In this article, Tai Van Ta examines the U.S.-Vietnam Trade Agreement and its likely impact on the Vietnamese economy and society.

Tai Van Ta is a graduate from Saigon (Vietnam) Law School (LL.B), University of Virginia (M.A. and Ph.D.) and Harvard Law School (LL.M). Since 1975, he has been a research associate, and at times adjunct lecturer of Vietnamese law at Harvard Law School, and in that capacity, he has published books and articles on Vietnamese law, among them The Vietnamese Tradition of Human Rights (1988) and Investment Law and Practice in Vietnam (1990) (co-authored with Prof. Jerome Cohen). He has been a practicing attorney in Massachusetts since 1986.

On July 13, 2000, in remarks from the South Lawn of the White House, President Clinton hailed the signing of a trade agreement between the United States and Vietnam as "another historic step in the process of normalization, reconciliation and healing between our two nations." In November 2000, he became the first sitting U.S. President to visit Vietnam since President Nixon arrived in South Vietnam more than 30 years ago. By making this visit, Clinton will be likely to go down in history as the U.S. president to have closed the last symbolic chapter of the Vietnam War. Moreover, with the U.S.-Vietnam trade agreement signed after the U.S.-China trade agreement, he will leave a legacy of expanding relations with two large communist countries, facilitating China's and Vietnam's eventual admission into the World Trade Organization and integration into the world community.

This article will illuminate: 1) how the U.S.-Vietnam Trade Agreement developed as a logical step in the context of American-Vietnamese relations; 2) how its provisions promote American interest; 3) how its provisions promote Vietnamese interest and simultaneously force Vietnam to face up to its economic weaknesses; and 4) why Vietnam was postponing its signing of the Agreement for nearly a year and the prospect for implementation of the Agreement.

I. The Trade Agreement in the process of normalization and reconciliation between the U.S. and Vietnam.

The process of normalization has been accomplished in a step-by-step manner, leading to the bilateral trade agreement. During the Bush administration, the U.S. issued a so-called "road map", according to which Vietnam had to take a number of steps for the U.S. to reciprocate in the process of normalization. One condition was Vietnam's withdrawal from Cambodia, which was done in 1989. Following that, Vietnam took another required step by seeking admission into regional organizations, showing that it intended to play a positive role in regional security and economic liberalization. Accordingly, in 1993, President Clinton began a policy of normalization with Vietnam by commencing American support of international lending to Vietnam and allowing U.S. firms to join in development projects. At the same time, the U.S. was able to secure full cooperation from Vietnam in accounting for the POW-MIAs of the War (the highest American priority in the relations between the two countries), with 39 joint field activities with Vietnam, repatriation of 288 possible sets of remains, and identification of the remains of 135 unaccounted for American servicemen.

Then, in 1994, the U.S. lifted the economic embargo to allow U.S. firms to export to Vietnam and invest in business opportunities there. A year later, the U.S. normalized diplomatic relations with Vietnam and later exchanged ambassadors with Hanoi. This policy of normalization has led to further progress in other fields such as resettlement of hundreds of thousands of Vietnamese refugees and immigrants in the U.S. (closing yet another painful chapter for Vietnamese families who were torn apart during and after the War); enhanced cooperation in combating narcotics trafficking; and promotion of human rights through a dialogue that has led to the release of prisoners and additional improvements in the human rights situation in Vietnam.

Vietnam opened its economy and moved toward integration in the world community by joining the Association of Southeast Asian Nations (ASEAN) in 1995 and the Asia Pacific Economic Cooperation (APEC) forum in 1998. Focusing on U.S.-Vietnam trade relations, the White House stated that the decision to pursue the trade agreement was made after Vietnam had established a record of cooperation in accounting for the POW-MIAs. In 1998, the U.S. granted the first waiver of the requirement of Jackson-Vanick Amendment, extending U.S. export promotion and investment support programs to Vietnam. Then, in the following year, the U.S. and Vietnam reached an agreement in principle on key provisions of the trade agreement. Finally, in 2000, the U.S. and Vietnam reached final agreement on the bilateral trade agreement. President Clinton described both the economic and political implications of the trade agreement as follows:

The Agreement we signed today will dramatically open Vietnam's markets on everything from agriculture to industrial goods to telecommunications products, while creating jobs both in Vietnam and in the United States. With this agreement, Vietnam has agreed to speed its opening to the world; to subject important decisions to the rule of law and the international trading system; to increase the flow of information to its people; by inviting competition in, to accelerate the rise of a free market economy and the private sector within Vietnam, itself. We hope expanded trade will go hand in hand with strength and respect for human rights and labor standards. For we live in an age where wealth is generated by the free exchange of ideas and stability depends on democratic choices.

