nguyen dinh luong nguyen dinh luong 1 nguyen dinh luong 2 nguyen dinh luong 3 nguyen dinh luong 4 nguyen dinh luong 5
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BEST PRACTICES OF VIETNAM\'S WTO ACCESSION: A CASE OF POLITICAL LEADERSHIP

 

 

SHERMAN E. KATZ, SENIOR ADVISOR

CENTER FOR THE STUDY OF THE PRESIDENCY AND CONGRESS
JULY, 2012

CENTER FOR THE STUDY OF THE PRESIDENCY AND CONGRESS


Table of Contents

Introduction 3

Best Practices of Vietnam’s WTO Accession

1: Commitment of Leadership to Global Economic Integration 5

2: Trade Agreement (BTA) with U.S. as Stepping Stone for WTO 13

3: Coordination of WTO and Development 19

4: Effective Use of Donor Support 34

5: Education on Use of Trade Opportunities 41

6: Engagement of Business Community 49

7: Increased Role of the National Assembly 56

8: Role of Provinces in WTO Implementation 66

Conclusions 68

Acknowledgments 69

Note on the Author 71


INTRODUCTION:

Vietnam’s high speed integration into the global economy on the heels of its Bilateral Trade Agreement (BTA) with the U.S. (July 13, 2000) and its accession to the World Trade Organization (January 7, 2007) is nothing short of spectacular. Within five years of the BTA, Vietnam’s labor-intensive exports to the U.S. increased 8 fold. Previously, Vietnam mainly exported primary products such as seafood and rice to the United States. Since the BTA, manufactured goods have accounted for about 75 percent of total exports, with clothing the dominant export. WTO accession strengthened this trend because membership freed Vietnam from worldwide textile quotas under the global Multi-Fiber Arrangement (1974), which WTO members phased out (1995-2005). Vietnam also succeeded in diversifying into a range of light manufactured products such as footwear and furniture. Increased employment and investment in labor-intensive manufacturing grew 15 percent and 30 percent per year respectively, from 2001 to 2004

From 2000 to 2002 Vietnam enjoyed GDP growth of 6 percent to 7 percent even against the background of a global recession, making it the world’s second fastest growing economy, albeit from a small base. At the same time, investment grew threefold and domestic savings quintupled.

Average annual growth continued at 7.1 percent in 2003-2004 and rose to 8.4 percent in 2005, behind only China in the Asia region. GDP grew more than 8 percent annually in the next three years, slowed to 5.3 percent in 2009, recovered to 6.8 percent in 2010 and 6 percent in the first half of 2011. Per capita income rose from 0 in 1994 to ,168 in 2010 while unemployment has been mostly in the 2-3percent range.

Bilateral U.S.-Vietnam trade expanded from .97 billion in 2002 to .6 billion in 2010, making the U.S. Vietnam’s second-largest trade partner overall after China.2 The strategic decision of Vietnam to participate in the global economy followed the abysmal performance of its centrally planned economy in the 1980’s, including near famine in some regions. From the late 1970s Vietnam had been a member of Comecon and heavily dependent on trade with the Soviet Union and its allies. The dissolution of the Soviet Union in 1991 and the collapse of Comecon meant the loss of markets, major investments and significant Soviet subsidies. Vietnam’s leaders pragmatically began to reshape and reorient domestic economic policies, institutions and trade relations, with substantial help from abroad, to improve the business and investment climate. An expanded role for the private sector was essential to produce economic growth, jobs, and stability.

This essay, based primarily on 2011 interviews with current and former trade officials in the governments of Vietnam and the United States, analyzes eight best practices of Vietnam’s integration into the global economy through WTO accession and the BTA. All of these practices except the BTA can be readily replicated by recently acceeded members (“RAMs”) of the WTO 1 Parker, Riedel and Phan Vinh Quang, “Assessment of the Five-Year Impact of the U.S. Vietnam BTA,” STARVietnam, USAID, July, 2007.

2 U.S. Department of State, 2011 Report on the Economy of Vietnam and countries now in the accession process. Understanding the role of the BTA will help these countries identify factors underlying reforms in Vietnam that may not be driven by accession alone.


