On March 15, 2007, the United States and Vietnam signed a shipping agreement that grants U.S. maritime shippers, carriers and port operators greater access to Vietnam's transportation market. And on March 16, U.S. Trade Representative (USTR) Susan Schwab and Vietnam's Deputy Prime Minister Pham Gia Khiem announced the launch of negotiations on a bilateral Trade and Investment Framework Agreement. These, however, are only two of the recently signed agreements.

After almost 12 years of negotiations and 880 pages of policy commitments, on January 11, 2007, Vietnam became the 150th member of the World Trade Organization (WTO). What is the anticipated impact?

The fastest expanding major economy in Southeast Asia, Vietnam achieved a growth rate of 8.5 percent in 2005, according to the Vietnamese government. And its gross domestic product has increased almost 50 percent over the last five years, reaching $52 billion.

As a result of Vietnam's WTO accession, its worldwide trade and investment is anticipated to steadily rise as this country of 84 million people further integrates its economy into the world trading system.

WTO Commitments

In 1994, former President Bill Clinton ended America's trade embargo with Vietnam. A year later he restored diplomatic relations. Since then, Vietnam has made much progress in liberalizing its economy.

As a condition to receiving WTO membership, Vietnam agreed to reduce duties to 15 percent on approximately 95 percent of American manufactured goods. Tariffs on key U.S. products in the construction equipment, pharmaceuticals and aircraft sectors were negotiated down even further, to zero to 5 percent. And duties on 91 percent of medical equipment, 96 percent of scientific equipment and 100 percent of computers will be eliminated, according to the USTR and the Vietnamese government.

On agricultural goods, Vietnam agreed to reduce duty rates to 15 percent or less on approximately three-fourths of U.S. farm shipments. These include cotton, selected beef, pork and a variety of meats, whey, grapes, apples, pears, and soybeans.

On services, Vietnam made substantial commitments to open up key sectors, including telecom, distribution, financial services, and energy services to foreign participation. Among other things, Vietnam agreed to eliminate various subsidies, protect intellectual property rights and continue reforming its domestic economy. Full U.S. access to lower WTO-negotiated rates was made possible by President George W. Bush's granting Vietnam Permanent Normal Trade Relations status on December 29, 2006.

Trade and Investment

Although currently small, U.S.-Vietnamese trade and investment is expected to rapidly grow. In 2006, the United States exported $1.1 billion in goods to Vietnam and imported $8.6 billion. In 2005 (latest available data), the Southeast Asian country's global merchandise exports and imports totaled $32 billion and $37 billion, respectively, the Vietnamese government says.

Vietnam's main imports from the United States include aircraft, fertilizer, steel, computers and parts, equipment and parts, pharmaceuticals, and chemicals. Vietnamese exports to the U.S. primarily include textiles and garments, seafood, crude oil, home furnishings, footwear, and coffee.

The U.S. Bureau of Economic Analysis indicates that U.S. cumulative foreign direct investment (FDI) in Vietnam rose from $172 million in 2001 to $291 million in 2005. This, however, represents a fraction of the $31 billion in FDI stock Vietnam has received, the United Nations reports.

The China - Vietnam Shift

According to the Vietnam Trade Office, "The annual survey of the Japan Trade Organization shows Vietnam has become the first choice of a large number of Japanese firms which are operating in China and want to shift their investment to a third country."

The report indicates that 20.5 percent of Japanese companies surveyed said they wish to expand their operations from China to Vietnam. This is considerably higher than those seeking Thailand, the next highest post-China destination. The primary purpose of the China to Vietnam shift is to manufacture transport machinery components, electronics, and electronics components. It is likely that American companies follow suit.

The East - West Shift

Increases in U.S.-Vietnamese trade are evident. Today, the Vietnamese national air fleet flies 10 American airliners, restaurants are buying American condensed milk for sweetened coffee, and the first U.S.-Vietnam trade fair recently opened in Hanoi, says the Washington, D.C.-based Progressive Policy Institute. Vietnam also has become the United States' fourth largest source of shrimp, and ranks third in shoes and furniture.

This is quite a change from the Cold War era when Vietnam was an economic alley of the former Soviet Union. In 1988 the Soviet Union accounted for approximately 40 percent of Vietnam's exports and 65 percent of its imports. Currently, the United States has become Vietnam's major export market, followed by Japan, China, and Australia.

Bright Future Although Problems Persist

Adapting to new market conditions is not always easy. For example, many Vietnamese firms and state-owned enterprises that are to be privatized are only beginning to adopt acceptable accounting standards. And the new securities industry, which has quickly risen to exceptional highs, is often unable to obtain reliable data, and may become volatile since market jitters and rumors have considerable impact.

Overall, most problems will be dealt with. According to the World Bank, Vietnam is one of the best-performing developing economies in the world. In 1993, per capita was income $170. Today it is $620, and by 2010 it could reach $1,000. By 2015, the South Asian country is expected to achieve most of the ambitious Millennium Development Goals set by the United Nations.

This article appeared in April 2007. (CM)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author and an international columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.

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