A BILATERAL TRADE AGREEMENT: WHO BENEFITS?

Dear Friends,

The United States and Vietnam have been negotiating a Bilateral Trade Agreement for the last two years. Because this Agreement will establish the commercial relationship between our two countries for years to come, both sides are working very hard to complete it.

The Agreement will yield significant economic benefits to both nations. For Vietnam, the most important benefit will be America's granting of Normal Trade Relations status. With Normal Trade Relations, Vietnam's exporters will have access to the massive U.S. market on a competitive basis, greatly enhancing Vietnam's ability to export and to attract foreign investment. This will ultimately lead to the development of new industries. Many U.S. companies and individuals in a large variety of industries have expressed interest in doing business in Vietnam. This Agreement will send a positive signal to them about Vietnam's commitment to integrating into the world economy.

The resulting growth of new industries will create millions of new jobs for the Vietnamese people, which in turn will improve the quality of life in Vietnam. And, of major significance, implementation of the U.S. - Vietnam Bilateral Trade Agreement will mark the normalization of our two countries' economic relationship.

I am convinced this Agreement is an important economic ingredient needed to establish a secure, competitive and prosperous Vietnam for the future. I urge you to carefully study the contents of this brochure to examine the potential mutual benefits to our two nations of concluding this historic Agreement. If you have comments or would like additional information please contact me or my staff at the U.S. Embassy in Hanoi or at the U.S. Consulate General in Ho Chi Minh City.

Sincerely,

Pete Peterson
U.S. Ambassador to Vietnam

• Why the Bilateral Trade Agreement is Necessary

  Under U.S. law, The United States cannot extend Normal Trade Relations to countries in transition like Vietnam without a Bilateral Trade Agreement (BTA).

  The purpose of the Agreement is to ensure trade rules are clear, to stimulate and increase trade, and to help Vietnam achieve economic integration, including accession to the World Trade Organization (WTO).

• Is Vietnam Facing Unusually High Standards? Is the US Asking Vietnam to Do More than the WTO Requires?

  Absolutely not. The United States wants to establish commercial relations with Vietnam on the same basis as it has with other countries, including developing economies in transition, e.g., Bulgaria, Mongolia and Kyrgyzstan. These relations are based on international norms including those of the WTO. Moreover, the United States recognizes that Vietnam will require transition periods to meet some of these standards.

• Why the Trade Agreement Will Be Good for Vietnam
  • Economic Growth
    New industries will spring up to fill the demands of the huge American market. Estimates prepared for the World Bank suggest Vietnam could increase its exports to the United States by nearly eight hundred million dollars. There will also be other positive effects on Vietnam's economy. By stimulating competition and its associated domestic reforms, the Agreement will lower costs and promote modernization.
  • Jobs
    The new industries would create thousands of jobs. Vietnam's manufactured exports still are a small part of its economy (only $30 per capita vs. $660 per capita in Thailand). The potential for expansion therefore is huge.
  • Training and Education
    Vietnam's workers will be exposed to advanced technology and management. They will have greater access to job training and more opportunities for professional advancement.
  • Foreign Investment
    Signing the BTA will attract global attention and be viewed as a sign of Vietnam's commitment to economic integration. Vietnam will gain greater access to financing, modern management, market information, and higher technology. The BTA will help establish a fair and level playing field for all businesses. It will expand opportunities for all businesses to take advantage of the large ASEAN market.
  • Technology
    Foreign investment and improved protection for intellectual property will encourage the flow of technology to Vietnam. Vietnamese businesses will use more modern technology in manufacturing processes.
  • Rural Development
    The BTA will stimulate agriculture and raise farm income. Example: lower import tariffs on components of animal feed will increase production and lower costs of animal products. Agricultural exports will increase.
  • The Quality of Life Will Improve
    As incomes rise, the cost of many goods and services will decline in Vietnam as a percentage of average worker income, just as it has in every other trading nation. Example: 10 kg of rice costs 20% of monthly per capita income in Vietnam but only 3% in Thailand. Tax revenue will increase as business increases, enabling spending for education, health care, roads, water purification plants, and electric power to benefit the people.

     

• How Trade Boosts Economic Growth

  Trade is the key to prosperity. Economists have long known trade increases wealth. In fact, trade creates wealth within nations and among nations. That is because trade encourages localities, provinces, and nations to specialize in those goods they can produce relatively efficiently, for which they have a comparative advantage.

  A country's comparative advantage lies in its work force, in its natural endowments, in its culture, and in its local knowledge. All countries have a comparative advantage in some products. Countries where Countries where labor is cheap tend to concentrate on industries which employ many people. Countries where labor is expensive tend to concentrate on production which requires investments in labor-saving technology.

  When nations trade, they tend to buy products from overseas which are relatively difficult and expensive for them to produce at home and to sell products to other countries which are relatively cheap and easy for them to produce.

  This two-way trade lowers costs and increases production, employment, incomes, and welfare in both countries. Trade never benefits only one country at the expense of the other.

  It may be hard for some to believe that free trade really does increase incomes and wealth of all countries, but the history of the world proves this to be correct. In fact, all of the wealthy nations of the world achieved their position due mainly to one thing -- they were great trading nations.

  No nation can achieve sustained economic growth without lowering its own trading barriers. If one country shuts off its market, it forces its workers to work harder and for less than those in other countries. In the end, its industries will suffer losses and decline.

  For economies to grow, nations must open their markets to each other. Recognizing this fundamental truth, the ASEAN countries have agreed to open their regional market, just as large regional markets have been opened in Europe and North America.

  Vietnam's annual per capita income is only $300, far below that of many neighboring countries. Vietnam cannot wait until local economic conditions have improved to open its markets. Vietnam's companies cannot be made stronger by shielding them from international competition - quite the opposite. The only proven way for Vietnam to industrialize and modernize is to expose its industry to domestic and international competition and obtain access to new markets and better technology through trade.

   

• How Vietnam's Economic System Could Change

  The BTA is a roadmap for making practical changes gradually over a number of years. Vietnam must make these changes anyway to integrate economically and join the World Trade Organization (WTO). Trade liberalization will be implemented along with other types of economic reforms. The changes will be beneficial, not harmful. Here are the gains we envision from these changes.

  Vietnam will have many enterprises, not just a few, in each sector. Small and medium enterprises will expand and prosper. The competition among those enterprises will generate more jobs and lower the cost of goods and services.

  In the future, industries will use new technology to increase the output per worker. They will be able to pay higher wages because workers will produce more. People will have more leisure time to enjoy sports and other activities. Entertainment, tourism, and sports will generate still more income and jobs.

  Vietnamese will be able to buy higher quality goods at lower prices. New marketing methods will be implemented.

  A sound and efficient financial system will channel savings to the most productive uses. More people will open bank accounts, domestic savings will rise, and obtaining loans will be easier and at lower interest rates. Accounting practices will be standardized.

  Laws and regulations will be more open and transparent. Streamlined processes for governmental approvals and permits will reduce bureaucracy and corruption. Government officials will be better paid and educated.

  Industries will demand and support the development of an educational system appropriate to the needs of a modern economy. The emphasis will be on skills like languages, mathematics, science, and also social studies like government, law, economics and finance.

  As incomes rise generally, opportunities for higher education will increase. Almost everyone will finish high school. Universities will have the funding needed to increase their enrollment, allowing many more people to go to college.