VIETNAM: Trade agreement with US sparks debate

July 26, 2000
Issue 

HANOI — "Sovereignty is about pointing your guns at invading aircraft. Trade liberalisation has nothing to do with sovereignty." This was the confident response from a visiting Canadian "expert" to a concerned Vietnamese official's question during recent discussions in Hanoi on economic integration.

Twenty five years since the departure of invading US aircraft, five years since the renewal of diplomatic ties with Washington, and following almost four years of arduous negotiations, on July 13 Vietnam and the United States signed a trade agreement that will usher in "normal trade relations" between the two countries.

The road to this historic signing has been far from smooth. The foremost concern is the threat to Vietnam's sovereignty, an issue which has generated uncertainty and division within the Vietnamese Communist Party (VCP).

Showing how sensitive it is to this concern, the government's trade minister Vu Khoan's first words to the Vietnamese media after signing the agreement were: "I would like to stress that the agreement is based on the principles of equality, mutual benefit and respect for each other's independence and sovereignty."

Following the ignominious departure from Saigon of the US ambassador and the remaining US troops on April 30, 1975, Vietnam immediately became a "pariah" state in the eyes of Washington and was severely punished for winning what the Vietnamese call the "American War". Vietnam became a "Category Z" country — US aid agencies were refused permission to work there or to send humanitarian aid. With the support of Britain, Washington "persuaded" other Western countries to join the embargo against Vietnam, leading to one of the harshest trade boycotts in history.

Doi Moi

With massive shortages through the late 1970s and 1980s, and still recovering from the war, the VCP faced unprecedented criticism. In December 1986, under enormous pressure, the "old guard" of the VCP politburo resigned en masse. The new leadership, headed by "Vietnam's Gorbachev", Nguyen Van Linh, embraced the free market as way of breaking out of the economic crisis caused by the embargo. This change was known as Doi Moi (renovation).

Following less than two years of Doi Moi, the World Bank, the International Monetary Fund (IMF) and international investors were back. In February 1994, Washington lifted its trade embargo, and in May 1997 ambassadors were exchanged. In April 1997, Washington presented a draft trade agreement to Hanoi.

After two years of complex negotiations, VCP secretary-general Le Kha Phieu addressed the politburo in mid-June last year and convinced a majority that it was time to make concessions in order to reach the final agreement.

In early September, the final text was ready to be signed later that month by Premier Phan Van Khai and US President Bill Clinton at the APEC summit in New Zealand. Two days before the scheduled signing, Vietnam announced that it was not prepared to sign. After the VCP Central Committee considered the proposed agreement in November, it announced that the agreement was "inequitable" and "still needs some work".

In the weeks prior to the signing date, the document had been translated into Vietnamese and distributed widely amongst the politburo and ministries. According to a senior party member, a "firestorm of protest by those who would be most affected. They lobbied Do Muoi, the former VCP secretary-general and now advisor to the politburo, to intervene."

Another possible factor was the visit to Hanoi by US Secretary of State Madeline Albright during this period. Apparently, Albright's questions on Vietnam's plans to introduce multiparty politics were not well received.

Concessions

The central concessions in the US-Vietnam trade agreement include: greater access for US firms to service industries; US firms being treated no differently from domestic firms; the reduction of tariffs and quotas on US imports; and the protection of US intellectual property. In exchange, the US will reduce tariffs on Vietnam's exports from approximately 40% to 3%. According to World Bank estimates, this would mean a US$800 million increase in export earnings for Vietnam in the first year, almost double the current level.

Nevertheless, Vietnamese officials have been hesitant to sign the deal. "If the agreement improves trade, that's one thing, but it also pushes reform. That's what makes us hesitate. We must determine the steps of reform", an official said.

Vietnam's leadership is uncertain about further trade liberalisation with the US, for both ideological and pragmatic reasons. At least amongst a section of the VCP leadership, it means both "a further bow to capitalism, and in all likelihood, a loss of privilege".

Government opponents of the agreement and of Vietnam's joining the World Trade Organisation (WTO) claim that the most important task is to put in place a social safety net before the country embarks on a market economy. They also point out that the regional economic crisis demonstrated that greater economic openness brings greater instability.

The negative impact of trade liberalisation on state-owned enterprises (SOEs) is at the top of the government's list of concerns. Since the end of the 1980s, the number of SOEs has declined from around 12,000 to about 5300. Still, they account for approximately 40% of gross domestic product, and 40% of exports, and employ 1.6 million people.

Even though Vietnam's 1992 constitution, which says that the state sector "shall be consolidated and developed and play the leading role in the national economy", the government plans to reduce the number of SOEs to around 2000 within five years. It estimates that 75,000 people will lose their jobs as a result. According to World Bank calculations, the number of jobs lost could be as high as 600,000.

