Statement of Timothy J. Hauser

Deputy Under Secretary for International Trade

U.S. Department of Commerce

Testimony Before the Subcommittee on Asia and the Pacific

of the House Committee on International Relations

Hearing on Trade Relations between the United States and Vietnam

"Prelude to New Directions in U.S.-Vietnam Relations: The 2000 Bilateral Trade Agreement"

September 19, 2000

Introduction

Thank you, Mr. Chairman and members of the subcommittee for your invitation to the Department to testify before you today. I am extremely pleased to represent the Department of Commerce before this subcommittee.

Assistant Secretary Roth and Ambassador Barshefsky have already addressed the evolving relationship between the United States and Vietnam and the Bilateral Trade Agreement (BTA). I would like to focus on the economic and commercial aspects of our normalizing relationship, and how they permeate all other aspects of our bilateral relations.

Change in Vietnam

Vietnam is changing in fundamental ways, and U.S. policy is providing both the catalyst and the framework for this sea change. The catalyst is the promise of economic success; and the framework is the BTA. I've been watching this process of change closely since the spring of 1996, when I led the first U.S. Government trade mission to Vietnam. More recently, our Deputy Secretary Robert Mallett, experienced this palpable energy of change last month when he went to Vietnam. It was the first high-level USG visit to Vietnam following the signing of the BTA on July 13. I would like to share a few of our impressions of this process of change with you as I talk about the evolving commercial landscape in Vietnam.

To be sure, the BTA itself was more than 4 years in the making, and, as Ambassador Barshefsky noted, there are phase-in periods for Vietnam to make the needed structural changes. Change does not come quickly or suddenly there. But the Administration's steadfast policy based on constructive engagement is paying good dividends. In hindsight, the years of protracted negotiations were themselves an education process that gave the Vietnamese government the time it needed to come to a consensus on the pace and scope of economic reform. As such, this process helped build a basis for the implementation of the provisions of the Trade Agreement once it enters into effect, as well as for taking further steps toward WTO accession.

During the Deputy Secretary's visit, he met a broad range of American and Vietnamese business executives and Vietnamese officials. To a person, they were enthusiastic about the signing of the BTA. While they understand and accept that final approval of the trade pact is due to the constraints of the Congressional calendar, all await the potential benefits of the BTA's entry into force.

The renewed enthusiasm is reminiscent of the euphoria over the lifting of the embargo and the establishment of diplomatic relations in 1994-95. I saw this enthusiasm in 1996, and I am seeing it again today. Now, as they were then, companies are attracted to this "new frontier" by very attractive fundamentals of a young and industrious population, the world's 13^th largest at 77 million, and a good base of natural resources.

Over the intervening four years, it is true that a number of companies became disillusioned by the difficulty of doing business and turning a profit in an economy in transition. An economy where the cost of doing business is extremely high and government policies are often schizophrenic, reflecting Vietnam's self-described "multisectoral economy, operating on market-based principles under state management and with a socialist orientation." The Asian Financial Crisis compounded the difficulties for all parties involved, but also helped focused the Government of Vietnam's attention on the need for economic reform, if only to maintain precipitously declining foreign direct investment.

But I believe the renewed business enthusiasm for Vietnam that we are now seeing is fundamentally different from the unsustainably high expectations of the first wave. American firms are taking a second, more realistic, look at this challenging market. Our businesses - which as a result of the embargo were playing catch up with companies from other countries - have gained in-country experience over the past five years that will be invaluable to their future competitiveness in the Vietnamese marketplace. We saw this last month in the discussion the Deputy Secretary had with members of the 400-strong American Chambers of Commerce in both Hanoi and Ho Chi Minh City. These pioneering businesspeople have experience-based optimistic, but realistic, expectations of business opportunities in Vietnam.

On the Vietnamese side, we also see very encouraging developments. Government officials who hosted the Deputy Secretary, including the Deputy Prime Minister and other cabinet Ministers, all pledged support for the implementation of the BTA. The Vietnam Chamber of Commerce and Industry strongly supports the agreement as well. And, in a telling indicator of the interest in change in Vietnam, the Vice-Chairman of the People's Committee of Ho Chi Minh City gave the Deputy Secretary a PowerPoint presentation of his brain child, a software city that he hopes to put into operation with the help of an American company. In recent days, Vietnam's first Securities Exchange, eight years in the making, opened in Ho Chi Minh City. And roundtable discussions with young Vietnamese entrepreneurs in Ho Chi Minh City show a people who are confident in their ability to compete in the global market place. None of this existed five years ago.

