Vietnam – US: Evolving From Mutual Distrust to Robust Partnership

The year 2010 marks a milestone of Vietnam – US relations as both countries celebrate the 15th anniversary of the establishment of diplomatic relations. US relations with Vietnam have become increasingly cooperative and broad-based in the years since political normalization. In 15 years, the Vietnam-US relationship has evolved from deep-seated mutual distrust to a robust partnership based on mutual respect and cooperation.

Key dates in Vietnam – US relations

Vietnam and US officially established diplomatic relations on July 12, 1995. The exchange of ambassadors in May 1997 opened a new chapter of Vietnam-US relationships. For the past 15 years, both countries have exchanged visits by leaders including:

Jan 28, 1995: The two countries announced the opening of liaison offices.

July 11, 1995: President Clinton and Prime Minister Vo Van Kiet announced the establishment of diplomatic relations between the US and Vietnam

Aug 5, 1995: Secretary of State Warren Christopher inaugurated the US embassy in Hanoi as he paid the first official visit by a US secretary of state to Vietnam.

May 1997: the two countries exchanges Ambassadors: Mr. Le Van Bang becomes Vietnamese Ambassador to the US; Mr. Douglas Peterson as US ambassador to Vietnam.

Oct 1st 1998: Deputy Prime Minister, Foreign Minister Nguyen Manh Cam visited the US, the first official visit to the US.

July 25th 1999: Vietnam signed a trade agreement in principle with the US in Hanoi.

June 19th 2000: The US pledged 1.7 million dollars in humanitarian aid to help Vietnam detect and destroy mines and unexploded ordnance.

Nov 16-19th, 2000: US President Clinton paid an official visit to Vietnam

Oct. 8th, 2001: US Senate approved the Bilateral Trade Agreement between the US and Vietnam

Oct 18th, 2001: President Bush signed Resolution of ratification of BTA

Dec 10th, 2001: Bilateral Trade Agreement went into effect after exchange of ratification letters by Vietnam’s Trade Minister Vu Khoan and U.S Trade Representative Zoelick at Blair House

June 12-22nd, 2002: Deputy Prime Minister Nguyen Manh Cam paid a visit to the US to promote trade and economic relations between the two countries.

June 19 – 25, 2005: Visit to the United States by Vietnamese Prime Minister Phan Van Khai

November 17 – 20, 2006: First visit to Vietnam by US President George W. Bush. The President attended the Asia Pacific Economic Cooperation (APEC) Summit in Hanoi and visited Ho Chi Minh City.

December 8, 2006: Approval by US House of Representative of the Bill to extend Permanent Normal Trade Relations (PNTR) status to Vietnam. Dec 9, 2006, the Bill was passed in the US Senate.

March 9 – 16 2007: Visit to the US by Deputy PM and Foreign Minister Pham Gia Khiem.

June 18 – 23 2007: Historic Visit by President of Vietnam Nguyen Minh Triet to the US

Jan 22, 2008: Vietnamese Ambassador Extraordinary and Plenipotentiary Le Cong Phung presented Letter of Credence to US President George W. Bush.

June 23 -26 2008: Visit to the US by Vietnamese Prime Minister Nguyen Tan Dung

Impressive figures

Economic relations between Vietnam and the U.S are very optimistic. At the establishment of diplomatic relations 15 years ago, there was no US investment in Vietnam. However, US investment has strongly increased after the Bilateral Trade Agreement (BTA) between Vietnam and US came into effect in 2001. The 2001 entry-into-force of the BTA between the US and Vietnam was a significant milestone for Vietnam’s economy and for normalization of US-Vietnam relations. On the day that BTA came into effect, Vietnam was granted unconditional Permanent normal trade relations (PNTR) status by the United States in December 2006. This helped lower the average tariff on imported products from Vietnam to the US market. This also opened a huge opportunity for Vietnamese exporters. US exports to Vietnam have nearly tripled since 2006. While in 2001 the two-way trade of both countries was just around US$ 1 billion, by 2009 the number reached US$ 15.4 billion, a 15 fold growth, and US was also the largest foreign investor in Vietnam in 2009. Even during the global economic downturn in 2009, US exports to Vietnam grew by 11%, while they dropped by double digits in most other ASEAN countries.

