Vietnam-U.S. Bilateral Trade Agreement

Publication Date: September 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Coverage: Vietnam

Abstract:

On July 13, 2000, U.S. and Vietnamese negotiators signed a sweeping bilateral trade agreement (BTA). Following affirmative votes in Congress and the Vietnamese National Assembly, the BTA entered in into force on December 10, 2001, when the two countries formally exchanged letters implementing the agreement. Under the deal, the U.S. will extend temporary most-favored nation (MFN, also known as normal trade relations [NTR] status) status to Vietnam, a step that will significantly reduce U.S. tariffs on most imports from Vietnam. The World Bank has estimated that Vietnam's exports to the U.S. will rise to $1.3 billion - 60% higher than 2000 levels - in the first year of MFN status, as U.S. tariff rates on Vietnamese exports will fall from their non-MFN average of 40% to less than 3%. In particular, Vietnamese garment exports are expected to record a tenfold increase in the first year after receiving MFN treatment.

In return, Hanoi agreed to undertake a wide range of market-liberalization measures, including extending MFN treatment to U.S. exports, reducing tariffs on goods, easing barriers to U.S. services (such as banking and telecommunications), committing to protect certain intellectual property rights, and providing additional inducements and protections for inward foreign direct investment. Vietnam is the world's 13th most populous country, with 78 million inhabitants, roughly equal to the population of Germany. The U.S. and Vietnam reached an agreement in principle in July 1999, but for nearly a year Vietnam delayed finalizing the deal because of intense divisions among the Vietnamese Communist Party (VCP) leadership.

Under the requirements of Title IV of the Trade Act of 1974 - Section 402 of which is commonly referred to as the "Jackson-Vanik amendment" - signing a bilateral trade agreement is a necessary step for the U.S. to restore MFN treatment to certain socialist countries, including Vietnam. Congressional approval of the BTA will allow the President to extend MFN treatment to Vietnam. Such MFN status will be conditional because - as with all Title IV BTAs - it will require annual Presidential extensions, which Congress could disapprove.

This report outlines the terms of the BTA, identifies U.S. and Vietnamese motivations for entering into the deal, analyzes the reasons for Vietnam's delay in signing the agreement, and explains Congress' role in the process of restoring normal trade relations treatment to Vietnam. This report will be updated periodically. Further information on U.S.-Vietnam relations is available in CRS Issue Brief IB98033, Vietnam-U.S. Relations. Further information on the legislative and legal procedures for handling the BTA is available in CRS Report RS20717, Vietnam Trade Agreement: Approval and Implementing Procedure.