BEST PRACTICE NO. 1: COMMITMENT OF LEADERSHIP TO GLOBAL ECONOMIC INTEGRATION

'Overall Factors’ Behind the Decision to Join the Global Economy

Nguyen Dinh Luong, the Chief Negotiator of the BTA, 1996-2000, [“Chief Negotiator” or “Luong”], described what he called 'overall factors' behind Vietnam's decision to join the global economy in a 2011 interview in Hanoi.

First among them was the historical, political and economic context:

"Since independence, many wars destroyed our country. We have gone through many economic models. We did not succeed with central planning. We did not accept that Vietnam would be a least developed country. We did not accept that we were not as good as other countries. So why can't we develop? We could not bear this situation."

As for the U.S.-Vietnam war and its relationship to the BTA, Luong said, "The past, the present, and the future are all thousand pound obstacles weighing on the BTA negotiations between Vietnam and the U.S. from the start. And this burden primarily originated from the fumes of the devastating war that America had conducted in Vietnam. Vietnam's entire history is tied to wars, but no other war was as devastating as the war America had carried out in Vietnam. Not a single city in this country remained intact. Not a single village is without craters. Not a single family is free from the suffering and pain caused by the war. It is difficult to accept doing business with the enemy. Especially when, lurking in the mind of the Vietnamese people is a U.S. leader’s statement, 'Americans did not win in war but we will win in peacetime.'"

Nguyen Quoc Huy, Vice Chairman, Office of the Government ['OOG'], comparable to a combined U.S. National Security and National Economic Council, underscored the role of the collapse of the Soviet Union and the Warsaw Pact countries, to which Vietnam had sold most of its exports and which had been its major source of investment and donor assistance:

"Vietnam's government started thinking of international integration when the socialist countries collapsed. In the early 1990's, when Vietnam's economy was in tremendous difficulties, Vietnam's government realized that to survive and develop, it must integrate into the world's economy. However it takes time to implement such intention based on the current context at that time. It can be said that five years after the collapse of socialist countries, Vietnam started its efforts on international economic integration"

As the Vice Chairman noted, a 1991 resolution of the National Congress of the Communist Party called for integration with the global economy as part of Vietnam's five year socio-economic

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3 This interview was made possible by an introduction from Joseph Damond, Luong’s U.S. counterpart as Chief USTR Negotiator for the BTA. 4 Loan, Phuong, 'Vietnam-U.S. Negotiations: Stories Only Now Told,' Vietnam Week, July 3, 6, 7, 8 and 10, 2010, translated by Phuong Viet Tran. 5 Interview, March, 2011, based on introduction of USAID staff, Hanoi.


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development plan.6 This would be implemented by resolutions of the party’s Central Committee under the direction of the Politburo. In 1994, Vietnam formally applied to the WTO for accession and normalized relations with the World Bank and the IMF. After the United States ended its embargo of Vietnam on February 3, 1994, Vietnam also opened negotiations with the United States toward normalization of commercial relations through a BTA and joined ASEAN in 1995.7

Steve Parker, head of the USAID Support Trade Acceleration (“STAR”) project office in Hanoi, adds that in the year 2000 fully half the population of Vietnam was under 20 years of age. “One and a half million people were entering the workforce each year from the 20-30 year old cohort. This meant the first priority for Vietnam’s leadership was to create jobs. With the Soviet Union collapsing and with the always fraught relationship with China, Vietnam found it had no access to the U.S. market, they needed it, and to do that they would have to globalize.”

Parker takes this a step further: “The Communist Party’s legitimacy came through social stability and rising prosperity....The government was providing something the people wanted: social justice rights and prosperity. The leadership understood they needed to produce jobs [to retain power]. They had a whole ‘guideline’ from the BTA and the WTO roadmap. Ninety percent of that roadmap was approved by the National Assembly with new laws, for example on telecom, distribution, customs valuation. Part of the lesson for other countries is that reform activity was reinforced by getting jobs through trade.”8

Globalization After the Cold War

The Chief Negotiator’s ‘second overall factor’ driving Vietnam’s new direction was globalization, and Vietnam’s need to be part of globalization in the context of the end of the Cold War:

“The global economy is interconnected. No country can develop that is outside the global economy. Vietnam wanted to develop so we had to go to that circle. It is a natural thing. We had no choice. The WTO has its own rules. To join the world economy, you must follow those rules. There is no [possibility of joining with] ‘your own rules.’ “

The Cold War had meant that developing countries “...were pushed to one side or the other” by the U.S. and the Soviet Union. “Now, [after the Cold War], whether enemies or friends, we are partners in the global economy. The U.S. and Vietnam were enemies. But now we are partners and we are building together. We can trade with any country.”

