up the world's largest market for its exports, generating as much as $800 million in new exports, according to World Bank estimates.

Among the first sectors to benefit would be Vietnamese textile and footwear industries, which economists say could lead Vietnam out of an agriculture-dependent economy. This export income would help Vietnam generate much-needed foreign currency and restore some goodwill in a disaffected international investment community, says Mr. Burke, who is also a lawyer with U.S. firm Baker & McKenzie.

Of course, Vietnam doesn't necessarily see it that way. Analysts say the state-controlled media commonly gives the perception that the U.S. has more to gain from the deal than Vietnam. Seeing the excitement the announcement of an agreement generated in the country's tiny U.S. investment community, the Vietnamese "must have thought 'it's bad for us,' " Mr. Burke quips.

No matter that freer trade stands to add a relatively minuscule $56 million a year to America's annual output. Vietnam, on the other hand, would earn three times that figure, according to World Bank estimates.

Delay Theories

There are several theories to explain the delay. One potential obstacle is Vietnam's powerful military, which will have to give up its monopoly on several state-owned industries to meet the agreement terms. Another theory has it that remarks on human rights by U.S. Secretary of State Madeleine Albright on a recent visit to Vietnam may have rankled communist leaders. Yet another view holds that Vietnam's powerful neighbor China may have pressured its leaders not to sign the deal before Beijing has completed its negotiations with the U.S. for entry into the World Trade Organization. If Vietnam caves in to tough demands, China might lose its chance to squeeze concessions out of the U.S., the theory goes.

Whatever the reasons for stalling, anyone familiar with Vietnamese politics shouldn't be surprised by the delays, says Dr. Thayer. Over the next few years the removal of trade barriers that protect inefficient state industries could fuel a rise in unemployment. While the economy would ultimately benefit from being more integrated into the global market, Vietnam's leaders have continually stressed that social stability isn't a political price they are willing to pay.

A mild recovery in economic growth in recent months gives them all the more reason to stall. (A recovery in exports to the region is keeping gross-domestic-product growth at 4% to 5% this year, compared with the 3% to 4% growth some Western economists predicted a year ago).

Radical Reforms Needed

The deal is widely considered to have the toughest and most complex terms for trade in U.S. history, closing the loops of past bilateral agreements with other trading partners. Vietnam will have to bring its chaotic legal system in line with international and WTO standards; radically reform its customs and licensing procedures; and allow American banks, law firms, insurance and telecommunications companies to operate freely in Vietnam.

Some Vietnamese export manufacturers who stand to benefit from normalized-trade status with the U.S. aren't too optimistic. "We're just relying on traditional markets," says Nguyen Van Do, manager of the trade department at state-owned Thang Long Garment Co. in Hanoi. "MFN is still far away," he says.

Of course the agreement still may go through by the end of this year. In a 17-hour marathon round of negotiations in July, two major breakthroughs on nontariff barriers and tariff-reduction schedules were made, analysts say. And, according to government officials, all but one or two members of the Politburo favor signing the agreement now.

The deal "is not dead yet," says Mr. Salzman, the Caterpillar dealer. "But it's not out there singing and dancing."