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Tuesday, May 18, 2010

U.S.-Vietnam Economic and Trade Relations: Issues for the 111th Congress

Michael F. Martin
Specialist in Asian Affairs

After more than two decades of virtually no economic contact, the United States and Vietnam reestablished trade relations during the 1990s. Since then, Vietnam has rapidly risen to become a significant trading partner for the United States. Bilateral trade has risen from about $220 million in 1994 to $15.4 billion in 2009. Vietnam is the second-largest source of U.S. clothing imports, and a major source for footwear, furniture, and electrical machinery. Much of this rapid growth in bilateral trade can be attributed to U.S. extension of normal trade relations (NTR) status to Vietnam. Another major contributing factor is over 20 years of rapid economic growth in Vietnam, ushered in by a 1986 shift to a more market-oriented economic system. 

Bilateral trade may increase if both nations become members of the Trans-Pacific Strategic Economic Partnership Agreement (TPP). The United States and Vietnam are among the eight countries negotiating the terms of expansion of the trade association. The Obama Administration envisions an expanded TPP as a "21st Century free trade agreement" that will become the cornerstone for a trans-Pacific regional trade association. Vietnam is also a party to negotiations to form a larger pan-Asian regional trade association based on the Association of Southeast Asian Nations (ASEAN) that could exclude the United States and could prove to be an alternative to the TPP and the U.S. vision for regional economic integration in Asia. 

The growth in bilateral trade has not been without its accompanying issues and problems. Vietnam has applied for acceptance into the U.S. Generalized System of Preferences (GSP) program and is participating in negotiations of a Bilateral Investment Treaty (BIT) with the United States. Both the Bush and the Obama Administrations have shown some hesitance in accepting Vietnam as a GSP beneficiary country and in concluding a BIT with Vietnam. Vietnam would like to have the United States officially recognize it as a market economy. 

There have also been problems with U.S. imports of specific products from Vietnam. In 2003, the United States began collecting antidumping duties on certain fish imports from Vietnam. From 2007 to 2009, the United States implemented a controversial monitoring program for selected clothing imports from Vietnam. In 2008, the 110th Congress passed legislation that transferred the regulation of catfish from the Food and Drug Administration to the U.S. Department of Agriculture. The Vietnamese government strongly protested these actions as largely protectionist measures. An examination of recent trends in bilateral trade reveals that other product categories—such as footwear, furniture, and electrical machinery—could generate future tension between the United States and Vietnam. Observers of Vietnam's economic development have also been critical of Vietnam's protection of workers' rights, its enforcement of intellectual property rights laws and regulations, and the country's exchange rate policies. 

The 111th Congress may play an important role in one or more of these issues, as have past Congresses. The GSP program is scheduled to expire on December 31, 2010, and if Congress should take up GSP renewal, it may also consider Vietnam's pending application. The 111th Congress may also weigh in on clothing and fish imports from Vietnam, or its designation as a market or non-market economy. Finally, if current growth trends continue, Congress may be asked to act on the rising amount of footwear, furniture, and/or electrical machinery being imported from Vietnam. This report will be updated as circumstances require.

Date of Report: May 3, 2010
Number of Pages: 24
Order Number: R40755
Price: $29.95

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