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The U.S. Chamber of Commerce in conjunction with AmCham and the Vietnam Chamber of Commerce and Industry hosted the 3rd annual US-Vietnam Business Summit on May 10 in Hanoi to discuss Vietnam’s economic development and how the country can benefit from ongoing global trade developments.
While full of economic insight, the summit drove home three distinct points:
First, the optimism and excitement about Vietnam’s economic prospects is palpable. It is a large and rapidly growing market for U.S. Chamber members. The country has enjoyed robust GDP growth in recent years, driven by a combination of external trade, strong inward investment flows, and internal economic reform.
Second, it is well positioned to benefit from the U.S.-China trade war. In the first four months of this year, foreign investment was up 50.4% (with China being the top investor) over the same period in 2018. Stories abound, backed by survey data, about relocation of investment from China to Vietnam in order to avoid duties on U.S.-bound exports. This has added to Vietnamese private sector optimism, and privately, many Vietnamese companies support the Trump administration’s hard line against China.
Third, Vietnam’s impressive array of trade agreements will buoy growth. It is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor to the Trans-Pacific Partnership (TPP), which the U.S. withdrew from in 2017, and it has signed a free trade agreement with the European Union, among a number of others.
Unfortunately, the United States is not among the others.
In light of that, many Vietnamese officials and business people the Chamber spoke with wondered about U.S. business’ seeming disinterest in the country. Official statistics show the U.S. as only the 11th largest foreign investor in Vietnam so far this year, a ranking similar to that over the past several years. Although bilateral trade flows totaled more than $54 billion last year, the perception is that the U.S. is economically uninterested in and disengaged from Vietnam.
This perception may be neither fair nor accurate, but it definitely wasn’t inevitable. When the Trump administration started talking about bilateral trade agreements in the wake of its withdrawal from the TPP, Vietnam emerged as a seemingly likely candidate, its name repeatedly bubbling up on the administration’s putative list of potential Free Trade Agreement (FTA) partners. U.S. Commerce Secretary Wilbur Ross in May of 2017, less than two weeks before a White House visit by Vietnam Prime Minister Nguyen Xuan Phuc, talked about capturing the benefits of TPP through a series of “symmetrical bilateral agreements” in one of his speeches.
This resulted in some misplaced optimism that such an agreement with Vietnam was in the offing. For a variety of reasons, it was not, and the idea evaporated. Two years on, there are no FTA negotiations underway with Vietnam or any partners in Southeast Asia. There have been some preliminary discussions with the Philippines, but they have yet to advance.
The Chamber remains hopeful that the U.S. and Vietnam can eventually pursue an FTA, while bowing to the reality that such an agreement is not a near-term prospect. And since the U.S. is not in the CPTPP, our nation’s leaders need to consider what paths are available to grow bilateral trade and investment.
The Chamber made an attempt to address this question in a white paper it issued at the Hanoi conference, which outlines options for the future of the commercial relationship. The Chamber proposes enhancing and intensifying the existing Trade and Investment Framework Agreement (TIFA) between the two countries, raising the level of representation in the TIFA, and pursuing a series of narrow agreements in discrete areas under the TIFA umbrella. These could include the digital economy, IPR, customs and trade facilitation, technical barriers to trade, sanitary and phytosanitary measures, and energy.
In many cases, Vietnam has already made high standard commitments in these areas in the CPTPP and its EU trade deal, so these agreements should not be a conceptual leap for Vietnam. As a practical matter, many of these commitments are often applied on a most-favored-nation basis anyway. No changes in U.S. law would be required, and the U.S. would have an opportunity to help Vietnam implement provisions that will enhance U.S. access to an important market.
Vietnam is well aware of the administration's focus on trade deficits, and will want to reduce its exposure on that score. Last year, the U.S. trade deficit with Vietnam was $36 billion, the 6th largest overall. Some may recall that upon assuming office, President Trump and his advisors compiled a list of 16 countries with which the U.S. has the largest trade deficits. With the China negotiations, the re-negotiation of NAFTA and KORUS, and efforts underway to initiate talks with Japan and the EU, it could be said that all those deficits are being addressed. Vietnam is now at the top of the list.
This hasn’t gone unnoticed; at a dinner hosted by the Chamber in honor of the Prime Minister during his 2017 visit, U.S. Trade Represenative Robert Lighthizer emphasized the need to address the large U.S. trade deficit with Vietnam, and it has been part of the conversation in subsequent high-level meetings.
During the Trump-Kim Summit in Hanoi earlier this year, President Trump invited Vietnam General Secretary and President Nguyen Phu Trong to visit Washington, and dates are presently being worked out. This visit would provide an excellent platform for announcing an enhanced Trade and Investment Framework Agreement.
This is a modest proposal (not of the Swiftian variety), but well suited to the current era of modest expectations. It is practical, achievable, realistic, and would bring concrete benefits for both sides. We should pursue it, and start now.