New legislation has normalized trade between the US and Vietnam, dovetailing with the communist nation’s entry into the World Trade Organization (WTO) this week. The bill gives Permanent Normal Trade Relations (PNTR) status to Vietnam, ending the need to review trade terms each year.

 

The provision sparked controversy at the end of the rancorous 109^th Congress. Some legislators, critical of Vietnam’s human rights record, opposed the measure, which had the support of the Bush Administration. The provision was part of the Tax Relief and Health Care Act of 2006, a $40 billion tax and trade bill that also created trade benefits for other developing nations and extended popular tax breaks for individuals and businesses.

 

Among other provisions, the Act also confers temporary preferential trade status to the Andean nations of Bolivia, Colombia, Ecuador and Peru. It also gives import tax breaks for textiles from Africa and Haiti.

 

On January 11, Vietnam was sworn in as a member state of the WTO. Vietnam got the nod from the WTO’s General Council in November, following 11-year long negotiations to join the world's largest trade body. Last month, the Southeast Asian nation ratified the membership agreement domestically, making it eligible to become the WTO’s 150^th member 30 days later.

 

As a member of the WTO, Vietnam is required to comply with WTO rules in their bilateral trade relations, including restraint from unilateral measures, such as quotas, that are not sanctioned by the WTO. Membership is important to Vietnam because it affords the protection of the multilateral system of rules in its trade relations with other WTO members, including the US.

 

Today, Vietnam is one of the fastest growing economies in Southeast Asia, a market of more than 84 million people. US-Vietnamese trade has grown to total over $8 billion dollars, a fivefold increase since 2001.

 

Full trade relations are needed for the US to offer the lowest possible tariffs and benefit mutually from membership in the WTO. Trade normalization also marks another step toward reconciliation of the two countries following the Vietnam War. The two countries normalized political relations in 1995, and signed a bilateral trade agreement in 2001. In return, Vietnam agreed to a host of trade liberalization measures and market-oriented reforms.

 

Until now, US-Vietnam trade has been governed by that bilateral agreement. The US-Vietnam Bilateral Trade Agreement, negotiated and signed under WTO principles, conferred mutual Most Favored Nation (MFN) status. Under MFN status, the US and Vietnam offered each other’s goods the same treatment as those of other countries. More favorable tariffs negotiated with third parties, for example, would also be applied to US-Vietnam trade. An exception was special status accorded other countries within a free-trade area, such as under the North American Free Trade Agreement (NAFTA).