During his official visit to the United States this year, Vietnamese Prime
Minister Nguyen Tan Dung openly sought and welcomed economic diagnoses and
policy prescriptions for fixing his overheated economy from American economic
experts, ranging from Wall Street executives to former Federal Reserve chairman
Alan Greenspan.
Dung's gesture may be viewed as a symbolic signal to the Americans that Vietnam
has, after implementing various market reforms, come to realize that the US is
a crucial partner in its path to economic growth and development, and more
generally to Hanoi's commercially oriented foreign policy.
With an average annual gross domestic product (GDP) growth
rate of over 7% for the past decade, where export promotion and foreign direct
investment (FDI) have played an important role, Vietnam's low-starting-base
economy still has a lot of room to grow if it could trade more with the US and
attract more American investors.
On both fronts, the country has big potential. According to data from the
Foreign Trade Division of the US Census Bureau, total trade in goods between
the two countries increased over eight-fold from about $1.5 billion in 2001 to
over $12.5 billion in 2007. Vietnam has consistently and increasingly enjoyed a
trade surplus with the US since signing a bilateral trade agreement (BTA) in
2001.
Unlike the alarming $256 billion trade deficit the US recorded last year with
China, the smaller $8.7 billion shortfall with Vietnam was not a cause for
alarm. Accounting for 12% of gross domestic product, the surplus was crucial
for Vietnam's increasingly trade-geared economy. The US has become Vietnam's
largest export market in a relatively short time and the Vietnamese political
leadership realizes and embraces the significance of the US market in its broad
dealings with Washington.
In exchange for market access, the US has managed to persuade Vietnam, through
both the BTA and the World Trade Organization's (WTO) bilateral market access
agreement, to commit to a wide array of legal and economic reforms aimed at
strengthening the rule of law and developing a more rules-based market economy.
This development is significant in two main respects. First, it helps mobilize
the political will of the Vietnamese leadership to engage in further reforms
that may otherwise be difficult politically without outside pressure, including
explicit US requests as part of negotiations for bilateral agreements.
Second, it more deeply integrates the Vietnamese economy into the world trading
system, where many inefficient and debt-ridden state-owned enterprises (SOEs)
will be exposed to the unforgiving competition of market forces. SOEs will
increasingly either have to improve their management and operations to become
more competitive or be privatized, including through significant stakes to
foreigners. Either change would be a net positive for the Vietnamese economy.
Apart from trade, Vietnam has made it known to the American business community
that attracting more US FDI remains a top priority. The announcement of Intel's
$1 billion investment in a manufacturing facility in Vietnam is a prime example
of the broad economic benefits US capital and technology bring. Attracting more
American investors would not only diversify key sources of FDI, but also bring
in a new range of investment categories to help spur higher value-added
industrialization.
Although American investors are relative latecomers compared with their Asian
counterparts, their presence in Vietnam has gradually risen since the BTA went
into effect. In the first quarter of this year, according to Vietnam's Ministry
of Planning and Investment, the US was the largest source of FDI to Vietnam
with registered investment amounting to $1.3 billion. And there are indications
that American investors would like to make bigger inroads, especially if the
two sides come to terms on a bilateral investment treaty. The initiation of
negotiations towards that end was announced during Dung's Washington visit.
Economic emphasis
Vietnam's political leadership aims to emphasize above all economic priorities,
although potential greater cooperation in other areas is also on the table. The
emphasis on trade and investment is consistent with Vietnam's foreign policy
goal of expanding and deepening bilateral relationships without taking
geopolitical sides.
Given its often touchy historical relations with its big northern neighbor,
China has always loomed large in Vietnamese foreign policy and in this regard
warming ties with the US is a delicate issue. Hanoi especially does not want
Beijing to perceive its budding relationship with Washington as a military
challenge, aimed at putting China's rising regional influence in check. By
focusing on economic priorities, and so far forestalling the US's strategic
advances, Hanoi has maintained a balanced approach to its international
relations.
So, what about the US's wants and desires? Washington currently has three main
bilateral interests with Vietnam, apart from the long-standing issues from the
Vietnam War, including still unaccounted for missing-in-action US soldiers.
First, with a fast-growing economy and a youthful population, Vietnam has
become an important Asian destination for American businesses, both in terms of
market potential and also as an attractive and alternative site for a wide
range of manufacturing facilities. Many US manufacturers now pursue a so-called
"China-plus-one strategy", aimed at reducing their reliance on an increasingly
more costly China.
Second, as a relatively new member of the Association of Southeast Asian
Nations (ASEAN), Vietnam could be an important partner for the US in pursuing
its broad regional interests. With China's growing diplomatic and commercial
influence in Southeast Asia, the US has arguably recently lost a step in the
strategic region.
In response, the George W Bush administration in 2002 launched the Enterprise
for ASEAN Initiative, aimed at furthering US-ASEAN ties through potential free
trade agreements (FTAs). Last year, Vietnam signed the Trade and Investment
Framework Agreement (TIFA) with the US, paving the way for a potential FTA.
(The US requires potential FTA partners to be both WTO members and TIFA
signatories.)
Third, human-rights issues have figured prominently in recent high-level talks
between the two countries. Religious and human rights in Vietnam have been
brought vocally to Washington's attention from various Vietnamese-American
groups, as well as the influential US Commission on International Religious
Freedom. These groups are well versed in Vietnamese politics and society and
have raised a wide range of issues with significant and often damning details.
Despite US pressure and advice, progress on rights issues depends largely on
Hanoi's still lagging political will.
Beyond this, the US government could arguably do more to help Vietnam move
along the path of reform and development. One significant and immediate step
that the Bush administration could take would be to grant Vietnam's recent
request for preferential tariff treatment under the Generalized System of
Preferences Program, which would allow many Vietnamese products to enter US
markets duty free and give them a competitive boost.
Not only would that be a tremendous boost to the Vietnamese economy, it would
represent the next meaningful step in fostering closer ties between the two
once-adversarial nations.
Anh Tran is an assistant professor of economics and management at Lasell
College in Newton, Massachusetts and holds a PhD in law, policy and society
from Northeastern University, Boston.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road,
Hua Hin, Prachuab Kirikhan, Thailand 77110