The establishment of the WTO on January 1, 1995, alongside steadily increasing economic

--------------------------------------------------- 

6 The Seventh Party Congress approved “…the Strategy for socio-economic stability and development...to create favorable conditions for the country to develop at a faster pace in the early 21st century…to open new relations with other countries…”

7 The Vice Chairman gave credit for this new direction to Party leader Nguyen Van Linh; former Prime Minister Phan Van Khai; former deputy Prime Minister Vu Khoan; former deputy Prime Minister and Minister of Foreign Affairs Nguyen Manh Cam; and former Minister of Trade Truong Dinh Tuyen. 8 Parker was the author or co-author of numerous reports on the achievements of STAR and generously shared observations with the author.


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integration made it appear to many in Vietnam that global economic growth was boosted by WTO rules. Luong said this was a train Vietnam did not want to miss:

“When BTA talks began in 1996, there was a ‘storm of globalization.’ There was a race to join the WTO. If we did not join, we would lose the chance. The U.S. was the number one economy and was able to obtain many advantages from globalization. [President] Clinton was blowing strong winds in this revolution. At that time Vietnam was affected by that revolution. Vietnam was required to accept the rules to join the WTO.”

Moreover, in his view, the road to the WTO was primarily shaped by U.S. laws and concepts: “Many rules were transferred from the United States such as the 1916 anti-dumping rules and the 1933 anti-subsidy law. Always from the U.S. rules came into GATT and then into WTO. The U.S. has good lawyers, politicians and the power of ideas to transfer [them] into the WTO.”

Difficulty in Developing Domestic Consensus

Luong’s third overall factor was development of domestic consensus for trade liberalization. The BTA was qualitatively novel for Vietnam:

“It was not as easy as with Eastern European countries when they were negotiating their own BTAs with the U.S. They considered BTAs to be a required passport to join the EU and NATO, a ‘must have.’ Nor was it like some other countries that considered signing a BTA and letting the U.S. in as opportunities developed. Vietnam had its own circumstances, its own calculations to make, according to its own rules of negotiation and must also overcome its own special obstacles.”

“Some regarded the BTA as simply a ‘plot to destroy the socialist oriented economy.’ BTA advocates had to be cautious; they were very prone to being questioned about their stance towards social class.”

From Luong’s perspective, developing domestic consensus was more difficult than negotiating with the United States:

“The battles of wit and persuasion with negotiating partners were hard and difficult, but those hardships could not compare with the efforts by each negotiator to overcome [conflict within] themselves, and the efforts to find consensus and approval within the country.”

As for his personal conflict, the Chief Negotiator said,

“From the initial hostile mentality toward America, ‘gradually I understood what the country of Vietnam needed in me was not hatred towards America, but it was [for me] to overcome my own and society’s psychological obstacles to bring the benefits of this era to the nation. What needed to be done must be done, and done completely.”

Opponents said, “...capitalism is attached to goods and money. If a BTA is signed, letting American goods and money flow into Vietnam means letting capitalism in ... If we cannot.


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control our goods and money, Vietnam cannot build the socialist state.”

Other doubters feared the global economy more broadly:

“[For them]...signing the BTA according to the principles of the WTO means engaging in the process of globalization. We must review the nature of globalization today, led by the bourgeoisie. Something led by the bourgeoisie can only benefit the bourgeoisie. The less developed nations will become increasingly poor, and the gap between the rich and the poor will grow wider. Shouldn’t we wait to participate in a new globalization led by the proletariat?”

Fears of Immediate Collapse and of Protection of Intellectual Property Rights

Luong and his negotiating team also had to cope with the fear that the Vietnam economy, open to ‘abundant and good quality’ U.S. goods “...in a week or even less...will completely collapse.” He responded:

“But we forget one thing. American goods are the product of technology with expensive prices. The Vietnam people are poor with low purchasing power. Vietnam’s economy at that time had less than $ 30 billion in gross national income. What is there to collapse? Meanwhile the result [of the BTA] is that Vietnam’s exports to the U.S. will increase, Vietnamese goods can penetrate the difficult-to-access U.S. market and then access the global market...”