The President emphasized the impact of the agreement on reconciliation between the two countries, stating: "This agreement is one more reminder that former adversaries can come together to find common ground in a way that benefits all their people, to let go of the past and embrace the future, to forgive and to reconcile."

II. How the Provisions of the Bilateral Trade Agreement promote American interests

The agreement has five major sections: equal market access for agricultural and industrial goods, intellectual property rights protection, market access for services, investment protection, and transparency by publishing and making available laws and regulations. The preamble to the bilateral trade agreement states that the U.S. and Vietnamese Governments desire to develop mutually beneficial and equitable economic and trade relations on the basis of mutual respect for their respective independence and sovereignty; and that they acknowledge the adoption of international trade norms and standards by which the two parties will aid in the development of mutually beneficial trade relations.

However, the preamble also notes that Vietnam is a developing country at a low level of development, is in the process of economic transition, and is taking steps to integrate into the regional and world economy by joining ASEAN, the ASEAN Free Trade Area, APEC forum, and working toward membership in the World Trade Organization (WTO).

Although the preamble announces the principle of mutually beneficial and equitable relations, the provisions in the five major sections of the agreement mostly benefit the United States. On the one hand, Vietnam's low level of development does not enable it to benefit much from the provisions on market access for goods, intellectual property rights protection, investment protection, and transparency measures. On the other hand, because the United States already adheres to international trade norms and standards of the World Trade Organization, one receives the impression when reading the provisions of the agreement, especially as explained by the White House, that it mainly imposes obligations on Vietnam to implement the provisions of the agreement and to comply with the international trade norms and standards.

However, the Agreement does recognize Vietnam's weak economy and the country's need to reserve the right to adopt and maintain many exceptions to national treatment.

1. Dramatic new market access for agricultural and industrial goods for American citizens and companies.

Upon the entry into force of the agreement, Vietnam agrees to allow all Vietnamese enterprises, and, within three to seven years, U.S. persons and firms, the right to import into and export from the borders of Vietnam without restriction. Vietnam agrees to give most favored nation treatment and national treatment to U.S. citizens and firms in all matters relating to customs duties, methods of payment for import and export, laws, rules and formalities, taxes and fees.

Vietnam has agreed to lower tariffs sharply in three years on the full range of U.S. industrial and agricultural exports, and to phase out in three to seven years all non-tariff measures (such as quantitative restrictions), and to adhere to the World Trade Organization standards in customs duties, import licensing, state trading, technical standards, and sanitary measures.

Vietnam also gives to U.S. citizens and firms national treatment in access to competent courts and administrative bodies as well as arbitration under internationally recognized arbitration rules, including UNICTRAL rules.

2. Increased intellectual property rights protection

Intellectual property rights refer to copyrights and related rights, trademarks, patents, layout designs of integrated circuits, encrypted program-carrying satellite signals, confidential information (trade secrets), industrial designs and rights in plant varieties.

Vietnam agrees to adopt the WTO standards for intellectual property rights protection within twelve months for trademarks and patents, within eighteen months for copyrights and trade secrets, and within thirty months for phonograms/satellite signals respectively; or, if possible, to immediately comply with this agreement. Vietnam agrees to abide by the substantive economic provisions of the various international conventions, such as the 1971 Geneva Convention for the Protection of Phonograms, the 1971 Berne Convention for the Protection of Literary and Artistic Works, the 1967 Paris Convention for the Protection of Industrial Property, the 1974 Convention on Program-carrying Satellite Signals, the 1989 Treaty on Intellectual Property in Respect of Integrated Circuits.

Vietnam accords to U.S. persons and firms national treatment with regard to the acquisition, protection, enjoyment, and enforcement of all intellectual property rights and any benefits derived therefrom.

As there has been rampant infringement of U.S. industrial property rights in Vietnam in the areas of computer programs and audio-visual recordings, the agreement has paid particular attention to these property rights and stipulates that computer programs and sound recordings are literary works within the meaning of the Berne Convention.

As for enforcement, Vietnam shall provide procedures in its domestic law that permit effective action against infringement, expeditious, and not unnecessarily complicated or costly procedures to prevent violations, as well as substantial remedies to deter future infringement (damages, restitution of profits, and destruction of infringing goods, and also criminal penalties for willful infringement). Decisions in judicial and administrative enforcement proceedings must be in writing, state the reasons and evidence therefor, and must be made available without delay. Final administrative decisions must be reviewed by a judicial authority.

