A Growing Climate for Trilateral Economic Cooperation

June 19, 2015 Topic: Economics Region: Asia Tags: JapanVietnamUnited States

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.

Can the United States and Japan Settle Their Differences?

In order for the United States to take a strong leadership role in bringing the TPP negotiations to a successful conclusion at an early stage, it will be necessary for Washington to accept reasonable compromises, rather than demand a full free-market order. Clearly President Obama is faced with a dilemma. Should he lower certain standards that are part of the TPP, it may be accepted by Asian countries, but it may hurt the United States over the long term. Obama would clearly be in a better negotiating position if the U.S. Congress granted him Trade Promotion Authority—which it has not as of this writing.

China’s Asian Infrastructure Investment Bank Plan: A Cautionary Note

Both Japan and the United States are cautiously watching China’s ambitious plan to establish an Asian Infrastructure Investment Bank (AIIB). The proposed bank already has over fifty nations as founding members. China’s emerging leadership in financing a large amount of capital through the bank may obstruct the U.S. leadership in expanding the TPP. It should be noted that Vietnam has already applied to join the bank. However, it is too early to tell whether Vietnam’s membership in the AIIB will complicate economic cooperation with Japan and the United States.

Official Development Aid to Vietnam: U.S. and Japanese Efforts

Japan’s Contribution

After thirteen years of Japanese economic sanctions against Vietnam over the latter’s invasion of Cambodia in late December 1978, Tokyo resumed official development aid (ODA) in 1992. Today Japan is the largest aid donor to Vietnam. Since 2011, its ODA has exceeded 200 billion or $2.5 billion ($1=¥80) per year, although it consists mostly of yen-based loans (see table below). In addition, Japan has provided grants and assistance for technical cooperation. Tokyo is extensively engaged in providing ODA in various fields, including basic infrastructure, urban sewer and drainage systems, rural development, environmental management, health-care services, human-resources development, and so on.

Japan’s recent infrastructure projects in Vietnam include the new Tan Son Nhat International Airport in Ho Chi Minh City, the 1,200-meter Can Tho Bridge in the Mekong Delta, the 6.3-kilometer-long Hai Van Pass Tunnel in Danang (the longest tunnel in Southeast Asia), and railways in Hanoi and Ho Chi Minh City modeled after the Tokyo Metro.

Japanese infrastructure projects occasionally suffer from graft scandals between Vietnamese and Japanese companies. In June 2014, for instance, Japan temporarily suspended new ODA to Vietnam over a large corruption scandal between the Vietnam Railway Corporation and the Japan Transportation Consultants, although it resumed later.[7] In a 2014 survey, in terms of corruption levels, Vietnam ranked 119 out of 175 countries; Japan, 15; and the United States, 17.[8]

America’s Contribution

The United States began to provide humanitarian aid to Vietnam after 1991, when about $1 million was given to Vietnam War victims. After President Bill Clinton lifted the trade embargo in 1994, contacts became closer with more aid beginning to flow. However, U.S. aid efforts were often hampered by frustration with Vietnam’s initial slow cooperation in providing information about American prisoners of war (POWs) and soldiers missing in action (MIA). Hanoi also had its share of frustrations related to the Vietnam War. For example, there are many mines that were buried throughout the countryside during the conflict that have to be cleared before infrastructure improvements can commence.

Most U.S. assistance has been in the areas of food and health, such as aid for the victims of HIV-AIDS and bird flu. Aid has also been provided for demining, economic liberalization reform, counternarcotics, anticorruption, rule of law, and so on.

The Mekong Delta Development

The Mekong River Basin is inhabited by the sixty million people of Laos, Cambodia, and Vietnam—85 percent of whom are engaged in agriculture. Their lives depend upon fishery resources in the river and agricultural products that rely on rainfall and irrigated river water. The Mekong River also provides a critical means of transportation. Japan and the United States share commitments to support Mekong River Basin development, as they are concerned about the gap in economic-development levels among ASEAN members, with the Indochinese members lagging behind. The “ASEAN divide” complicates its economic integration process, a process by which ASEAN is scheduled to reach the stage of “economic community” by this year.

Japan’s Role

In December 2006, Japan introduced what was called the Japan-Mekong Partnership Program. Tokyo started a process to enhance its relations with five Southeast Asian countries that share the river—namely, Cambodia, Laos, Myanmar, Thailand, and Vietnam. In 2008 and 2009, it held foreign- and economic-ministers meetings. In November 2009, Prime Minister Yukio Hatoyama held the first summit meeting with the five heads of government from the region and issued the Tokyo Declaration, which stressed the “comprehensive development” of the Mekong region. The document referred to the need to develop hard and soft infrastructure, public-private cooperation, and the environment. Tokyo committed ¥500 billion or $6.25 billion ($1=¥80) for the following three years.