In addition, there was fear that protection of intellectual property rights (IPR) is “...like shackling our own hands. Poor developing countries have always had to use the inventions of others for economic development. If Vietnam is committed to protecting IPR, where will we find the money to purchase new inventions?”

But Luong thought differently:

“For Americans, IPR is money, national interests, business interests, and the U.S. will definitely continue pressuring to protect those rights. If Vietnam is not committed to the protection of IPR, there will be no BTA, and no encouragement for innovation in the country. A society that does not respect the products of intelligence cannot grow intellectually.”

Nevertheless, IPR would remain controversial in Vietnam for years to come. It was one of the very last WTO accession issues resolved between Vietnam and the United States in 2006. Indeed, Loang Hoang Thai, Director-General for Multilateral Trade at the Ministry of Investment and Trade [MOIT] said IPR “...might be an example of an issue on which the Party leadership accepted requirements of accession despite ideological reservations. The WTO rules on IPR were not the preferred Politburo outcome.” Balancing the need for incentives for innovation with market socialism.

IPR also raised inter-ministerial conflict. Hoang Thai noted there was no legal precedent in Vietnam for the concept of ‘commercial scale’ violation of IPR as a trigger to criminal penalties:

Vietnam’s broader interest in making use of valuable inventions was a policy challenge for.


“This meant bringing the police and the courts into the IPR realm. Previously all [violations] had been [dealt with] in administrative proceedings. The Ministry of Science and Technology [which administered the IPR system] questioned a role for the police, the Supreme Court and the Ministry of Justice. The people were reluctant to go to Court. The first reaction was, ‘Why should we have to change this?’ “

To help overcome these concerns, the Chief Negotiator described his argument:

“Other countries have signed the BTA with the U.S. and are engaging with the U.S. to develop. Why doesn’t Vietnam do the same? Without integration and breaking down obstacles, especially laws and policies that are outdated and obsolete, this country will continue to writhe in stagnation and poverty.”

Teaching Itself about Global Trade and WTO Rules

Beyond these obstacles, most Vietnamese had little understanding or experience with international trade. To educate itself on this subject, Luong said: “Many papers were launched researching, analyzing and dissecting the global situation, the role of the U.S. in the global economy and international organizations, the American ‘game’ with other countries, the benefits of Vietnam in that game. Many conferences, presentations and explanation seminars were held to completely answer all questions so that a mutual understanding and internal consensus could be found.”

This included technical assistance from the U.S. side that “helped Vietnamese people understand the requirements of the U.S., from which they could decide what was best for Vietnam. They also joined hands to help build internal consensus in Vietnam.”

As for the filing of Vietnam’s WTO accession application in late 1994, the Chief Negotiatorsaid:

“There was desire...but we did not understand what WTO regulations were like. The specialists in the Vietnamese negotiating team were all experienced in negotiating bilateral trade agreements, but they were trained in the Soviet Union or Soviet bloc countries and not yet familiar with the concept of the World Trade Organization.”

More broadly, the basic concept of the rule of law was alien:

“We did not have the habits and practices of living and working according to legislation. Our logic and thinking regarding law was generally simple. We had since long shunned the rules of the game of market capitalism...The provisions of the WTO did not reach Vietnam, we have not approached them at all, let alone apply them.”


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“This meant bringing the police and the courts into the IPR realm. Previously all [violations] had been [dealt with] in administrative proceedings. The Ministry of Science and Technology [which administered the IPR system] questioned a role for the police, the Supreme Court and the Ministry of Justice. The people were reluctant to go to Court. The first reaction was, ‘Why should we have to change this?’ “

To help overcome these concerns, the Chief Negotiator described his argument:

“Other countries have signed the BTA with the U.S. and are engaging with the U.S. to develop. Why doesn’t Vietnam do the same? Without integration and breaking down obstacles, especially laws and policies that are outdated and obsolete, this country will continue to writhe in stagnation and poverty.”

Teaching Itself about Global Trade and WTO Rules

Beyond these obstacles, most Vietnamese had little understanding or experience with international trade. To educate itself on this subject, Luong said: “Many papers were launched researching, analyzing and dissecting the global situation, the role of the U.S. in the global economy and international organizations, the American ‘game’ with other countries, the benefits of Vietnam in that game. Many conferences, presentations and explanation seminars were held to completely answer all questions so that a mutual understanding and internal consensus could be found.”