The U.S. is so determined to protect its intellectual property that it agrees to provide Vietnam with technical assistance to strengthen Vietnam's regime for the protection and enforcement of intellectual property rights.

3. Market access in a broad array of service sectors

Vietnam accords immediately and unconditionally most favored nation treatment to U.S. persons and firms. Vietnam agrees to grant national treatment to U.S. persons and firms, and to permit them to enter within three to five years its markets in the full range of service industries, including financial services (insurance and banking), telecommunications, distribution, audio-visual, legal, accounting, engineering, computer and related services, market research, construction, education, health and related services, and tourism.

The agreement incorporates the Annexes to the WTO General Agreement on Trade in Services (GATS): Annex on Financial Services, on Movement of Natural Persons, on Telecommunications and Telecommunications Reference Paper.

All discriminatory measures must be eliminated and a party cannot apply licensing and qualification requirements and technical standards that nullify or impair the specific commitments of free trade in services. Nor shall a party adopt measures on limitations on the number of service providers, on the total value of service transactions, on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ, or on the type of legal entity or joint venture through which a service supplier may supply a service, or on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding.

Judicial, arbitral and administrative tribunals or procedures shall be established to provide prompt review of, and appropriate remedies for, administrative decisions affecting trade in services.

4. Development of Investment Relations

Investment has many forms: enterprise, stocks and bonds, contractual rights (construction, management, or production sharing contracts), tangible property and intangible property (leases, mortgages, intellectual property rights, licenses, permits, etc.).

Vietnam, whether represented by the Vietnamese government or a state enterprise, accords to U.S. investments national treatment, most favored nation treatment, and full protection and security required by customary international law. However, Vietnam, as well as the U.S., may adopt exceptions in certain sectors, as provided in Annex H, below. Vietnam agrees to protect U.S. investments from expropriation (except for cases of public purpose, upon payment of prompt and adequate compensation, in accordance with due process of law). It will eliminate local content and export performance requirements and phase out its investment licensing regime for many sectors.

Vietnam permits the entry, sojourn, and employment of alien managers, executives, and persons of specialized knowledge.

For investment dispute settlement, the agreement provides for consultation and negotiation, administrative tribunals and competent courts, and binding arbitration at the International Center for Settlement of Investment Disputes, in accordance with UNCITAL Arbitration Rules and the UN Convention for the Recognition and Enforcement of Foreign Arbitral Award.

5. Transparency Provisions and Right to Appeal

To alleviate concerns about bureaucratic obstructionism and corruption in Vietnam, the U.S. requires that Vietnam adopt a fully transparent regime with respect to each of the four substantive areas mentioned above (market access for agricultural and industrials goods, intellectual property protection, service industry market access, and investment relations), by publishing and making readily available, on a regular and prompt basis, all laws, regulations, and procedures pertaining to them, so that enterprises and persons engaged in business can become acquainted with them before they come into effect, and be given an opportunity to comment. Each publication shall include the effective date of the measures, the products or services affected by the measures, all authorities that must be consulted in the implementation, and provide a contact point within each authority from which relevant information can be obtained. The agreement provides that only laws, regulations, and administrative procedures that are published and readily available will be enforceable and enforced, and that such enforcement will occur in a uniform, impartial and reasonable manner. An official journal or journals must be designated for the publication of laws, regulations, and administrative procedures. Administrative and judicial tribunals and procedures will be maintained for the prompt review and correction of administrative action; these procedures include an opportunity to appeal, without penalty, to successive levels of appellate jurisdiction.

Additionally, the agreement provides for business facilitation measures such as access to office and living accommodations, non-discriminatory pricing on government-provided services and products (such as utilities), freedom to hire agents and consultants, and freedom to maintain foreign currency accounts to make payments/transfers of currencies at market rate of exchange (for profit remittance, capital repatriation, liquidation, payment of royalty, interest, management fees, loans and contract obligations, and compensation in investment disputes).

III. The Trade Agreement brings benefits to Vietnam but forces it to face up to its economic weaknesses and carry out reforms.

At present, Vietnam does not have any intellectual property rights or investments in the U.S. worthy of protection in the American market. Vietnamese services cannot compete in the United States, but Vietnam can benefit from exporting goods to the United States. At the present time, Vietnam produces only a few goods that American consumers want to buy (products such as coffee, wooden furniture, seafood, handicraft, footwear, and clothing-but existing and future textile agreements of the United States would not be affected by this trade agreement). Nonetheless, in October 2000, Vietnam's Deputy Trade Minister predicted that Vietnamese exports to the U.S. could balloon from $204 million in 1996 and $504 million in 1999 to $800 million in 2001, $2.8 to 3 billion by 2005, and $11 billion by 2010. He said more than 1000 Vietnamese businesses are already applying for export permits.