Despite this privatisation push, Vietnam's laws on SOEs do not meet the demands contained in the US-Vietnam trade agreement. At present, the law limits US firms to 30% ownership in privatised companies. The accord states that, "Seven years after entry into force of the agreement, US companies shall be allowed to establish 100% US-owned companies to engage in trading activities in all products."

Consistent with WTO regulations, SOEs must either become "competitive" or disappear — and leave vast unemployment behind. The VCP's political and economic interests are firmly entrenched in SOEs and the government has legitimate concerns about social instability caused by privatisation and unemployment.

Since the collapse of the Soviet bloc, and in response to an increase in public protests, maintaining social stability is the government's political priority. This may even take precedence over economic growth. One example of this is the recent decision to order the management of a state-run coal mine in Quang Ninh Province to re-employ over 50,000 laid-off miners, even though the mine had four million tons of stockpiled coal. "There are few other jobs in the province and everyone wishes to avoid violence and social instability", explained a mine manager. Such "subsidies" to the state sector would not be possible under the trade agreement.

Service sector

Vietnam's service sector also faces enormous changes under the agreement. Under the WTO's General Agreement on Trade and Services (GATS), which are part of the US-Vietnam agreement, services are treated as tradeable "commodities" regulated by trade agreements. Consequently, just as government subsidies to products like rice and sugar are prohibited, services offered by a US subsidiary must compete on a "level playing field" with domestic service providers. As Noam Chomsky has observed, the beneficiaries will be US corporations which "are best positioned to dominate a level playing field".

Telecommunications is a key service industry that the West wants to get its hands on. A recent New York Times article celebrates the benefits for "American values" of the new WTO agreement on telecommunications because it "empowers the WTO to go inside the borders of the 70 countries that have signed it".

In Vietnam, the telecommunications network is seen as a vital social service. State ownership is regarded as crucial for national security. A recent law specifically states, "Enterprises engaged in the national and international information network shall not be equitized [privatised]". This law will be severely tested or even dumped when US telecommunications giants move in.

Currently, Vietnam requires licenses for the import of cultural, artistic and cinematic products. As every visitor to Vietnam knows, there are strict customs controls, particularly over political and erotic literature. Quotas on imports, and licenses that have the same effect, will be largely prohibited under the trade agreement.

Under the agreement, ownership of "cultural products" is "protected" through the Trade Related aspects of Intellectual Property Rights (TRIPS) agreement. In its submission to the WTO Working Party, Vietnam claimed exemption from these regulations on the basis of "social and economic development" and "the needs of society". However, as a European Union report points out, "Such nationalisation of individual rights is not permitted under the TRIPS regime."

Nike's Vietnam chief, Lalit Monteiro, was particularly happy with the signing of the agreement. "For Nike, like others, we will get much benefit from the signing of the deal. First, under the deal, our intellectual property rights will be reserved and the problem of imitation and fakes could be largely solved. Secondly, we can have better access to the domestic market and end the reliance on local distributors."

If all "imitations and fakes" disappear from Vietnam in order to protect US "intellectual property rights", the economy will be decimated.

McDonald's and KFC are yet to reach Vietnam. Penthouse is not for sale. Children still play on the streets, blissfully unaware of Pokemon, Gameboys or the latest Disney blockbuster. Fashions in clothes, food and consumer goods are still very much Vietnamese. For how much longer?

Resources

While concerns about the downside of trade liberalisation are widespread, those in the VCP who argue in favour of the agreement point to necessity of making concessions.

As part of the cease-fire agreement, US President Richard Nixon promised to pay US$3.25 billion in reparations — a promise that was never kept. Even then, the Vietnamese knew that their country's independence was threatened without massive support to pay the repair bill.

Like all poor countries, Vietnam needs resources to develop. Unlike most, however, Vietnam has endured 50 years of war and economic embargo.

While many donors recognise the country's dire need, most development aid comes with familiar conditions. In 1993, Vietnam was offered some US$3 billion in grants and loans by the "Paris Club" of donors, on the condition that it "opened" its economy to the "free market". Every recent World Bank, IMF and Asian Development Bank report echoes this demand. Presently, the IMF and World Bank are withholding a US$500 million loan package until Hanoi agrees to a "more comprehensive approach to reform".

The Vietnam Business Journal reports: "There is much in [the US-Vietnam trade deal] that suggests the agreement marks an impending turn towards a more open, liberal Vietnamese economy. Most importantly, it is broadly consistent with reforms demanded by the World Bank and the IMF."

Citizens of every developing country are aware that trade liberalisation is linked to national independence and sovereignty. More than most, the Vietnamese, who have lost millions of lives defending their independence, are mindful of Western agendas and abhor the thought of foreign domination.

As long as the guns are still at their heads, the Vietnamese people and their leaders must face the dilemma of deciding to what degree they must compromise their hard-won independence to satisfy the imperatives of the "global economy".

BY JENNY FRANCIS

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