This included technical assistance from the U.S. side that “helped Vietnamese people understand the requirements of the U.S., from which they could decide what was best for Vietnam. They also joined hands to help build internal consensus in Vietnam.”

As for the filing of Vietnam’s WTO accession application in late 1994, the Chief Negotiatorsaid:

“There was desire...but we did not understand what WTO regulations were like. The specialists in the Vietnamese negotiating team were all experienced in negotiating bilateral trade agreements, but they were trained in the Soviet Union or Soviet bloc countries and not yet familiar with the concept of the World Trade Organization.”

More broadly, the basic concept of the rule of law was alien:

“We did not have the habits and practices of living and working according to legislation. Our logic and thinking regarding law was generally simple. We had since long shunned the rules of the game of market capitalism...The provisions of the WTO did not reach Vietnam, we have not approached them at all, let alone apply them.”


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To learn about the rules, a journalist reported, “After downloading documentation from the Internet, the delegation members assigned each other to read, analyze, process...then submit their findings. Many workshops and training programs were organized so that Vietnam could learn from the experience of other countries to understand the WTO, to understand the benefits and difficulties of integration.”9

Joe Damond, USTR’s lead negotiator for the BTA and Director for Southeast Asia , in his detailed 2004 account of the BTA negotiations, “Give Trade a Chance: The Negotiation of the U.S.-Vietnam Trade Agreement” (unpublished), suggests how far Vietnam had to come to understand trade practices and concepts. In the first ‘real’ negotiations in 1997, Vietnam’s Chief Negotiator told Damond Vietnam could not accept four basic aspects of the initial U.S. proposal: (1) allowing U.S. companies to engage in foreign trade in Vietnam; (2) tariff reductions on any imports; (3) opening its market for services of any sort; and (4) elimination of licensing of foreign investment projects. These are fundamental concessions in almost all bilateral trade agreements between the 153 nations who are WTO members.

Developing Trust with the U.S.

In 20 years of bilateral trade agreement talks, Luong had mainly negotiated with other socialist countries whose relations were based on what he called “comradeship, with the same economic mechanisms and similar legal systems.”

“With the philosophy, ‘do not think of success when you have yet to understand your partner’, Luong and his delegation sought books to read on the U.S.,” Loan Phuong reported. Luongsaid, “When it felt like there was a basic understanding about America, and the WTO, my hope that we will be able to sit and talk with America gradually rekindled. The initial round of talks were primarily to hear the U.S.’s explanation. We suggested they [U.S.] talk as much as possible, [as we] must understand the goals, intentions and the requirements of the partner.”

Learning occurred in both directions: “The Americans knew too little about Vietnam’s trade system and rules. So it took several sessions to ask questions and learn about Vietnam’s system. Similarly, Vietnam had many questions about the U.S. trade system, trade laws and trade policies, so the U.S. negotiators spent quite a long time explaining them.”10

The Chief Negotiator added, “Only with a thorough understanding can you design and build your plans...When you are still looking at supplementing incomplete knowledge, disregard any outside criticism.”

Damond said about this early stage of the talks, “The advantage was that we soon discovered that both sides were really willing to learn and approach negotiations with confidence and frankness, so we can learn to trust each other.”

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9 Loan Phong, supra, footnote no. 4 
10 Supra, footnote 4


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“The atmosphere of the talks, particularly between the chief negotiators, had never gotten angry or bitter.”11

Damond noted, “I believe that both of us saw this work as a responsibility to do the best possible thing that would benefit both sides, even though this was very difficult at that time. It is clear that Vietnam wants to ensure that proposals made by the U.S. also serve Vietnamese national interests. I appreciate that. I know it is not simple for Vietnam to accept our language, but you need to deeply understand America’s proposal and then make your own decisions.”

Milestone of First Vietnam Proposal in 1998

Both Luong and Damond said Vietnam’s first BTA proposal represented a significant step forward. For Luong,

“Only by the summer of 1998 did we have control over the situation through the completion of a draft prepared by the Vietnamese side which, after approval, the negotiating delegation gave to the United States in Washington, D.C. Vietnam ... did not have the idea of world enterprise. So during the negotiation Vietnam had no ideas [about what to include in the BTA] because it knew nothing about U.S. markets or the WTO.” Thus production of any proposal was a significant step forward.