Also, by implementing the trade agreement, Vietnam may be able to recapture the confidence of foreign investors, which has been badly shaken in recent years to such an extent that foreign investment slumped from U.S. $2.8 billion in 1997 to only $500 million in 1999.

The trade agreement awakens Vietnam to address its economic weaknesses and recognize the economic challenges facing the country. Vietnam has not engaged in sufficient capital formation, nor has it reached the stage of making investments in the United States, as China has been able to do. Accordingly, it will be some time before Vietnam will be able to crack the service market in the United States.

Even if we consider only the trade in goods with the United States, the quality and standards of Vietnamese goods must improve. The Deputy Trade Minister pointed out that only 100 export items from Vietnam have met ISO quality codes. Many of the products of the 5,000 state-owned enterprises and 2,000 joint ventures in Vietnam continue to fail American standards.

Given the above situation, the most important reform is that of state enterprises in order to make them more competitive. Inefficient, unproductive and corrupt firms that cannot compete on the international market must be dismantled through sale, privatization (equitization), or bankruptcy. The reforms are necessary not only for improving export potential but also for survival within Vietnam itself in confronting competition from the American traders and investors.

In the years ahead, the United States has taken into account the economic weaknesses of Vietnam and made concessions by allowing Vietnam

(a) to phase out the trade restrictions (tariffs and non-tariff restrictions) over several years and,

(b) in the areas of investment, to reserve the right to adopt and maintain exceptions to national treatment with respect to broadcasting, television, production and distribution of cultural products, investment in insurance, banking, brokerage in securities and currency values, mineral exploitation, construction and operation of telecommunications facility, construction and operation of inland water, sea and air ports, transportation by railway, air, road, sea and inland waterway, fishery, and real estate.

In addition,

The U.S., in turn, may adopt exceptions to national treatment to Vietnamese investments in the U.S., in the sectors of atomic energy, licenses for broadcast, common carrier, subsidies or grants, submarine cables, fisheries, air and maritime transport, banking, insurance, securities and other financial services, satellite transmissions and digital audio services.

IV. Why Vietnam dragged its feet before signing the Agreement and prospects for implementation of the Agreement.

The Vietnamese government postponed the signing of the agreement from 1999 to July 2000 due to tremendous debate within the leadership about whether the signing was worthwhile. Conservatives viewed the agreement as surrendering their control of the economy and feared that state enterprises could not survive competition with the American traders and investors. Former Party General Secretary Do Muoi stated that to sign the agreement is to betray the fatherland. Probably to mollify the conservative elements, Prime Minister Phan Van Khai declared that the agreement is based on principles of respect for the respective countries' independence and sovereignty, non-interference in each other's internal affairs, and a manifestation of the Vietnamese Party's foreign policy of independence, self-reliance, diversification, and multilateralization. There was also an indication that the Chinese had suggested that the Vietnamese wait for them to sign the trade agreement with the U.S. first. It turns out that following that proposal was inimical to Vietnam's national interest because China was able to precede Vietnam by accessing the U.S. market earlier. Indeed, some liberal Vietnamese blamed the conservative leadership for being manipulated by the Chinese.

Mr. Hauser, Deputy Under-Secretary For International Trade of the U.S. Department of Commerce, described Vietnam's signing of the Trade Agreement as a "bold decision" that "proved conclusively that the significant portions of the Vietnamese leadership which are favorably disposed toward a more liberal economic regime are alive and well, and have won support for the Trade Agreement."

However, much work remains to be done for the implementation of the agreement. Under the Jackson-Vanick Amendment to the 1974 Trade Act, the U.S. Congress must ratify the trade agreement, and the President must then certify freedom of emigration from Vietnam in order for the U.S. to grant Normal Trade Relations status to Vietnam.

The ultimate result of the trade agreement implementation will be in the interest of the United States, since its implementation will lock Vietnam into a broad band of commitments that will strengthen its private sector and the freedom of the Vietnamese to make individual economic decisions, which will enhance their human rights in general. Until Vietnam secures membership in the World Trade Organization, the annual renewal by the U.S. Congress of Normal Trade Relations status for Vietnam will entail a yearly battle over Vietnam's human rights record, constituting a mechanism for pressuring Vietnam into better human rights performance.