A new trade pact with the United States should see Vietnam's exports begin to grow quickly in the next few years. Business leaders say the agreement is a sign that Hanoi's economic reforms will continue.
The bilateral trade agreement the National Assembly approved Wednesday almost immediately lowers U.S. tariffs on Vietnamese goods from as much as 60 percent to as low as four percent. That puts Vietnam on the same footing as most of the United States' trading partners - including regional trade rivals such as China and Indonesia.
Business leaders and economists say the deal is important for economic, political and legal reasons. Chris Tragakis, chairman of the American Chamber of Commerce in Vietnam, says the most important benefit of the agreement, called the BTA, may be that it creates a binding framework for both countries to expand trade. "The BTA is providing a code in which the U.S. and Vietnam have got trade obligations. The importance of that is that it is the culmination of a long phase, it's taken probably eight years to get to this point," he said.
The deal has political implications for Vietnam's communist government. As trade increases, Vietnamese enterprises will have to become more efficient and that could lead to job losses and other problems for workers. The deal also pushes the government to create a more transparent legal system.
Peter Ryder, managing director of venture capital company Indochina Capital Corporation in Hanoi, says the pact's political importance is great. "Symbolically this is an indication that Vietnam is not going to try to turn back the clock and that the reformist elements now clearly have the upper hand. And that's excellent news," he said.
In addition to lowering U.S. tariffs, the trade deal requires Hanoi to phase in changes that will let American businesses expand in Vietnam. But American Chamber of Commerce chairman Tragakis says U.S. companies may still find the changes slow to come. "On the Vietnamese side, their tariff changes, and the reforms necessary to support and meet the terms of the treaty are phased in over the course of many years, three to six years in most cases," he said.
By phasing in market-opening changes, Vietnam, one of Asia's poorest countries, has time to strengthen its business infrastructure. That should prevent its small, immature enterprises from being swamped by massive foreign companies.
However, business leaders say some of the pact's requirements already have been implemented. For instance, Mr. Ryder notes, in the past few years it has become easier for foreign insurance companies to operate in Vietnam.
The Asia Development Bank thinks the trade deal will lift Vietnam's oil exports, its textile and shoemaking industry and its agriculture exports.
Padmini Desikachar, a senior economist for the ADB, says the benefits of the deal will extend beyond trade. "Another way in which we think the agreement is going to help is in terms of efficiency gains. There are a number of provisions there, which would require ? Vietnamese exporters to improve their quality standards," he said.
For U.S. companies, the deal widens the market in Vietnam for financial service companies, telecommunications companies and technology providers. The deal also paves the way for Vietnam to join the World Trade Organization, though that move may be several years away.