Damond was pleased and surprised by the draft: “It started at a point where there was no understanding about the form of trade agreement that the United States aimed toward. The negotiations have shown that Vietnam had learned very quickly. We were so surprised at the progress.”

The Chief Negotiator emphasized the intention Vietnam’s proposal would help build trust: “BTA negotiations with the United States were to build partnerships for long term business. [If you] want to be a partner, want to do long term business, [you] have to trust each other. [You] cannot play in a grab and run manner. If you want to [have] trust, you must be frank, honest, but not a naive honesty.”

For Damond, the evolution of trust through informed negotiations helped build an essential foundation: “After much dialogue, discussion, and some compromise by the U.S., the Vietnamese side trusted us more and this allowed Vietnam to assess that the agreement would strengthen, not weaken the economy. In short, it was a great success of intelligent dialogue and mutual respect.

Leadership Success of Minister Tuyen and Deputy Khanh in the BTA and WTO Talks

Hoang Thai and his deputy at MOIT, Le Trieu Dzung, gave high marks to Trade Minister Tuyen and his deputy Tran Quoc Khanh for persuading government groups to go along with concessions in the BTA and the WTO agreements. Thai described Tuyen’s approach:

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11 Supra, footnote 4


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“At a certain level [to resolve inter-ministerial differences], Min. Tuyen asked me, ‘What are the [WTO] rules?’ I would explain. He would ask, ‘What is the U.S. doing?’ The next question was, ‘Is that a stumbling block?’ I would have to make an assessment. In the end, people may have different ideas... There would be an assessment of cost to accept the WTO way. And then consideration of a possible middle ground. Leaders were quite pragmatic as long as the cost was not too much.”

From 2001 to 2007, during WTO negotiations, Tuyen “... made many key decisions, knew how would organize a team and set in motion a plan to organize the process Also, there were not many at his level ready ‘to take responsibility.’ USTR was always prepared to meet him because he could deliver.”

Dzung added that in Vietnam, “Who understands the issues is also key. In many cases there is misunderstanding between the [negotiating] parties or they lack the ability to express a position well, especially for Vietnam when it is a matter of ideology. Khanh and Tuyen understood [the issues] and expressed [Vietnam’s position] well.”

Conclusions

Vietnam’s pragmatic decision in 1990 to turn away from central planning and toward a more market-oriented economy, including international trade, would not have been possible without the commitment of its leaders to the benefits of global economic integration. While the economic and political imperatives driving that decision may make it seem easy in retrospect, nonetheless at the time ideology, recent history, lack of experience, uncertainty about results and absence of trust could only be overcome at significant political risk to Vietnam’s leadership. The United States played a supportive role by providing essential market access that helped dispel Vietnam’s skepticism about trade.


BEST PRACTICE NO. 2: TRADE AGREEMENT with U.S. (BTA) AS STEPPING STONE FOR WTO (Page: 13 - 14)

USTR Decided to Seek a “Comprehensive” Bilateral Trade Agreement with Vietnam

Vietnam came face-to-face with almost all fundamental WTO concepts and most WTO rules during the BTA negotiations thanks to the conscious decision made by USTR to seek a ‘comprehensive’ agreement. This included substantial market-opening obligations across the full spectrum of traded goods and, to the extent possible, services as well as protection for intellectual property.

Damond and his supervisor, Robert Cassidy, Assistant USTR for Asia, agreed at their first granting Vietnam NTR [normal trade relations], i.e. sale of goods in the U.S. market at the same tariff levels as our ‘most favored’ trade partners, as a tool to open up Vietnam’s market.”

“The decision....was based on U.S. trade policy history and practical politics. We were determined not to repeat the historic mistake we had made with Japan and China. When the United States allowed Japan to join the GATT in the early 1950s it did not require that Japan open its domestic market in exchange for access to the U.S. market. U.S. Cold War security concerns trumped such mundane commercial considerations. Similarly, when the U.S. negotiated its commercial agreement normalizing bilateral trade relations with China in 1979, essentially nothing was asked of China in return for its right to export to the relatively open U.S. market.”