The progress in Vietnam-US bilateral trade and investment has also coincided with a tremendous economic transformation in Vietnam. Incomes in Vietnam have grown an average of 7.2 % per year over 10 years, and GDP per capita has grown from US$189 in 1993 to US$ 1, 052 in 2009. In addition, the poverty rate in Vietnam has fallen from 58 % in 1993 to 12% in 2009. Vietnam is one of the most rapidly transforming countries in the world and, in many ways, the US has contributed to this transformation. Particularly, in 2009, the United States exported US$3.1 billion in goods to Vietnam and imported US$12.3 billion in goods from Vietnam.

Another sign of the expanding bilateral relationship was the signing of a Bilateral Air Transport Agreement in December 2003. Several US carriers already have third-party code sharing agreements with Vietnam Airlines. Direct flights between Ho Chi Minh City and San Francisco began in December 2004. The Bilateral Air Transport Agreement was amended in October 2008 to fully open markets for cargo air transportation. Vietnam and the United States also signed a Bilateral Maritime Agreement in March 2007 that opened the maritime transport and services industry of Vietnam to US firms. Top US corporations have inked major contracts with Vietnamese counterparts – including Boeing partnering with Vietnam Airlines, Chevron and Conoco Phillips with PetroVietnam, and Lockheed Martin with VNPT.

It can be said that this time is the best ever since the normalization of diplomatic relations between Vietnam and US in 1995. Vietnam and the US have agreed on the establishment of various mechanisms, which are not only indications of mutual trust but also shape the countries’ relationship for the years to come.

More projects to come

The US continues to top the list of big foreign investors in Vietnam, in 2009, the US ranked 6th among foreign investors in Vietnam, with 495 projects valued at US$ 14.5 billion.

In the first quarter of 2010, total registered capital of US firms in Vietnam reached to US$ 9.8 billion (including 3 big projects and 40 small ones). One of the newest US invested projects is Dragon Sea in Vung Tau, valued at US$ 900 million. The project is expected to be implemented in eight phases and in a period of ten years. The Creative City project in Phu Yen province is invested by Galieo Group with a total investment capital of US$ 1.68 billion for the first phase. In addition, the Dragon Beach Project in Quang Nam, valued at US$ 4 billion, has just been granted license. Under the investment certificate, the project will build nine hotels, each with 2,000 rooms, a 50ha entertainment park, an international convention centre, shopping centres, office buildings, apartments and villas.

Besides, some US invested projects have expanded investment activities in Vietnam. US firms Proctor and Gamble and Colgate-Palmolive have just expanded their scale of operations in Vietnam after a decade of penetrating the market. General Electric was one of the first American companies to open a representative office in the Vietnam, in 1993, but it only set up an operating company 10 years later. In 2008, GE invested US$61 million to build a factory in Haiphong to manufacture components for power generation systems.

According to Mr Herb Cochran, Executive Director of the American Chamber of Commerce in Vietnam (AmCham), Vietnam is considered the optimal choice of US companies investing in ASEAN. Vietnam is attracting expanding satellite plants in addition to main establishments in China and India. Normally, investment is followed by trade and this is, thus, the main reason US companies have deep interest in Vietnam. Investment opportunities in Vietnam will be more and more open as the country assumes chairmanship of ASEAN in 2010.

Duc Quan

Vietnam-US Bilateral Trade Enjoying a Boom (Homepage \ hinh Dau tu cua my vao Viet Nam.jpg)

Since the Bilateral Trade Agreement (BTA) went into effect in 2001, a historic moment in economic relations between Vietnam and US, the two – way trade between Vietnam and the US has dramatically increased, up 15 fold to over US$ 15 billion in 2009 from just US$ 1 billion in 2001.

