Landmark Trade Pact at Hand for U.S. and Vietnam

Twenty-four years after the end of the Vietnam War, an agreement establishing fully normalized trade relations between the United States and Vietnam is within reach and could be signed within days, officials on both sides say.

The accord, known as the Bilateral Trade Agreement, has been the subject of three years of negotiations in Washington and Hanoi. It appeared doomed to failure as recently as 10 months ago. But concessions on both sides led to a breakthrough last month, and negotiators meeting in Hanoi say major differences have been resolved. Only “small, knotty” issues remain, said one.

“We have narrowed the existing problems . . . and have reason to be optimistic,” said Phan Thuy Thanh, spokeswoman for Vietnam’s Foreign Affairs Ministry.

An American close to the negotiations agreed, saying, “We’re within an eyelash of getting an agreement.”

The accord--a key element of normal relations with any country--would eliminate the last commercial vestige of the war. As such, it would open markets in this nation of 77 million people to U.S. businesses, particularly in the areas of telecommunications, banking, insurance and trade, by establishing trade and investment standards that are practiced in almost every country.

Although the trade agreement’s ultimate effect is difficult to quantify, it would sharply lower tariffs between the two nations and make it easier to invest and do business in Vietnam. This in turn could encourage U.S. manufacturers to open plants or increase their investments in existing facilities.

By removing trade and investment barriers, it would enable Vietnam to increase its exports to the U.S. of manufactured goods such as shoes, garments and toys and agricultural products such as rice, coffee and cashew nuts.

The state-run Lixeha company, for example, exports to the U.S. each year 300 bicycles made of bamboo that are popular collectors’ items.

“If we get a trade agreement, we could increase our sales tenfold,” said Do Thi Nga, Lixeha’s general director. Under the trade agreement, he estimates, tariffs would drop to 20% from 100%.

Nike manufactures 20 million pairs of shoes a year at its five plants in Vietnam. With a trade agreement in place, its duties on exports to the U.S. would drop to 8.5% from 20%, a decrease that would increase exports--earning Vietnam more foreign currency while saving U.S. consumers money.

“We do business in 100 countries, and Vietnam is the only one we don’t have normalized trade relations with,” said Bradley LaLonde, Vietnam manager for Citibank, one of about 350 U.S. companies here.

“We’re hopeful an agreement will give a boost to everyone doing business in Vietnam and will lead to higher levels of investment and a better climate for doing business. We’d like to get the [accord] behind us and move on,” he said.

Because Washington did not lift its trade embargo against Vietnam until 1994 and did not establish diplomatic relations until 1995, the U.S. has never gained a real foothold in an emerging market largely captured by Japan, Singapore, Taiwan and South Korea. The U.S. accounts for only 4% of foreign investment in Vietnam. Only about 1,000 Americans live here.

Among the lost opportunities: The huge bicycle market is controlled by Taiwan and China; the hotels by France, Singapore, South Korea and other Asian countries; the oil industry by Russia; car manufacturing by South Korea and Japan; meat imports by Australia and New Zealand; the sale of jetliners to Vietnam Airlines by France.

Vietnam’s exports to the United States, now worth $470 million a year, would nearly double in the first year of a trade accord, the World Bank says. Within four years, 70% of Vietnam’s exports could be destined for the U.S., according to the World Bank.

The Paris peace accords were signed in 1973, ending the U.S. combat role in the Vietnam War, and hostilities ended two years later when North Vietnam captured Saigon. President Richard M. Nixon and Secretary of State Henry A. Kissinger reportedly promised Hanoi $3 billion in reconstruction aid. That pledge was never honored--and U.S. officials said no valid pledge was made--even though the United States had helped rebuild Japan and Germany after their defeat in World War II.

In addition to the trade embargo, Washington banned travel to and investment in Vietnam, froze Vietnam’s assets in the United States, blocked the country’s entry into the United Nations and argued against Hanoi being seated in the Assn. of Southeast Asian Nations.

The absence of a trade agreement is the last wartime legacy of that policy.

But U.S. Ambassador Douglas “Pete” Peterson, a former prisoner of war, has made reconciliation and normalized relations with Vietnam a top priority. He has overseen the signing of a copyright agreement and is close to getting deals for cooperation on drug enforcement, on science and technology and on a code-sharing arrangement between Vietnam Airways and an as-yet-unidentified U.S. carrier.

U.S. businesspeople here, frustrated with the slow pace of Vietnam’s economic reforms, do not discount the possibility that any one of a number of issues could still unravel the trade agreement--which must be approved by Congress.

For Vietnam, the talks come at a crucial time. Not only is a U.S. trade agreement a necessary step toward Hanoi’s membership in the World Trade Organization, it is needed to give the undercharged economy a much-needed jolt.

Foreign investment in Vietnam was down 42% in the first six months of 1999 from the same period a year ago. Some foreign investors have left Vietnam in frustration over the slow pace of economic reform.

Economic growth has fallen by half, the tourism industry is sluggish, unemployment is rising and six mutual funds that invested in Vietnam have turned in some of the worst performances of any country funds.

Even so, some members of Hanoi’s government are uneasy about the trade agreement. Those with vested interests, such as the Defense Ministry, which has invested in everything from shoe manufacturing to hotels, fret about having to compete with foreign companies on a level playing field.

And many have an innate paranoia about foreign domination, fearing that the U.S. is using the trade agreement to force Vietnam into changing its communist system.

“We’re not trying to force anything Western on Vietnam,” said Peterson. “Everything in the trade agreement reflects normal business practices in the world today. If Vietnam creates an economy that doesn’t embrace these norms, no investors will understand what the ground rules are in Vietnam.”

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Times staff writer Blair Golson in Washington contributed to this report.

* TROUBLE AT WTO: A leadership fight at the World Trade Organization could hurt the next round of talks. C1

* RECORD TRADE GAP: America’s trade deficit swelled to another record in May, topping $21 billion. C3