Landmark Trade Pact at Hand for U.S. and Vietnam

Asia: The agreement could be signed within days and would eliminate the last commercial vestige of the war. The remaining issues are described as small.

By DAVID LAMB, Times Staff Writer

HANOI--Twenty-four years after the end of the Vietnam War, an agreement establishing fully normalized trade relations between the United States and Vietnam is within reach and could be signed within days, officials on both sides say.
     The accord, known as the Bilateral Trade Agreement, has been the subject of three years of negotiations in Washington and Hanoi. It appeared doomed to failure as recently as 10 months ago. But concessions on both sides led to a breakthrough last month, and negotiators meeting in Hanoi say major differences have been resolved. Only "small, knotty" issues remain, said one.
     "We have narrowed the existing problems . . . and have reason to be optimistic," said Phan Thuy Thanh, spokeswoman for Vietnam's Foreign Affairs Ministry.
     An American close to the negotiations agreed, saying, "We're within an eyelash of getting an agreement."
     The accord--a key element of normal relations with any country--would eliminate the last commercial vestige of the war. As such, it would open markets in this nation of 77 million people to U.S. businesses, particularly in the areas of telecommunications, banking, insurance and trade, by establishing trade and investment standards that are practiced in almost every country.
     Although the trade agreement's ultimate effect is difficult to quantify, it would sharply lower tariffs between the two nations and make it easier to invest and do business in Vietnam. This in turn could encourage U.S. manufacturers to open plants or increase their investments in existing facilities.
     By removing trade and investment barriers, it would enable Vietnam to increase its exports to the U.S. of manufactured goods such as shoes, garments and toys and agricultural products such as rice, coffee and cashew nuts.
     The state-run Lixeha company, for example, exports to the U.S. each year 300 bicycles made of bamboo that are popular collectors' items.
     "If we get a trade agreement, we could increase our sales tenfold," said Do Thi Nga, Lixeha's general director. Under the trade agreement, he estimates, tariffs would drop to 20% from 100%.
     Nike manufactures 20 million pairs of shoes a year at its five plants in Vietnam. With a trade agreement in place, its duties on exports to the U.S. would drop to 8.5% from 20%, a decrease that would increase exports--earning Vietnam more foreign currency while saving U.S. consumers money.
     "We do business in 100 countries, and Vietnam is the only one we don't have normalized trade relations with," said Bradley LaLonde, Vietnam manager for Citibank, one of about 350 U.S. companies here.
     "We're hopeful an agreement will give a boost to everyone doing business in Vietnam and will lead to higher levels of investment and a better climate for doing business. We'd like to get the [accord] behind us and move on," he said.
     Because Washington did not lift its trade embargo against Vietnam until 1994 and did not establish diplomatic relations until 1995, the U.S. has never gained a real foothold in an emerging market largely captured by Japan, Singapore, Taiwan and South Korea. The U.S. accounts for only 4% of foreign investment in Vietnam. Only about 1,000 Americans live here.
     Among the lost opportunities: The huge bicycle market is controlled by Taiwan and China; the hotels by France, Singapore, South Korea and other Asian countries; the oil industry by Russia; car manufacturing by South Korea and Japan; meat imports by Australia and New Zealand; the sale of jetliners to Vietnam Airlines by France.
     Vietnam's exports to the United States, now worth $470 million a year, would nearly double in the first year of a trade accord, the World Bank says. Within four years, 70% of Vietnam's exports could be destined for the U.S., according to the World Bank.
     The Paris peace accords were signed in 1973, ending the U.S. combat role in the Vietnam War, and hostilities ended two years later when North Vietnam captured Saigon. President Richard M. Nixon and Secretary of State Henry A. Kissinger reportedly promised Hanoi $3 billion in reconstruction aid. That pledge was never honored--and U.S. officials said no valid pledge was made--even though the United States had helped rebuild Japan and Germany after their defeat in World War II.
     In addition to the trade embargo, Washington banned travel to and investment in Vietnam, froze Vietnam's assets in the United States, blocked the country's entry into the United Nations and argued against Hanoi being seated in the Assn. of Southeast Asian Nations.
     The absence of a trade agreement is the last wartime legacy of that policy.
     But U.S. Ambassador Douglas "Pete" Peterson, a former prisoner of war, has made reconciliation and normalized relations with Vietnam a top priority. He has overseen the signing of a copyright agreement and is close to getting deals for cooperation on drug enforcement, on science and technology and on a code-sharing arrangement between Vietnam Airways and an as-yet-unidentified U.S. carrier.
     U.S. businesspeople here, frustrated with the slow pace of Vietnam's economic reforms, do not discount the possibility that any one of a number of issues could still unravel the trade agreement--which must be approved by Congress.
     For Vietnam, the talks come at a crucial time. Not only is a U.S. trade agreement a necessary step toward Hanoi's membership in the World Trade Organization, it is needed to give the undercharged economy a much-needed jolt.
     Foreign investment in Vietnam was down 42% in the first six months of 1999 from the same period a year ago. Some foreign investors have left Vietnam in frustration over the slow pace of economic reform.
     Economic growth has fallen by half, the tourism industry is sluggish, unemployment is rising and six mutual funds that invested in Vietnam have turned in some of the worst performances of any country funds.
     Even so, some members of Hanoi's government are uneasy about the trade agreement. Those with vested interests, such as the Defense Ministry, which has invested in everything from shoe manufacturing to hotels, fret about having to compete with foreign companies on a level playing field.
     And many have an innate paranoia about foreign domination, fearing that the U.S. is using the trade agreement to force Vietnam into changing its communist system.
     "We're not trying to force anything Western on Vietnam," said Peterson. "Everything in the trade agreement reflects normal business practices in the world today. If Vietnam creates an economy that doesn't embrace these norms, no investors will understand what the ground rules are in Vietnam."

