A Growing Climate for Trilateral Economic Cooperation

Time for the United States, Japan and Vietnam to further increase their economic cooperation, paving the way for new trade and investment relationships.

Recent events are merging with shared strategic interests to form the basis of a strong economic partnership between the United States, Vietnam, and Japan. In July 2013, when Vietnamese president Truong Tan Sang visited Washington for the first time and signed an agreement with U.S. president Barack Obama regarding a bilateral “comprehensive partnership,” it created a strong foundation for future economic cooperation between the three nations. In 2008, Japan and Vietnam signed a bilateral economic partnership agreement (EPA)—the first such agreement for Hanoi. All three nations are also members of the World Trade Organization (WTO) and Asia-Pacific Economic Cooperation (APEC), and are all aspirants to the Trans-Pacific Partnership (TPP), which could boost their economic ties considerably.

While all three countries share various common interests, they also differ in several important points of comparison. For example, all three countries have different population sizes (Japan: 127 million, United States: 325 million, and Vietnam: 93 million). All are in different stages of economic development (See table below: GDP per capita in 2013: Japan: $38,634, United States: $53,042, and Vietnam: $1,910), urbanization, and globalization, and have distinctive political histories due to different political systems. Their dissimilar geopolitical environments affect their respective priorities for the distribution of their national resources. Yet there is a growing climate for closer economic cooperation between all three nations. A look at specific opportunities in several key areas clearly demonstrates how trilateral cooperation can be enhanced. These include: (1) stronger economic ties between Japan and Vietnam and between the United States and Vietnam in the realms of trade and investment; (2) the TPP; (3) development aid to Vietnam; (4) Mekong Delta development; and (5) nuclear energy.

Table 1

Vietnam: An Economic Opportunity for Japan and the United States

Vietnam’s Enhanced Trade Status

According to 2013 trade statistics, Japan ($25.2 billion) was the fourth-largest trading partner for Vietnam after China ($50.2 billion), the United States ($29.7 billion), and South Korea ($27.3 billion).[1] Vietnam held a large trade deficit with China and South Korea, whereas it had a large trade surplus with the United States ($24.7 billion for exports and $5.0 billion for imports). Japan had a fairly balanced trade relationship with Vietnam (See Table below: $11.6 billion in exports and $13.6 billion for imports).

Table 2

The United States entered the Vietnamese market later than Japan did. Washington and Hanoi normalized their official relations in 1995, whereas Tokyo established diplomatic relations in 1973, twenty-two years earlier. During the Vietnam War, Japan was already a large trading partner of South Vietnam. It began to extend economic aid to unified Vietnam after 1975. However, in 1978, when Vietnam invaded Cambodia, Japan imposed economic sanctions, except for humanitarian aid, until 1991 when sanctions were lifted.

The United States imposed a trade embargo on all of Vietnam in 1975 and prohibited all bilateral trade activities. It was not until 1994 that the United States lifted its trade embargo. A bilateral trade agreement (BTA) was signed in July 2000, with trade quickly growing thereafter.

In 2006, the U.S. government granted permanent, normal trade-relations status to Vietnam, which was part of Vietnam’s accession to the WTO. In 2007, Vietnam joined the WTO as the 159th member. Vietnam and the United States concluded a trade and investment framework agreement (TIFA) that year. The two governments’ representatives met on a regular basis under the TIFA to implement Vietnam’s WTO commitments and resolve their economic- and legal-reform issues. In 2013, trade between the United States and Vietnam totaled $29.7 billion. Vietnam was the twenty-ninth-largest trading partner for the United States, but the United States was the second-largest trading partner for Vietnam after China.

Main Imports, Exports, and Points of Contention

In 2013, Japan’s main exports to Vietnam were apparel (17.5 percent) and crude oil (15.3 percent), while its main imports from Vietnam were machinery and equipment (25.5 percent), computer-related equipment and parts (15.6 percent), and iron and scrap (12.5 percent).[2] Top U.S. exports to Vietnam included agricultural products (23.2 percent), food manufactures (16.3 percent), and computer and electronic products (14.3 percent), whereas top U.S. imports from Vietnam were apparel and household goods—cotton (17 percent), apparel and other textiles (16 percent), and furniture, household items, and baskets (11 percent).[3]

Both Tokyo and Washington are concerned over the large role that state-owned enterprises still play in Vietnam over the industrial sector, such as mining and energy, and also the formal and informal control by the Vietnamese government over prices in the market. America treats Vietnam as a “nonmarket economy” under its trade law, while Hanoi wants this designation to be changed to “market economy.” Yet on the whole, the Vietnamese economy is growing quickly, providing benefits to both itself and its two partners.

Expanding Investment