Vietnam and the United States have traditionally had a poor trading relationship. The U.S.--Vietnam war era embargo was not lifted until 1994, during the Clinton administration. Trade increased slowly with high custom duties on both sides until a bilateral trade agreement (BTA) was reached in 2001. The BTA provided a great opportunity for Vietnam because reduced customs duties made imports to the U.S. much cheaper than before. This resulted in significant growth in imports from Vietnam to the U.S. This opportunity also helped Vietnam to achieve normal trade relations (NTR) status with the U.S. and to prepare for membership in the World Trade Organization (WTO).
Results of the BTA
Goods from Vietnam became significantly cheaper as a result of the reduction in tariffs. The average rate of duty fell from 40 percent to 3 percent on imports from Vietnam. The increase in imports resulted from the reduced tariffs because the demand increased as a result of lower prices. U.S. imports from Vietnam showing the biggest gain in the period right after the BTA were footwear, textiles and appeal products.
The current leading imports from Vietnam are cotton apparel and crude oil, while the fastest growing imports are nuts and industrial rubber.
Normal Trade Relations
President George W. Bush granted Vietnam unconditional NTR status with the U.S. at the end of 2006. A short time later in January 2007, the U.S. removed quotas on textile and apparel imports from Vietnam. This was necessary to comply with the U.S. WTO bilateral market access agreement and also to accord Vietnam consistent treatment provided to other WTO members.
World Trade Organization
Vietnam was approved for membership in the WTO in November 2006 and formally became its 150th member in January 2007. This represents a significant step in Vietnam's economic progress and reaching goals set by the government to become a middle income country by 2010.
Trade Investment Framework Agreement
In June of 2007, A U.S.--Vietnam trade and investment framework agreement was signed. The United States and Vietnam have been working on a bilateral investment treaty, which should result in increased investment by U.S. companies in Vietnam leading to greater economic influence in the region for the U.S. Also, many of the goods produced as a result of U.S. investment will most likely end up being imported to the U.S., resulting in economic gain for both countries.
Economic Recession
The 2008 global recession caused a general reduction in demand for products from overseas; this caused imports from Vietnam to plummet 45 percent in 2008. As of February 2009, the price of 23 of Vietnam's 25 export products has fallen sharply. The price declines are lead by crude oil prices. Even though this product saw an increase in demand in January 2009 of 12 percent by volume, shipments decreased by 52 percent in value. Garment shipments fell 33 percent, and footwear shipments fell 26 percent, as many orders from the U.S. and Europe were canceled in November because of an anticipated slow Christmas season. Rubber fell 43 percent and pepper fell 20 percent as orders have been reduced by large importers such as the U.S and E.U. The recession is a temporary situation; there is no reason why imports from Vietnam to the U.S. will not continue to grow in the long term as the economy recovers and demand is restored.