U.S., Vietnam Reach Trade Agreement
By DAVID LAMB, Times Staff Writer

HANOI--The U.S. and Vietnam completed three years of negotiations Sunday, agreeing to normalize trade relations in a move that should markedly increase commercial ties between the former enemies.
     Both sides were ecstatic. "It's something we really wanted," said David Thai, a U.S. investor in Vietnam's coffee industry. "It provides an important psychological boost to the business environment here."
     The "agreement in principle" was reached by U.S. Deputy Trade Representative Richard Fisher and Vietnamese Trade Minister Truong Dinh Tuyen after several days of tough negotiations, including a 17-hour session that started Saturday and ended early Sunday. Fisher called the agreement historic.
     "This would represent the final chapter in the transformation of our relationship from adversaries to trading partners," Fisher said. He added that the accord would help modernize the sluggish economy of Vietnam, one of the world's few remaining communist states.
     Though still committed to communism, Hanoi began free-market reforms in 1986 and has steadily increased the role of private enterprise in its state-controlled economy.
     But in the past two years, U.S. investors in Vietnam have become increasingly disgruntled by the slow pace of economic reforms. In the past 12 months, some Fortune 500 companies--including Chrysler and Exxon's Esso division--have pulled their fledgling operations out of the country.
     "A relationship of the sort on which we have agreed in principle will be a very important step in building a commercial regime and a trade regime that is compatible with Western norms," U.S. Trade Representative Charlene Barshefsky said in Washington.
     "For Vietnam, the issue is one of economic progress versus economic stagnation," Barshefsky said.
     The agreement must be formally signed, then ratified by the U.S. Congress and Vietnam's National Assembly. Fisher said he hoped that could be accomplished by year's end. U.S. diplomats here say they do not expect much difficulty winning congressional approval, although an anti-Vietnam lobby remains vocal in the United States.
     But before the pact can be submitted to Congress, Barshefsky said, it will need fine-tuning. She also expressed hope that it will be ready to go to Congress by year's end.
     Both sides stand to gain from a trade agreement, which would mark a milestone in Vietnam's integration into the global economy.
     Vietnam would gain from the accord because it would open new U.S. markets to Vietnamese exports and help Vietnam gain entry to the World Trade Organization. The United States would gain because the pact would enable U.S. investors to get a foothold in the emerging markets of Vietnam, the world's 14th-most-populous country, with 77 million people.
     What the agreement essentially would do is level the playing field for conducting business for both countries. By lowering tariffs, for example, it would enable Vietnamese fishermen to export their shrimp to the United States and sell it at a competitive price. At the same time, by liberalizing investment codes, it would make it easier for, say, General Electric or Nike to invest here and make it possible for U.S. banks and some other firms to operate without a Vietnamese partner.
     Two-way trade between the United States and Vietnam totals less than $1 billion a year. The United States observed a trade embargo against Vietnam until 1994. Diplomatic relations between the countries were established in 1995.
     U.S. businesses rushed into Vietnam when the embargo was lifted, believing that Hanoi's economic reforms, combined with the industrious nature of the Vietnamese people, would turn Vietnam into another of Asia's "economic tigers."
     But doing business in Vietnam proved costly and frustrating. Hanoi has moved at a turtle's pace in its economic reforms, and foreign businesses have to cope with multilayered bureaucracy, corruption and governmental indecisiveness.
     Economists say it is unlikely that the trade agreement would lead to a rush of new foreign investment because Vietnam remains a difficult place to do business. But they believe that the accord would improve the environment for investing here and put Vietnam back on investors' radar screens.