US and Vietnam enter new era

For many years the aftermath of war coloured US-Vietnamese ties

President Bill Clinton has announced that the United States and Vietnam have signed a wide-ranging trade deal, a quarter of a century after the end of the Vietnam War.

The historic agreement, reached after four years of negotiations, is expected to encourage more US companies to invest in Vietnam, and help speed-up plans for Vietnam to join the World Trade Organisation.

"From the bitter past we plant the seeds of a better future," said President Clinton.

Clinton: Ready to sign a trade deal

The deal is also a sign that Vietnam's ageing Communist leadership has decided to embrace reform.

The US and Vietnam reopened diplomatic relations in l995, ending two decades of hostility which followed the Vietnam War.

The market-opening agreement was reached in principle this week after talks between the US trade representative, Charlene Barshefsky, and Vietnam's trade minister, Vu Khoan.

Under the deal, tariffs on Vietnamese products would fall from an average of 40% to 3%.

Huge potential

Vietnam has received a wave of foreign investment since it first opened its economy in the 1990s.

Vietnam could be a vast market for US goods

But US companies have been slow to take advantage of the situation, put off both by the cost of exporting back to the US, and the difficulties of Vietnam's conservative bureaucracy.

Those difficulties have taken their toll.

Total foreign investment in Vietnam declined from $8bn in 1996 to $2bn this year, and the US is only the ninth largest foreign investor, behind many Asian countries.

Several US companies have announced cutbacks or withdrawal of investment in recent years, including DaimlerChrysler, which decided not to proceed with a $190m auto assembly plant, and Procter and Gamble, which has said it has lost millions in joint ventures with state-owned companies.

Vietnam's economic expansion also slowed in recent years, with a growth rate of 5% compared to the 10% in the early 1990s.

As in the case of China, the problem of restructuring Vietnam's large but inefficient state sector has slowed reform.

Vietnam has just announced the creation of a stock market to trade in shares of its newly privatised companies - but initially it will have only four companies as members.

Congressional opposition

The trade deal could face opposition in the US Congress, which will need to approve permanent normal trading relations.

Trade unions are likely to be concerned about the impact on US jobs of Vietnamese imports of shoes, textiles, and cheap electronic goods.

A vote may be put off until after the November elections.

However, many Republicans, who have a majority in Congress, appear to be in favour of the deal.

Senator John McCain, who was a prisoner of war in Vietnam, said that the deal was "a sign that [the Vietnamese] are undertaking serious economic and political reform there, and that's something we have to be in favour of".