The signing of the BTA was, without question, the single most significant indication of the direction Vietnam is taking toward the future. This bold decision proved conclusively that the significant portions of Vietnamese leadership which are favorably disposed toward a more liberal economic regime are alive and well, and have won support for the BTA. Approval and implementation of the BTA is critical to the continued health and influence of these forces, and their ability to undertake greater reforms, including progress toward Vietnam's accession to the WTO.

Just as the BTA provides the much needed framework for economic normalization between the United States and Vietnam, commercial activities are the glue that holds the relationship together and gives it life. Trade and investment activities take on dimensions far beyond profit-making purposes. American companies now have opportunities to build relations that have never before existed in the history of U.S.-Vietnam relations. Their success can bring positive changes to all aspects of the new bilateral relationship, including sensitive areas such as human rights and religious freedom. They are already well-recognized as the best employers. Our business community is playing a key role in fostering the new relationship. Indeed, it is a major force in helping the Vietnamese realize their goal of becoming "a rich people, a strong country, and a civilized society."

But we are under no illusions about this new relationship. Vietnam is still a country in transition. Much work remains to be done in the implementation of the BTA. Progress will not be easy, fast, or necessarily even smooth, but it will be unstoppable. Liberalization will take place faster in some sectors (insurance) than others (telecommunications). Vietnam is now on the path toward integration into the global economic community. Signing the BTA was a significant step down that path, but implementation is the key to that journey.

The Commerce Department will work with USTR to monitor implementation of the agreement. We will work with our embassy staff in Hanoi, our consulate in Ho Chi Minh City, other USG agencies, and U.S. companies and business organizations to see that Vietnam adheres to the commitments that it has made. As leading members of Congress have noted before, it is important to do the hard work of monitoring the agreements and determining the degree to which countries comply with them. Key areas we will focus on include:

• Customs: Vietnam has agreed in the BTA to comply with WTO rules, such as using transactions value for customs valuation, in two years. Timely customs clearance is important to expanding market access for U.S. companies in Vietnam.

• IPR: The protection of IPR is a priority market access issue for U.S. firms around the world. Vietnam has committed in the BTA to full TRIPs-level patent and trademark protection in 12 months, and full TRIPs-level copyright and trade secrets protection in 18 months. We will be monitoring this closely.

• Business Facilitation: The BTA ensures that U.S. persons can conduct routine business practices, such as setting up offices, advertise, and conduct market studies. These are the kind of day-to-day doing business issues that we take for granted, but that can be very complicated in Vietnam. Our Commercial Service presence in both Hanoi and Ho Chi Minh City will greatly enhance our ability to work with the U.S. business community to monitor these important provisions of the BTA.

But we also need to help the Vietnamese make the agreement work. During the BTA talks, our negotiators told the Vietnamese side that the U.S. would help them implement the provisions of the agreement with phase-in periods and technical assistance. Deputy Secretary Mallett reaffirmed this commitment during his visit. Commerce has already undertaken a range of technical assistance initiatives in a number of disparate areas. For example, I signed the memorandum on cooperation on commercial law development during my visit in 1996. Since then, Commerce has provided assistance in other areas, such as insurance regulations, standards workshops, IPR training, and meteorological and fisheries cooperation.

To date, most of these efforts have been done on an ad-hoc basis. We need to do more. A comprehensive, targeted technical assistance program would be a key investment in this new relationship. The fundamental reforms that Vietnam has committed to in the BTA will not be easy, and will require a deeper and fuller understanding of how a government regulatory system functions in a more market-oriented economy. Elements of an assistance program could be shaped so as to raise Vietnamese officials and business people's understanding of the BTA and help ensure full and timely compliance with provisions of the agreement. Clearly, Vietnam needs our assistance and we need to think creatively about how the Government and the private sector can work together to ensure that an effective technical assistance program is developed and implemented.

Conclusion

The newly-signed U.S.-Vietnam Bilateral Trade Agreement provides us with a solid foundation upon which we can explore new directions for U.S.-Vietnam relations through mutually beneficial and equitable commercial trade and investment. When the BTA is submitted to Congress, I hope that the BTA will enjoy the same strong support as the Jackson-Vanik waiver did last July.

Thank you.

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