The United States and Vietnam today signed a bilateral trade pact that removes one of the last barriers to that country’s accession to the World Trade Organization (WTO). Because U.S. imports from Vietnam already receive “normal trade relations” (NTR; formerly known as “most favored nation”) duty status under a mechanism that must be renewed annually, today’s act will not have any immediate impact on U.S. import duties for most products. However, conclusion of a trade agreement with the United States paves the way for Vietnam to receive NTR duty status on a permanent basis, without the necessity for annual renewal, and also completes a process necessary for that country to join the WTO. These actions could open the door down the line for duty reductions. On the other side of the equation, U.S. exports to Vietnam stand to gain beneficial treatment once the agreement takes effect since Vietnam has agreed to reduce its duties on U.S. exports of U.S. manufactured and agricultural products.
The agreement signed today is different than a free trade agreement (FTA). Whereas an FTA creates a duty-free or almost duty-free environment for trade between two or more nations, the type of bilateral trade agreement signed today establishes the basis for “normal” trade relations for two countries that lack a systematic set of rules governing economic relations between the countries.)
Today’s bilateral agreement must be approved by the U.S. Congress. The current expectation is that Congress will act on this matter before the August recess. However, with so many other priorities currently before Congress – on trade issues as well as a plethora of other issues – that timing may be in doubt. If Congress does not act on the agreement before the August recess, it may slip into 2007, as election-year pressures begin to crowd out other priorities for the remainder of the 2006 Congressional session.
Bilateral trade between the two former enemies increased from just under $1 billion a year in 2002 to $7.8 billion in 2005, most of it in imports from Vietnam. As the Vietnamese economy continues to grow at an impressive rate, it is widely expected that two-way trade will jump significantly if and when the bilateral agreement becomes effective.