America’s Role

Similarly, the United States proposed the Lower Mekong Initiative in July 2009, when Secretary of State Hillary Clinton held a ministerial meeting with her counterparts from Cambodia, Laos, Thailand, and Vietnam in Phuket, Thailand. With respect to lower Mekong subregional economic integration and sustainable growth, they recognized their shared concern for such issues as agriculture and food security, connectivity, education, energy security, health, and the environment.

Sharing the same concern for the environment, Japan and the United States have moved to support the environmental projects of the Mekong River Commission (MRC), composed of Cambodia, Laos, Thailand, and Vietnam, with Myanmar and China as observers. The MRC had been in existence since 1995, but its presence had declined due to other competing mechanisms.

Both Washington and Tokyo are also concerned over China’s and Laos’ water dams in the upper Mekong River and their economic impact on the lower Mekong River region. This is one area where Japan and the United States can work together for the benefit of Vietnam.

Nuclear Energy: An Emerging Facet of Enhanced Trilateral Cooperation

Vietnam’s Energy Needs

As Vietnam’s economy becomes more industrialized, it will naturally demand increasing amounts of electricity. Today, over one third of its electricity comes from hydro, one third from gas, and the rest from coal or Chinese imports. Electricity demand is projected to grow from 21 GWe (gigawatt electrical) in 2010 to 64.8 GWe in 2020 and to 125 GWe in 2030.[9] By 2030, Vietnam plans to have about 10 percent of its electricity provided by nuclear energy.

Will Vietnam Really Embrace Nuclear Energy?

Vietnam’s quest to acquire nuclear energy has seen early success followed by growing challenges. Hopes ran high when construction of two nuclear reactors began in 2014, with operations to start in 2023. Reactors were to be built by Russia at Phuoc Dinh in Ninh Tuan Province in southern Vietnam. Two were supposed to be built by Japan and be operational sometime between 2024 and 2025. Prime Ministers Naoto Kan and Yoshihiko Noda visited Hanoi in October 2010 and August 2011, respectively, to promote a nuclear power plant. Despite the earthquake and tsunami that hit Fukushima Daiichi nuclear power plants in March 2011, Vietnam was still willing to go ahead with plans to build fourteen nuclear-power reactors by 2030.

Cooperation between Washington and Hanoi seemed to cement a bright future for Vietnamese nuclear energy. In 2010, the United States and Vietnam agreed to work on a bilateral agreement for peaceful nuclear-energy cooperation, or what is known as a “123 agreement.” In 2013, Secretary of State John Kerry and Foreign Minister Pham Binh Minh reached an agreement under which America would be able to make its nuclear energy–related equipment, materials, and expertise available to Vietnam. The Nuclear Energy Institute estimated that Vietnam’s nuclear-power programs would result in $10 billion to $20 billion in business for U.S. companies.[10]

However, the Vietnamese government stated in January 2014 that it would delay the construction of both Russia- and Japan-designed nuclear reactors to 2020.[11] Vietnamese citizens’ concerns about nuclear safety were a major contributing factor. Additionally, various member of the U.S. Congress were concerned about Vietnam’s lack of human rights and fears of acquiring such technology—all factors contributing to slowing bilateral cooperation on nuclear energy. While such concerns certainly have merit, Vietnam had already signed a safeguards agreement with the International Atomic Energy Agency (IAEA) and had become a party to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT). Hanoi has also promised not to engage in enriching uranium. The U.S. government fears that prolonged talks with Vietnam will deprive U.S. firms of business opportunities in this field—a field that consists of competitors such as Canada, China, France, Japan, South Korea, and Russia.

If and when the Vietnamese government becomes ready to resume nuclear-energy development, Japan and the United States may well coordinate their policies in assisting Vietnam’s civilian nuclear program.

Prospects for Trilateral Economic Cooperation

In 2013, Japan and Vietnam celebrated the 40th anniversary of their diplomatic ties. The United States and Vietnam will celebrate the 20th anniversary of their diplomatic relations this year. Both nations have had different types of relations and interactions with Vietnam during this period. Their mutual contacts have deepened the trilateral interdependency among the three countries, although it is not a balanced interdependency.