According to statistics, since 2003 the US has consistently been the biggest goods importer of Vietnam, accounting for some 20% of its total export turnover in 2005-2009. Key Vietnamese exports to the US include garments, textiles, timber, wooden products, footwear, crude oil, seafood, computers, and electronic goods and accessories. From 2005 to 2008, the US remained Vietnam’s 3rd biggest trading partner. Especially, the US overtook Japan to become the 2nd biggest trade partner in 2009, after China.

In 2009 alone, Vietnamese exports to the US were valued at US$12.3 billion and imports from the US were US$3.1 billion, despite the bad effects of the global financial crisis. As a result, the two-way trade turnover reached US$15.4 billion. In first quarter of 2010, Vietnam has exported US$2.8 billion worth of goods to the US, posting a year on year growth of 23.2%, the largest increase seen so far.

According to the Ministry of Industry and Trade, Vietnam has raked in US$3.9 billion from exporting goods to the United States in the first four months of 2010.The figure has made the United States Vietnam’s leading export market, with a 20% share of the country’s total export turnover.

Vietnam-US trade in the first quarter this year maintained its growth rate, with total import-export turnover up 16.5 % compared to the same period last year. In terms of footwear, Vietnam’s export turnover in the first five months went up 8.6% to US$1.8 (General Department of Vietnam Customs). Among the goods exported to the US, garments have the biggest export value, gaining US$1.3 billion, more than US$1.2 billion higher than last year. Wood and furniture is in second place, achieving nearly US$393 million, up 26 %.

In particular, Vietnam Wood and Forestry Product Association (Viforest) reported that the value of signed contracts for 2010 totalled about US$3 billion, increasing by US$320 million over early 2009. The contract value of first five months accounted for US$1.4 billion, up 35 % against the same period of last year thanks to the sharp surge in contract numbers for exports to key traditional markets, including the US.

Barriers remain

Although the export amount to the US remains high, Vietnam still faces many difficulties. In terms of agricultural products: Vietnam previously was a big exporter to the US because Vietnam has many agricultural advantages. However, now more US made agricultural products are flowing to Vietnam. According to statistics from the US Department of Agriculture (USDA), in Jan-March, Vietnam’s US made agricultural product trade deficit hit US$78 million for the first time in the last five years. Vietnam’s agricultural export position in the US market seemed to change as the domestic market has more and more regulations on exports.

At the same time, many key export items of Vietnam, including rice and shrimp, saw a flat trend in export to US. Even, the export turnover of black tiger shrimp fell 1 %, while rice plunged 78 % in the first quarter of 2010. Lately, Vietnam has sued the US in the WTO for applying “zeroing” treatment on Vietnam’s processed shrimp. At this time, the US is imposing an antidumping tariff on Vietnam’s frozen black tiger shrimp.

In addition, Vietnam’s tra fish exports are also suffering antidumping tariffs on the US market, and the product is facing another risk. According to US Farm Bill 2008, the USDA will remove Vietnam’s tra fish from the list of catfish that the US applies the comprehensive food safety and hygiene supervision (from breeding, processing to distribution).

In general, agricultural products saw a rise in US market in the recent time bringing in 2009 export turnover of US$70 million, and tea with annual US$5 billion earnings. If the US gives Vietnam Generalized System of Preference (GSP) and recognizes Vietnam to be a market based economy, Vietnam’s agricultural exports will be much higher in the future, and thousands of other Vietnamese products could enter into the US market duty free.

Besides, the US is also a huge market for Vietnamese fruits, especially dragonfruit. Currently, Rong Do Company (HCMC) exports around six containers (approximately 77 tonnes of dragon fruit) by sea and 10 containers (9 tonnes) by air per month. The above amount is still limited due to stringent quality requirements. Today, the Ministry of Agriculture and Rural Development also continues to develop a “Good Agricultural Practices” (GAP) system to strengthen and ensure quality maintenance, particularly to control insecticide usage. By doing this, hopefully, in the coming time, many other kinds of Vietnamese fruits will be accepted in the US market.

Tags: Vietnam US Trade