Damond also noted that U.S. trade agreements with the countries of Eastern Europe in the early 1990’s were governed by the need to help build market economies in these former communist states through access to the U.S. market rather than demands they open their own markets. But, “Vietnam was different. First, it was in East Asia. Deserved or not people widely considered it a future ‘tiger’, a nascent export powerhouse, following the models of Korea, Taiwan, Thailand and China. Moreover, it was still communist, obviously a political liability in Washington. In short, we believed that the public and members of Congress in particular, were much more likely to ask, ‘What did you get in return?’ for providing Vietnam access to the U.S. market through a commercial agreement.”

High BTA Standards Presented Major Challenges

USTR’s decision to set BTA requirements at a demanding level was particularly challenging given Vietnam’s modest level of development. Luong said, “The BTA had more strict commitments than many countries made in the WTO itself. The requirements posed by the U.S. were very high.”

These BTA standards created five challenges for ‘integration’, in Luong’s view, given economic, political conditions and the absence of the rule of law in 1995:

1. In the economy, (a) 75% of the work force was engaged in agriculture; (b) there was little industry and no service providers independent of the central government; and (c) 68% of the exports were raw materials only some of which were processed. Thus, Luong said, discussion about a bilateral Vietnam trade deal in mid-1995 that they would use “the leverage of “Vietnam had to reconsider a lot” to integrate and trade with others. “One year’s wages were not enough to buy even part of a computer.”

2. All decisions about business were made by the central government: “The [appointment of] directors of State Owned Enterprises (SOEs), the number of (SOE) employees, what to produce, what to sell and at what price were decided by the government. There was no competition. Vietnam law prohibited competition because it would destroy management by government.” SOE’s accounted for the predominant part of the economy.

3. “The Vietnamese legal system was weak and inconsistent with the rules of world trade. The laws were not a legal corridor for entry to take advantage of our own capacity to do business. We did not have freedom to do business. You needed permission what to produce and what to trade. The laws we had were discriminatory: SOEs operated under one law, private enterprise under a second and foreign companies under a third regime. The idea of national treatment was very strange. Socialist countries believed that national treatment was a tool of capitalist countries.

“Since doi moi in 1986(12) many laws and rules were changed. But at the time of the BTA, the legal system was still not transparent and not consistent with [international] harmonization and difficult to implement. When you are a negotiator, you can’t make comments against local law.

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12 Doi moi was a fundamental Party decision to turn toward market mechanisms and away from central planning. Martin Rama, former World Bank chief economist in Vietnam, described it in “Making Difficult Choices: Vietnam in Transition”, Commission on Growth and Development, Working Paper No. 40:

“Doi moi literally means change and newness and was the Party’s term for reform and renovation in the economy. The term was coined in 1986 for a transition from the centrally planned Stalinist command economy to a “market economy with socialist direction,” what is often referred to as market socialism. In contrast to Eastern European reforms doi moi favored gradualism and political stability over radical change, with economic restructuring to come before privatization. Vietnam was more like China in its economic structure than the Soviet Union or Eastern Europe.

The Sixth National Congress in December of 1986 acknowledged that the economic model followed since 1954 had failed. In 1988 the following policies were adopted, taking significant steps toward a market economy:

1. Payment of wage and salaries on a straight cash basis
2. Pricing of inputs to state enterprises on the basis of costs
3. Permission for private employers to employ up to ten workers
4. Abolition of internal customs check points
5. A revised Foreign Investment Law
6. Ending collectivization of agriculture
7. Elimination of virtually all direct subsidies and price controls
8. Increased autonomy for enterprise managers
9. Devaluation of the currency (dong) to market rates
10. Elimination of the State’s monopoly in foreign trade
11. Provision for foreign participation in banking
12. Reduced restrictions on private enterprise
13. Creation of export processing zones for 100% foreign-owned enterprises
14. Legislation on shareholding corporations
15. Dismantling of major elements of central planning and bureaucracy
16. A 15% reduction in the government workforce
17. A return to former owners or their heirs of businesses in the South that were nationalized.


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After signing the BTA in 2001, Vietnam had to reconsider all of its legal systems. From2001 to 2005 all basic laws were changed. So issues around changing our laws started fromthe BTA. The basic commitment came from the BTA.”

4. “We had a poor private law system.” There was not an adequate system for fines or penalties between, for example, parties contesting the rights to use of proprietary information. Thus all such disputes frequently produced unsatisfactory results.”

5. “We had poor training and education of our officials. We did not have enough technical knowledge. Investing corporations met many obstacles. We did not have enough human resources.”

