2019 marks the 25th anniversary of the normalization of trade and investment relations between the United States and Vietnam. During this period, the two countries have significantly strengthened their economic, political and security ties. Normalization of the economic relationship was followed by the restoration of diplomatic relations in 1995, the conclusion of a bilateral trade agreement in 2000, and Vietnam’s accession to the World Trade Organization (WTO) in 2007.
These milestones have transformed the bilateral relationship and spurred robust economic growth and development in Vietnam. Bilateral goods trade grew from $1.5 billion in 2000 to$59 billion in 2018, and Vietnam is now the 16th largest trading partner of the United States, while the United States is now Vietnam’s third largest trading partner. During this period, Vietnam’s per capita income tripled from $2,160 to $6,140 in 2017; the share of people living below the national poverty line fell to 2 percent in 2017 from 17 percent a decade earlier, and Vietnam’s ranking on the WTO’s Ease of Doing Business rose to 69 from a high of 99 in 2013.
US-Vietnamese military and security ties are strong, and the two countries have worked closely to address a variety of commercial issues over the past two years. However, there is an opportunity to elevate and intensify the engagement between the two countries on trade issues. Recognizing Vietnam’s economic dynamism and commercial and strategic significance, the United States hopes to enhance bilateral trade relations and promote fair and reciprocal trade. At the same time, Vietnam seeks to expand trade and investment with the United States. It also sees an opportunity to benefit from the shifts in regional supply chains resulting from growing tensions between the United States and China and to showcase its strengths as an alternative destination for US investment.
The size and rapid growth of economic ties and the tremendous economic interests both sides have in maintaining and expanding the relationship make it incumbent upon Washington and Hanoi to develop a vision for the future of the commercial relationship. The business communities in both countries want to be partners in developing this vision.
How do we get there?
We recognize that the business community’s ambitions sometimes run into political headwinds, but it is our strong position that the United States and Vietnam must consider options for deepening trade and investment ties. After reviewing possible approaches, we recommend launching an initiative to intensify commercial engagement under the auspices of the existing Trade and Investment Framework Agreement (TIFA). We believe that by strengthening and reinforcing existing processes, we can create new and better results, including agreements designed to achieve concrete outcomes on priority issues. Using the existing institutional TIFA framework, which both sides have found productive, would facilitate immediate resolution of key bilateral issues, detailed below, building confidence and paving the way for future FTA negotiations. This initiative could also help promote bilateral trade and investment in areas of key interest to both countries.
Under the initiative, the United States and Vietnam would elevate the level of TIFA discussions to more senior officials; we recommend that this be in the Office of the Government (OOG) in Vietnam, and the United States Trade Representative (USTR) in the United States. Both play central roles in their respective countries in developing and coordinating policy across the many ministries and departments that have equities on trade and investment issues. We would expect that the Ministry of Industry and Trade would also play an important role. Taking advantage of the TIFA architecture, both sideswould identify a discrete set of new initiatives in areas of priority mutual interest, in which the United States and Vietnam could negotiate agreements with specific commitments. Where appropriate, the United States could provide technical assistance, capacity building, and/or financing to support implementation, working in close coordination with the private sector.
To start, the two governments should consider issues on which common approaches are critical to increasing trade and investment,supporting their economic growth and development objectives and promoting their regional and global competitiveness. For Vietnam, this also would include promotion of infrastructure development, economic diversification, innovation and higher value-added economic activity, and good governance.
The blueprint
To achieve these goals, the two countries should focus on a blueprint that addresses issues including digital trade, intellectual property rights, customs and trade facilitation, technical barriers to trade, sanitary and phytosanitary standards, and energy infrastructure.
Digital trade. The US and Vietnam should negotiate an agreement on digital trade, which would distinguish Vietnam as a leader in developing a balanced, predictable, and forward-looking approach to digital trade issues and enhance its attractiveness as an investment destination. The agreement should include state-of-the-art obligations like those in the US-Mexico-Canada Agreement that ensures the free flow of data across borders for all industries, including financial institutions. It should also include a bilateral dialogue to increase cooperation on privacy, cybersecurity, and other emerging digital trade issues. The United States and Vietnam also should seek to address issues surrounding Vietnam’s implementation of laws related to digital trade, particularly the Cybersecurity Law, and measures on electronic payment services, as well as its upcoming data privacy law. In addition, it should seek to remove barriers to the deployment of state-of-the-art technologies such as additional licensing requirements for the import of products containing cryptography.
Intellectual property rights (IPR). The United States and Vietnam should negotiate an agreement on IPR, which would help Vietnam promote economic growth and development and attract foreign investment, including in advanced industries, which would otherwise likely go to China or other competitors in the region. The agreement would include a robust program of technical assistance and capacity-building for implementation of the IPR commitments Vietnam made in its recently-concluded trade agreements, focusing particularly on those areas where Vietnam is likely to face the most significant challenges.
Customs and trade facilitation. The United States and Vietnam should negotiate a customs and trade facilitation agreement, which would help reduce duty evasion and increase government revenues, diminish public health and safety risks from counterfeit products and other illegal trade, and promote bilateral trade. The agreement would contain commitments no less rigorous than those in CPTPP and the EU-Vietnam FTA and provide for capacity-building and technical support from the United States, especially on risk management -- the application of transparent procedures designed to ensure compliance with customs laws and regulations and to minimize risks that customs controls will be circumvented.
Technical Barriers to Trade (TBT). The United States and Vietnam should negotiate an agreement or series of agreements on TBT issues to help align US and Vietnamese standards. Doing so would facilitate trade by eliminating the need for companies to develop products that meet unique standards of each market, encouraging transparency and good governance, and promoting interoperability and shared regulatory principles to achieve common public health, safety or environment standards.
Sanitary and Phytosanitary Standards (SPS). The United States and Vietnam should negotiate an agreement on SPS issues including obligations to strengthen disciplines for science-based SPS measures modeled on those in the US-Mexico-Canada Agreement (USMCA) in order to help align US and Vietnamese standards, better protect the health and safety of their respective food supplies, encourage transparency and good governance, and promote bilateral agricultural trade, a priority interest for both countries.
Energy Infrastructure. The United States and Vietnam should negotiate an agreement on energy infrastructure to address non-tariff barriers, standards and other issues that would help Vietnam develop the energy infrastructure needed to support its growing economy.
Substantive progress in these areas will address many longstanding market access concerns and would support Vietnam’s aspirations to propel itself to the next sphere of economic competitiveness. Moreover, these are all areas in which progress would be consistent with the longer-term goal of a high-standard trade agreement, should both choose to pursue it.
Next Steps
Economic relations between Vietnam and the US have grown exponentially since the two countries restored diplomatic ties, and further deepening economic cooperation presents important opportunities for both countries. The two sides should initiate discussions as soon as possible and conclude agreement on the specific initiatives to be addressed in time for General Secretary Trong’s expected 2019 visit to Washington, or on the margins of the APEC meeting in Chile, or another mutually-convenient venue. Following signature, the two sides should immediately begin work on the various initiatives, with a first meeting under the intensified TIFA to be held in spring 2020, and a second meeting to be held in the fall surrounding the APEC meeting in Malaysia.
These initiatives are described in greater detail in the attached annex.
