Report Identifies Current and Potential Trade Tensions between U.S. and Vietnam
World Trade/Interactive
A recent report by the Congressional Research Service identifies the following issues and problems associated with economic and trade relations between the U.S. and Vietnam.
• Vietnam has applied for acceptance into the U.S. Generalized System of Preferences program, but there is a question of whether it meets the eligibility criteria concerning workers’ rights and intellectual property rights protections.
• The two sides launched talks on a bilateral investment treaty in December 2008. While the Vietnamese government appears interested in concluding the BIT because it could foster greater inward foreign direct investment from the U.S. and serve as a stepping-stone to a possible free trade agreement, the U.S. government’s interest appears primarily focused on providing better protection and access for U.S. investors in Vietnam while avoiding compromising domestic economic priorities and needlessly relinquishing national sovereignty.
• Vietnam has expressed an interest in the Trans-Pacific Strategic Economic Partnership Agreement, a multilateral free trade agreement between Brunei, Chile, New Zealand and Singapore that the U.S. and others are also considering joining. Vietnam’s interest in the TPP could complicate U.S. intentions for two major reasons: Vietnam has made less progress in trade and investment liberalization than the other parties involved, which could affect the U.S. goal of creating a more open and comprehensive free trade area in the Asia-Pacific; and Vietnam would be able to block U.S. membership in the TPP if it were to join first.
• A rapid increase in Vietnam’s clothing exports to the U.S. led to a controversial monitoring program. Although the House Committee on Appropriations’ Committee Print on H.R. 1105, the Omnibus Appropriations Act of 2009, indicated the expectation that this monitoring program would continue, no special monitoring of Vietnamese clothing imports was being conducted by the Department of Commerce at the time the CRS report was written.
• Vietnam’s exports to the U.S. of catfish have been a constant source of trade friction despite the passage of legislation that prohibits referring to certain species of fish of which Vietnam is a major exporter (basa and tra) as catfish and the imposition of antidumping duties on certain frozen fish fillets from Vietnam. These tensions were recently heightened by two events: (1) the passage of legislation transferring regulatory oversight of imports of catfish and “any additional species of farm-raised fish” to the Department of Agriculture and requiring USDA to develop adequate regulatory procedures for examining and inspecting imported catfish; and (2) the International Trade Commission’s determination to maintain AD duties.
• Other economic issues have had an indirect effect on bilateral relations as well, such as claims of poor factory working conditions in Vietnam, Vietnam’s designation as a non-market economy and Vietnam’s exchange rate policy.
• While trade tensions have been focused on apparel and catfish in the past, there are other commodities that contribute more to bilateral trade flows that could also become touch points for trouble, including furniture and bedding (the second-fastest growth category of imports from Vietnam since 1998), footwear (which accounted for over 9% of total imports from Vietnam in 2008), and electrical machinery (which have grown more than 1,000-fold over the last 10 years and reached nearly 4% of total U.S. imports from Vietnam in 2008). However, there is a discernable interplay between Vietnam’s top exports to the U.S. and the top U.S. exports to Vietnam (e.g., Vietnam imports substantial amounts of cotton from the U.S., which is then used to manufacture clothing to be exported to the U.S.), suggesting that efforts to curtail the growth of certain top imports from Vietnam could result in a decline in U.S. exports to Vietnam and possible job losses in the U.S.
• As part of the BIT negotiations the U.S. is likely to press Vietnam for more access to its markets for financial and telecommunications services. Vietnam has already committed to allowing 100% foreign ownership of securities firms and express delivery service providers by 2012.
• Some observers expect the U.S. to become the largest foreign direct investor in Vietnam in the next two to three years. As more U.S. companies invest in Vietnam, there is the possibility of more disagreements between U.S. and Vietnamese companies and more constituent pressure on Congress to address perceived shortcomings in Vietnam’s treatment of foreign-owned enterprises.
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