BTA Basic Concepts New to Vietnam

The Chief Negotiator identified five parts of the BTA that were new to Vietnam.

Tariffs

“The BTA chapter on trade in goods reflects basic WTO rules, but acceptance of ‘national treatment’ was ‘most difficult’ for us. ‘National treatment was strange to our system” [‘National treatment’ bars discrimination against imported goods compared to domestic products].

On tariff levels, “While U.S. tariffs were only 2% of government revenue, in Vietnam they were 20% as was generally true in socialist countries at that time. The U.S. had many other sources [of revenue] such as income and property taxes. Vietnam had no such sources. Salary was not enough to allow people to pay such taxes. So reduction of tariffs was left to the [later negotiations of] WTO.”

The Chief Negotiator expressed ‘thanks’ to Damond who was ‘sympathetic’ to leaving most of the tariff reduction negotiations for the later WTO talks in light of Vietnam’s development level. While the U.S. initially “...brought a long list of tariffs to negotiate, only 250 tariff lines were reduced, mostly in agriculture and industry, out of several thousand [in Vietnam’s schedule of tariffs].” Thus, “The biggest difference between the BTA and the WTO was the reduction of tariffs.”

IPR

The Chief Negotiator believes the BTA blazed the trail on IPR. “Many in Vietnam opposed the changes. They argued that capitalist countries were taking the inventions of other countries for granted. So why should they require Vietnam to pay for their inventions.” As noted above, this also raised basic questions for the Politburo about creating incentives to innovate for individuals at the expense of society at large.”


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Investment “The BTA on investment was totally different from the 19 previous trade agreements of Vietnam. The BTA commitments also exceeded the WTO rules on investment. Why were we so brave? Because we wanted to restructure to encourage investors to come to Vietnam. This raised difficult issues for us.”

Services

“Services were totally new to Vietnam. They were also new in the WTO. We had no concept of trade in services which were not yet developed in Vietnam. For the U.S., 70% of GDP and 80% of the labor force are in services. In Vietnam, we had [only] banking and transportation as the link between production and consumption. So we needed rules and therefore there were many difficulties.” When Vietnam produced a draft proposal on services at an early stage, the U.S. was ‘surprised’ Vietnam had come that far so quickly.

State Owned Enterprises (“SOE’s”)

“The biggest obstacle for BTA was the opposition of the SOE’s. They didn’t want competition from foreign investors or other countries. This was right for them but wrong for the long term good of Vietnam. Vietnam’s [initial] position was to oppose including SOEs in the ideas of business [competition]. But after the BTA was signed, implementation had to include the ideas of business.”

Officials See BTA as Foundation for WTO

In the Chief Negotiator’s view, “…the BTA and WTO were two phases of a ‘period’ with one objective: for Vietnam to implement a legal system consistent with the rules of the world. They had the same two commitments: for Vietnam to manage its economy consistent with WTO rules and opening its market. BTA was the start: we were required to destroy all old process for Vietnam and to be aware of the new rules of the game. So when Vietnam did the WTO it was not as difficult as BTA. Everything was very new in the BTA. It was a time of difficult US-Vietnam relations. We had to solve our animosity. We had to make Vietnam understand the rules.”

Conclusion

While not every country has the opportunity to negotiate a BTA with high standards before WTO accession, Vietnam’s BTA experience provided significant, substantive preparation for WTO rules and negotiations.

The BTA also laid important foundations for development of domestic political consensus and for implementation of international trade reforms.

      Giới Thiệu

TÁC GIẢ

    NGUYỄN ĐÌNH LƯƠNG

Sinh năm: Canh Thìn 1940
Quê Quán: Làng Thịnh Lạc, xã Hùng Tiến, huyện Nam Đàn, tỉnh Nghệ An.
Chỗ ở hiện nay: 179 Đặng Tiến Đông, Gò Đống Đa, Hà Nội
Có thâm niên hơn 20 năm đàm phán thương mại cấp Chính phủ, bắt đầu là các Hiệp định với Liên Xô, với tất cả các nước Xã hội chủ nghĩa, sau đó là với các nước khác như Xin-ga-po, Ca-na-đa, Na Uy, Thụy Sỹ,.. và kết thúc là Hiệp định Thương Mại song phương Việt Nam – Hoa Kỳ.

 
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