An American In Hanoi

His return to Hanoi as Washingtons first envoy since the Vietnam war is a symbol of the line the two former enemies are trying to draw under that bloody period. The war left three million Vietnamese and 58,000 Americans dead and has scarred the US psyche more than any event since the second world war.

It will probably be the last time such symbolism has much resonance. Accounting for soldiers missing in action is officially still Washingtons priority in Vietnam, but in reality the more mundane issue of trade tops the agenda.

Privately, US diplomats talk of building a strategic partnership rather than mere friendly relations. Military-to-military ties were cemented in March and a group of Vietnams top brass was recently taken on a ground breaking tour of Pearl Harbour.

 

The mainstream of American opinion has already moved well beyond the narrow focus of issues related to the war, says Rick Boucher, a Democratic Congress-man. We are now where we should have been a decade ago.

In particular, Washington hopes for a wide-ranging trade pact committing Hanoi to a radical overhaul of its Soviet-era trading regime and preparing it for entry to the WTO. The US wants Vietnam to relax credit restrictions in the fledgling private sector, level the playing field between US and local business and open sectors such as insurance and rice trading to US companies.

Those are tough demands. They are hard for Vietnam to swallow, requiring it to dump a raft of economic privileges that help to prop up its political elite. Many of Vietnams 6,000 state-owned enterprises have impeccable connections with the ruling Communist party. The key thing about the comprehensive trade agreement is that it challenges both the economic behaviour and the structure of the government of Vietnam, says Michael Samuels, a Washington-based trade consultant.

The two sides are still worlds apart on trade issues. It has taken more than a year for negotiators to agree on a draft text for the putative trade pact, as US officials have wrestled to understand Vietnams arcane trading system. Negotiations have been marked by Vietnamese suspicion of US motives, stoked by broadcasts from Radio Free Asia, a US government funded station that aims to promote democracy.

Vietnams trading regime is still restrictive. Import substitution remains the bedrock of economic policy, and exports, many of which are subject to duties, consist mostly of commodities such as rice, coffee and crude oil. Manufacturing is lame, with electric fans, handicrafts and a special bicycle made entirely of bamboo in a list of top products.

Although trading company monopolies have been eroded, the government still uses a licensing system to restrict foreign trade. All imports have to be made through an importer always a state-run company licensed by the trade ministry. Private companies wishing to trade would be unlikely to be able to raise the $200,000 deposit demanded for such licences.

Any erosion of this arrangement would meet with stiff resistance from vested interests in the Communist party. That is hardly surprising. A confidential report by the OECD last week says import tariffs account for about a quarter of government revenues.

In spite of the obstacles, Vietnam has made significant progress on trade since 1990, when the collapse of communism in the Soviet Union removed the backing of its main benefactor. About 30 per cent of Vietnams trade is now with members of the Asean, which it joined in 1995. Trade with the US, although still relatively limited, has quadrupled to nearly one billion dollars since President Bill Clinton removed an economic embargo in 1994.

Hanoi, however, is nominally committed to tariff cuts under the rules of the Asean Free Trade Area, which require all import duties to be reduced to between zero and five per cent by 2006.

Reformers in the Vietnamese government applaud liberalisation as a way of speeding up its integration into the regional and global economy. They are also acutely aware of the need to clinch most favoured nation status from the US as a way of tackling the countrys worrisome trade deficit, which reached $4 billion last year.

We have been accustomed to breathing with the aid of foreign oxygen, and when the aid was interrupted, businesses had to rely on the subsidy of government. This should be stopped, says Le Van Triet, trade minister.

Yet, he and his supporters know they will have a difficult time selling the trade agreement to conservatives, who fear exposing lumbering state-owned companies to external competition.

The US and Vietnam appear to be united on at least one issue their suspicion of Chinese muscle-flexing in the region.

US diplomats play down the geopolitical aspect of the relationship. They dismiss any suggestion of inflexibility, insisting that the agreement is consistent with Vietnams existing commitments. Everything were doing here is very much in line with their doi moi (reform) policy and their announced policy of entering Apec and WTO. Were simply piggy-backing on their policies, says Desaix Anderson, the departing charge daffairs at the US embassy in Hanoi.

There are certain matters on which the US cannot be flexible, because it is determined not to accept with other countries what it has found unsatisfactory in its past agreements with Japan and China, says Mr Samuels, a former US ambassador to the Gatt.

US trade officials explain their approach by pointing to a need to satisfy the US business community, whose support they say will be critical in driving the deal through Congress.

Joe Damond, who heads the team negotiating with the Vietnamese, acknowledges the difficulties, The strategy is to sell the agreement on its merit, that its in the US commercial interest, he says.

US investors are sixth-ranked in Vietnam, with $1.1 billion of commitments. Companies such as Caterpillar, Boeing and General Electric appear to be more concerned about receiving federally backed support from bodies such as the US Export-Import Bank and the Overseas Private Investment Corporation than with broader issues.

Washington appears happy to wait until Hanoi has come to an internal consensus about how to move forward. The arrival of Peterson as the first US ambassador since the war could complicate negotiations still further. The US presence will highlight human rights issues. Trade negotiators have already made it clear that successful trade talks will depend on progress in this area.

Hanoi will also be very cautious about upsetting Beijing. All this may mean a long drawn out process before agreement is reached. Vietnam is committed conceptually to what the western market preaches, says Ryder, the Vietnam-based US businessman. But I cant imagine the system surviving such a radical change overnight.

Jeremy Grant & Bruce Clark