Sign of a Deepening Relationship: Vietnam’s Communist Party Leader Visits the United States

By Edward Barbour-Lacey

HCMC – In a historic meeting this week, the President of the United States met with Nguyen Phu Trong, the General Secretary of the Communist Party of Vietnam. This type of high-level meeting has not occurred since the two countries normalized relations 20 years ago. Both countries are eager to deepen their relationship, particularly as China continues to expand its power in the Asian region. A key part of this deepening relationship is the Trans-Pacific Partnership (TPP) trade deal, which involves twelve countries including Vietnam.

In a month that also marks the 40^th year since the end of the Vietnam War, the two leaders discussed a range of issues, including trade, climate change, and defense cooperation. President Obama stated that “Obviously, there has been a difficult history between our two countries in the 20^th century and there continues to be significant differences in political philosophy and political systems…What we have seen is the emergence of a constructive relationship that is based on mutual respect and that has benefited the people of both countries.”

Chief among the issues discussed by the two leaders was the ongoing negotiations over the TPP. The United States Senate recently passed a Trade Promotion Authority (TPA) bill that will greatly expand President Obama’s trade negotiating authority on agreements such as the Trans-Pacific Partnership (TPP). The TPA, also referred to as “fast-track”, will allow the President to negotiate free trade agreements and then submit them to Congress with no amendments or filibusters allowed, with only an up or down vote on the entirety of the trade deal. It is hoped that this measure will speed up the progress of the TPP.

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Upon completion, the TPP trade area would comprise a region with US$28 trillion in economic output, making up around 39 percent of the world’s total output.  The agreement will remove tariffs on almost US$2 trillion in goods and services exchanged between the signatory countries.

On the defense side, the U.S. is working to authorize US$425 million for the Department of Defense to aid in the training and equipping of militaries in Southeast Asia, including Vietnam. In particular, this will include helping to build up these countries maritime forces. This action is seen as an effort to counterbalance China in the region – the Asian giant has been increasingly aggressive in its territorial claims in the South China Sea (referred to as the East Sea by the Vietnamese).

Made in Vietnam

As their trade relationship has continued to deepen, Vietnam has been increasingly viewed by U.S. businesses as a key investment location in Asia – the country has become a clear leader in low-cost manufacturing and sourcing. In a business outlook survey published by the U.S. Chamber of Commerce at the end of last year, Vietnam was ranked as the second most popular destination for U.S. business expansion among the member states of the Association of Southeast Asian Nations (ASEAN). In April of this year, America became the seventh largest investor into Vietnam – with more than US$11 billion. U.S. businesses are now represented in 17 out of 21 of Vietnam’s industries.

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While the textile industry continues to represent a significant proportion of Vietnam’s economy – the country recently became the world’s fourth largest textile exporter – other industries, such as the electronics and automotive industries, are also seeing strong growth. For example, companies like Samsung, Intel, LG Electronics, and Nokia have made large investments into the country.

Helping this growth across all of Vietnam’s industries has been the increasing trend of businesses relocating their operations from China to Vietnam in an attempt to escape rising costs and an increasingly complex regulatory environment. Located in a strategic position for foreign companies with operations throughout Southeast Asia, Vietnam has emerged as an ideal export hub to reach other ASEAN markets.

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In addition, Vietnam is also seeking to improve its general business environment in order to make the country more attractive to foreign investors. Chief among these changes, the government is removing over 3,000 legal requirements for businesses through amendments to the country’s Law on Business and Law on Investment. Other changes include the modernization of payment systems; for example, it is now possible to use e-payment for such things as import and export duties.

The continuing improvement of its business environment mixed with the possibility of greatly expanded trade opportunities as a result of the TPP and other trade agreements will ensure that Vietnam is strategically placed in the future global economy. While already an attractive investment destination for U.S. investors, Vietnam is set to be one of the most important locations in Asia for American businesses.

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In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.

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